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Former Employee Wages 4 Year Battle Over Form U5 Expungement
Written: April 24, 2012

A registered person battles his former employer over Form U5 language

According to online records of the Financial Industry Regulatory Authority (“FINRA”), Jeffrey Wayne Prior was first registered in the securities industry around 2002, and during the relevant period of 2008, he was employed at Compass Brokerage, Inc., which is now known as BBVA Compass Investment Solutions, Inc. (“Compass”).  About three months after starting employment at Compass, Prior was terminated in May 2008 and his Form U5 disclosed that he was “Permitted To Resign” on April 28, 2008, for the following reason (FINRA online disclosure as of April 24, 2012):


Other than the above incident, Prior’s industry record was unblemished.


Apparently, Prior took exception to the characterization of the reason for his permitted resignation and in July 2010 filed a FINRA Arbitration Statement of Claim alleging that Respondent Compass made a false and improper Form U5 disclosure. Claimant Prior sought an expungement of the cited language from his Form U5. In the Matter of the FINRA Arbitration Between Jeffrey Wayne Prior, Claimant, vs. BBVA Compass Investment Solutions, Inc, (f/k/a Compass Brokerage, Inc.), Respondent (FINRA Arbitration 10-03273, April 18, 2012).

Respondent Compass generally denied the allegations and asserted various affirmative defenses.

On October 18, 2011 the parties notified FINRA that they had settled their dispute, and provided aStipulated Award to the FINRA Arbitration Panel (consisting of two panelists following the withdrawal of the Chair). In accordance with the stipulations, the Panel considered the parties’ proposed Form U5 amendment and approved the terms.  Consequently, the Panel recommended the expungement of the prior Termination Commentcited above and proposed the following substitution:

Mr. Prior was permitted to resign after paying overtime pay to a ‘nonexempt’ salaried employee. Although Mr. Prior brought this to the attention of supervisors when the oversight was discovered, it still violated the bank’s payroll policies. Based on information currently known, Mr.Prior’s conduct did not violate FINRA rules and regulations or securities sales practice rules, nor did it result in any customer harm. This did not involve the purchase or sale of investments, securities or insurance.

Similarly, the Panel recommended conforming amendments to requiring Question 7F(1)The Panel also recommends the expungement of the Form U5 answer to Question 7F(1) from “YES” to “NO”:

Termination Disclosure


Did the individual voluntarily resign from your firm, or was the individual discharged or permitted to resign from your firm, after allegations were made that accused the individual of:

  1. violating investment-related statutes, regulations, rules or industry standards of conduct?
  2. fraud or the wrongful taking of property?
  3. failure to supervise in connection with investment-related statutes, regulations, rules or industry standards of conduct?

Finally, the Panel recommended the deletion in its entirety of the accompanying Disclosure Reporting Page (“DRP”).

Bill Singer’s Comment

Alas, welcome to the overly-complicated, oft-times Byzantine world of modern day banking and securities brokerage. For example, consider that the indefatigable Claimant Prior had the misfortune of holding a job that his former employer could only somewhat explain as the FINRA brokerage “FIRM’S PARENT BANK’S BRANCH MANAGER.” Hey, knock yourself out trying to parse through that.

Next, take a gander at the timeline for this meandering mess of a dispute. Prior was permitted to resign in 2008. About two years later, this arbitration was commenced. In October 2011, the parties settled but, somehow, it took over six more months for the FINRA Arbitration Panel to issue this expungement decision.

Frankly, I can’t even begin to comprehend why the parties wasted nearly four years on this case — it would seem that reasonable minds should have realized that a more comprehensive explanation of the circumstances was a fair resolution of the dispute.  As to whether Claimant or Respondent was the naysayer to the proposed compromise is not known to us but given the final version of the Form U5 explanation, I suspect that the firm was largely dragging its heels — but I could be wrong with that assumption and will stand corrected if that’s the case.

I don’t like — actually “detest” would be more appropriate — a four-year-old Form U5 that in 2012 still notes that a employer/firm “suspects” some wrongdoing as the basis for a termination. At some point either you have or have not formed an opinion. It’s the old put-up-or-shut-up. It is unfair when FINRA permits member firms to litter regulatory filings with inconclusive allegations , particularly for several years.  At some point, the self-regulatory organization should require that the normal course of housekeeping requires a firm conclusion or the deletion of the suspicion from the filing.  These open-ended ruminations have terribly detrimental impacts upon registered persons lives. The landscape of litigation is filled with similarly situated employees of bank holding companies/bank parents/brokerage subsidiaries at Citigroup, JP Morgan, Bank of America, Wells Fargo, to name but a few. This is not an isolated occurrence.  This limbo has become a pervasive problem.

Finally, my compliments to Claimant Prior for understanding that when it comes to regulatory disclosures, “less” is not always better and “more” may, in fact, be preferred.  In this case, Prior had additional language added to the Form U5 that made the underlying situation clearer.  This was not an issue involving any theft of payroll funds or a kickback but a dispute over the payment of overtime authorized and paid to another employee by Prior. Furthermore, Prior’s U5 comment will now unequivocally states to anyone who reads his history that the basis for his resignation did not “violate FINRA rules and regulations or securities sales practice rules, nor did it result in any customer harm. This did not involve the purchase or sale of investments, securities or insurance.”

I mean, seriously, this took four years to negotiate?  On the other hand, who am I to complain?  I charge clients for such wizardry.


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