“While it may be unfortunate that prospective employers would give such great weight to a CRD Form U5 entry that simply states that a candidate had been ‘permitted to withdraw,’ this is, indeed, exactly what happened,” the finding continued. “As the entry, which also specified that it was ‘not compliance related,’ was truthful and accurate, it was not defamatory, and therefore this panel cannot order expungement. It should be noted that this in no way represents a conclusion that it was ‘correct’ or wise to terminate claimant. This award reflects only that the CRD Form U5 language was accurate in describing what happened.”
For brokers unable to influence the U5 language, going forward with arbitration may be the right move, though some consultants recommend against it. It’s costly and time consuming, and it sucks brokers’ energy when it might be better for them to simply move on.
“Every day that ticks by where you’re not registered is a day someone else is taking your clients,” Diamond said. “Forget about a year and a half. That doesn’t matter. In three months you won’t have a business.”
For those who do forge ahead in the fight, the next decision is one of practicality. When filing with Finra, claimants can choose between a single arbitrator or a three-arbitrator panel.
If the broker is simply looking for expungement of questionable termination language with no monetary claims (or a low one of up to $50,000), the dispute can be decided in a simplified arbitration process in which a single arbitrator reviews all the materials from all parties and renders a verdict without an in-person hearing, according to the Finra website.
For expungement requests plus monetary claims up to $100,000, the sides can still use a single arbitrator, but it will take at least one in-person hearing, which adds to the cost of the dispute.
And finally, for expungement plus monetary claims above $100,000, the case will go before a three-arbitrator panel, which is even more costly.
“You have to be prepared for a fight,” warned Sharron Ash, chief litigation counsel at Englewood, N.J.-based Hamburger Law Firm. “You have to be prepared they’re going to fight because a rep signed off and said it’s truthful and accurate. So this process can cost $60,000, $70,000, $80,000 or more.”
“Figuring out which is best really depends on the situation,” said Lax. “It’s a tough question, and cost is an issue. One arbitrator will be quicker.”
Not just quicker, but also more likely to land on the side of the broker—slightly.
Overall, the trend is that claimants are preferring to go the single arbitrator route. In 2015, 79% of U5 cases went before a three-member panel. By 2019, that had dropped to 58%, and as of last year just 33% of all cases, won or lost, went before a panel and 67% were before a single arbitrator.
At the same time, wins edged up to 72% for the single arbitrator and dropped to just 28% in the cases before a panel.
“If an advisor has not suffered any adverse impact because of a U5 disclosure and experienced no resulting difficulty getting employed in the industry and is only interested in having a clean record, then a single arbitrator may make sense,” said attorney Laurence Landsman, a founder at Chicago’s Landsman Saldinger Carroll, a law firm that specializes in representing brokers and advisors in all areas of career transition. “On the other hand, if the advisor’s career has been decimated by a false or defamatory U5 disclosure, as is the case with many of my clients, then the damages that the advisor suffered in the form of lost wages may very well require the three-arbitrator option.”
Rebuilding A Career When All Else Fails
It’s no exaggeration that the U5 can bring out the dark and dirty side of the broker-dealer business, and for decent men and women grappling with this gut-punch for whatever reason, the prospect of life—and a career—going forward with sunny days ahead may seem impossible.
But there is hope.
Papike has been working with advisors in this situation for 23 years. “That’s what I do,” she said. “I help them so it takes the least amount of time possible.”