FINRA Arbitration Panel Hammers Employee Seeking U5 Expungement

August 12, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2010, Claimant Anderson asserted causes of action including defamation arising from the allegedly  inaccurate and defamatory statements on his Form U5. Claimant sought unspecified compensatory and punitive damages, expungement of his Form U5, and other relief.  In the Matter of the FINRA Arbitration Between Thomas N. Anderson, Claimant, v. Fred Alger & Company, Inc., Respondent (FINRA Arbitration 10-00886, July 29, 2011).

Respondent generally denied the allegations and asserted various affirmative defenses.

A Loss And Then Some

The FINRA Arbitration Panel found that Respondent was found not liable and dismissed Claimant's claims with prejudice.

As to Claimant's Motion to Expunge language on his Form U5 as false and defamatory, the FINRA Hearing Panel determined that the following statement on Claimant's Form U5 was false but not defamatory:

Reason for Termination: PERMITTED TO RESIGN - IN LIEU OF TERMINATION.

The FINRA Panel recommended that the reason for termination be changed from Permitted to Resign to Discharged.

Further, the Panel recommended that expungement of the above commentary with:

THE FIRM TERMINATED MR. ANDERSON FOR WHAT IT DEEMED TO BE UNSATISFACTORY PERFORMANCE, VIOLATION OF COMPANY POLICY REGARDING USE OF UNAPPROVED SALES LITERATURE, AND SUBMISSION OF QUESTIONABLE REQUESTS FOR REIMBURSEMENT OF TRAVEL AND ENTERTAINMENT EXPENSES.

Bill Singer's Comment

I have no first-hand knowledge of this arbitration and do not know whether the Claimant insisted upon bringing this matter largely for the expungment, or whether other compelling circumstances were at play.  I fully allow for the fact that as between lawyer and client, there are discussions and pressures that we can never fully divine from a reading of an after-the-fact arbitration Decision. Frankly, been there, done that.

Given the results of this arbitration, in hindsight it appears that the Claimant should never have brought this case.  Not only did Claimant have to pay legal and forum fees. Not only did Claimant lose his claim for monetary damages. However, to add insult to injury, the FINRA Arbitrators recommended a so-called expungement that exacerbates the circumstances attendant to Claimant's termination and now puts his departure in a far worse light.  The U5 no longer states that the employee was Permitted to Resign but now uses the language of Discharged.   Additionally, the Panel's recommended explanation puts Claimant in a far less flattering light than the original, fairly bland statement.

Is there a reason that a former employee might prefer to have his record indicate that he was fired rather than permitted to resign? One obvious explanation is that the PTR could present challenges if one is seeking unemployment benefits - after all, the employee "quit" rather than await termination.  However, other than that consideration, within the confines of Wall Street, the Panel's proposed expungement is quite a tongue-in-cheek bit of sarcasm if its intent was to help out the Claimant.

I often urge my own law clients in such matters to be careful of what they wish for.  I've heard all the tough talk and posturing about why the former employee wants to jump into the ring against the former employer, show them who's boss, teach 'em a lesson, go down swinging, take a piece of them with me, and so on.  After the client has vented the anger, I try to set out the true financial and professional costs of winning and losing the case. Unfortunately, too many litigants refuse to consider that they may lose their cases.

Why not sue your employer if you are confronted with the same or similar language as in this cases?  For starters, I'd sure as hell would prefer to walk into an interview at a potential brokerage firm with the opportunity to explain what the U5 language of Permitted to Resign in lieu of termination really meant rather than have to confront the caustic and damning revision by the FINRA Arbitrators that suggests unsatisfactory job performance, use of unapproved sales literature, and expense reimbursement shenanigans.