RBC Ordered To Expunge DOJ References From U5

December 31, 2014

In a 2011 FINRA arbitration, a former-employee Claimant won over $5 Million against his former employer RBC Capital Markets; however, that ka-ching was not enough for him. The unhappy employee wanted his industry record expunged of all the nastiness that prompted his lawsuit, and this intrepid Claimant persisted in stalking his former employer until he got what he wanted. Read this recent case analysis by Bill Singer for details about this dispute.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2013, Claimant Schonhorst asserted libel and slander on his Uniform Termination Notice for Securities Industry Registration ("Form U5") and wrongful termination.  In the Matter of the FINRA Arbitration Between Mel H. Schonhorst, Claimant, vs. RBC Capital Markets, LLC and William Joseph Gumbert, Respondents (FINRA Arbitration #13-02311, December 16, 2014). Claimant Schonhorst sought to have his Form U5 amended to disclose:

  • that in July 2012, the United States Department of Justice ("DOJ") dropped its investigation of Claimant in accordance with a non-prosecution decision;
  • any applicable statutes of limitation had expired by August 2012; and
  • that he had been wrongfully terminated as more fully set forth in a prior arbitration that he filed in FINRA Case No. 10-03097.
For details as to that prior FINRA Arbitration No. 10-03097, READ: "FINRA Arbitrators Award Over $5 Million To Former RBC Employee" (BrokeAndBroker.com, November 18, 2011).

Turning Back The Clock

In that earlier 2011 arbitration, a FINRA Arbitration Panel found Respondent RBC liable for and ordered it to pay to Claimant Schonhorst:
  • $4,400,000.00 in compensatory damages;
  • $314,224.00 for Wealth Accumulation Plan; and
  • $483,871.00 for unpaid bonus.
The 2011 Decision explained that:

[T]he disputed statement on Claimant's Form U5 referenced his status as "subject of investigation" by a federal agency. In delving into the issue, the Panel noted that:

This was verified at the proceeding, by the United States Attorney General (USAG) to be a true and correct statement at the time it was placed on the U-5 and still, as of the close of the hearing, to be considered true and correct. We firmly believe that removal of this statement is not possible at this time, since the statue of limitations has not run as a possible action by the federal agency against the Claimant

Expungement of this statement will in no way change history or "un-ring" the bell. We suggest that at a future time the Claimant could seek an amended Form shedding light on the situation at the end of the pending FBI/USAG investigation.

. . .

We have an opinion that had the termination of employment been of a mutual decision and with a more level headed approach other than the reliance of information from an industry publication and a possibly overly quick reaction to such "news" the panel would not have been requested to hear and rule on what we consider to be 'thin' evidence.

Back To The Future

As a result of DOJ's July 2012 non-prosecution decision and the age of the matter, Claimant Schonhorst argued that he was no longer a subject or target of investigation with regard to any possible DOJ action related to his activities while an employee of RBC. Additionally, Claimant sought to further have his Form U5 amended to disclose that:

Claimant was wrongfully terminated as alleged in Count One, Breach of Contract, of Claimant's Statement of Claim in previously filed FINRA Case No. 10-03097 and to the extent it was found to be part of the basis for the Award issued in FINRA Case No. 10-03097.

Recap

Although things could have been spelled out a bit more clearly in the current Arbitration, what we essentially seem to have is a clear-cut 2011 FINRA Arbitration victory by Claimant Schonhorst over his former employer Respondent RBC. Notwithstanding the substantial monetary relief given by the Arbitration Panel to Claimant in the former case, there was an unresolved issue as to whether he remained subject to an ongoing DOJ investigation as of the date of the 2011 Decision. As explained in that earlier ruling, the 2011 Arbitration Panel declined to recommend the removal of the "under investigation" reference on Claimant's Form U5 because the federal statute of limitations had not run and it was conceivable that Schonhorst could still be subject to an ongoing or new investigation. Consequently, that Panel explicitly left the door open for an expungement application as a "future time."

Thus, we fast forward, in a sense, to August 2013, at which time Claimant Schonhorst sought an expungement of references to an ongoing federal investigation against him. In pressing his request to the FINRA Arbitrator hearing his case, he now notes that there are no remaining statutes of limitation and, to date, he has not been charged by DOJ.

No Contest

In its Answer to the current FINRA Arbitration Statement of Claim, Respondent RBC did not contest Claimant's claims to have his Form U5 amended to reflect objective, uncontroverted facts concerning Claimant's prior arbitration with RBC, or the status of the government investigation. Respondent Gumbert generally denied the allegations and asserted affirmative defenses.

On or about June 18, 2014, Claimant dismissed the claims with prejudice against Respondent Gumbert.

Arbitrator's Order

A single FINRA Arbitrator considered the record and unopposed testimony and in addition to finding Respondent RBC liable for $250 reimbursement of Schonhorst's FINRA arbitration filing fee, the Arbitrator found as follows:

Mr. Schonhorst was never charged with a crime or a violation of an investment-related statute, regulation, rule or industry standard of conduct. The USAG closed its investigation July 2012. The statute of limitations expired in August 2012 relating to any possible charge arising from Mr. Schonhorst's employment with RBC.

The Arbitrator orders Respondent, RBC Capital Markets, LLC, to file an amended Form U5, consistent with its regulatory obligations, which updates the Central Registration Depository as to the status of the USAG's investigation that the firm initially reported in the Form U5 dated August 10, 2007.

READ the BrokeAndBroker.com Expungement Library