Did Registered Rep Voluntarily Quit Or Was She Fired? Arbitrator Says Neither.

January 4, 2016

Did she voluntarily quit or was she permitted to resign? Was the former employer/broker-dealer acting within its rights to impose a $7,500 on its former registered representative for having opened two outside accounts? And what about the thousands of dollars sitting in the error account -- was the former employee entitled to some of that? Those and other questions arose within the context of a FINRA intra-industry employment arbitration. The sole arbitrator parsed through the assertions and defenses, and produced a nuanced Decision. An interesting read that touches on many compliance and litigation issues.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2015, Claimant Sofia Friedman, representing herself pro se, alleged that following the change of ownership of her employer/broker-dealer Forsyth Securities, Inc. (n/k/a Oakridge Financial Services, Inc.)she was cheated out of $6,535.48 that was in an errors and deficit escrow account when new ownership came on board at the firm. Although not explained in the FINRA Arbitration Decision, it appears that Claimant Friedman believed that she was entitled to retain that sum notwithstanding the firm's change in ownership.

Further, Claimant Freidman alleged that she was defamed in the comment section of her Uniform Termination Notice for Securities Industry Registration("Form U5"); and improperly fined $7,500.00 for opening two accounts at Scottrade without obtaining written authorization. Claimant asserted that she had received oral authorization to open the accounts from the her firm's management and that there had been no mention of the need for her to obtain written authorization.

Finally, Claimant alleged that after leaving Oakridge, she suffered a loss of $1,200.00 in "prompt account transfer bonuses" when Oakridge delayed the transfer of accounts to Fidelity.

In addition to seeking the expungement of her Central Registration Depository record and Uniform Termination Notice for Securities Industry Registration("Form U5"), Claimant Friedman sought $6,535.48 and $1,200 in compensatory damages; $7,735.48 in punitive damages; $425 in interest.In the Matter of the FINRA Arbitration Between Sofia Friedman, Claimant, vs. Oakridge Financial Services, Inc., Respondent (FINRA Arbitration 14-03118, December 16, 2015).

Getting Defensive

Respondent Oakridge generally denied the allegations; asserted various affirmative defenses; and filed a Counterclaim asserting negligence; breach of fiduciary duty; violation of Oakridge's policies and procedures; and violation of FINRA's policies and procedures.

Oakridge alleged that Claimant Friedman had ignored and disobeyed direct instructions given to her by Oakridge Chief Compliance Officer and Steven Larson; and, further, that Claimant  had ignored both FINRA's and Oakridge's policies and procedures. Oakridge asserted that Friedman was terminated for cause and had properly incurred the disputed fine. Oakridge sought $ 7,500.00 in compensatory damages for the unpaid fine; $7,023.00 in compensatory damages for allegedly false claims; $15,000 in punitive damages; $5,088.15 in attorneys' fees; and costs.

At the hearing. Respondent withdrew its request that Claimant's shares in the Preferred
Stock Account ("the "Plan") be forfeited, stating that it was willing for the Claimant to
remain in the Plan subject to the same terms and conditions regarding eventual
payment that apply to all other participants therein.


The sole FINRA Arbitrator found that Claimant Friedman would remain in the Plan subject to the same terms and conditions regarding eventual payments that apply to all other participants. 

The Arbitrator recommended the expungement of the dollar amount of the fine ($7,500) that Oakridge had imposed on Friedman in February 2013.  Also, the Arbitrator recommended the expungement of the Form U5 "Termination Explanation" as filed on April 30, 2013. The Arbitrator recommended the following replacement language:

Sophia Friedman submitted a voluntary resignation, which Oakridge Financial Services, Inc. refused to accept. Following an investigation by Oakridge, it terminated Friedman for alleged cause, primarily on the grounds that she opened accounts with other brokerages in violation of FINRA Rule 3050. Claimant denied any improper conduct justifying her termination.

Also, the Arbitrator recommended that Friedman's Form U5 be amended so that the "Reason for Termination" (entered as "Discharged" ???) was changed to "Permitted to Resign." The Arbitrator permitted the reference to the imposition of a "fine" to remain, although the fine previously imposed by Oakridge against Friedman was deemed "excessive under the facts and circumstances." The Arbitrator order that the fine be reduced to $1,200.

Finally, the Arbitrator found Respondent Oakridge was liable and owed to Claimant Friedman $1,200.00.

The result of the above rulings was that the reduction by the Arbitrator of the $7,500 in-house fine to the revised amount of $1,200 was wholly offset by the $1,200 award on Friedman's arbitration claim.  Accordingly, neither party was obligated to make any payment to the other.

Bill Singer's Comment

In the FINRA-regulated community, we have this creature known as "Permitted to Resign," which purportedly arises after an employer/brokerage firm issues the ultimatum to an employee of either quit or you will be fired. As has often been noted in the BrokeAndBroker.com Blog, circumstances arise such that an employee is adamant that he or she "voluntarily quit" and that although no quit-or-be-fired-ultimatum was ever issued, the former employer marked the Form U5 as "Permitted to Resign" or "Discharged."

Under the Form U5's item 2 "Full Termination," there are five options: "Discharged" "Other" "Permitted to Resign" "Deceased" or"Voluntary". Where issues arise are pursuant to this instruction, which requires an "explanation" not necessary for a "Voluntary" resignation:

Termination Explanation: If the Reason for Termination entered above is Permitted to Resign, Discharged or Other, provide an explanation below:

Similarly, under item 7F in "Termination Disclosure" category is the following:

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?
The FINRA Arbitration Decision informs us that Friedman submitted a voluntary resignation, which Oakridge refused to accept. As best we can understand from the sole Arbitrator's explanation, Oakridge conducted an investigation that prompted the employer to file Friedman's Form U5 as a "Discharge" based upon the "for cause" issue of her allegedly opening outside accounts. The Arbitrator does not explain whether the firm's investigation occurred before or after Friedman resigned. The Arbitrator does not note a finding that Friedman did, in fact, resign before Oakridge had notified her that it had fired her. Consequently, we wind up with the somewhat odd outcome of Claimant asserting that she had voluntarily quit, the employer asserting that it had discharged Claimant for cause, but the Arbitrator recommending that the circumstance be revised to "Permitted to Resign." Personally, I would have appreciated a bit more content and context in the Decision as to this alchemy.

What can a FINRA-member-firm employee do to avoid or limit disputes as to whether there was a "voluntary" resignation? For starters, you might want to consider transmitting your resignation via email (in addition to any other method required by industry rule or regulation, and by any agreement with your employer). The advantage of the email resignation is that it will generate both a date and timestamp, which may prove important if a subsequent dispute arises over whether you purportedly voluntarily quit before you were discharged. Similarly, if your former employer asserts that it had informed you of its concerns about potential industry violations or misconduct before you attempted to quit, then the burden will be upon the employer to produce proof that your alleged "voluntary" resignation occurred after the existence of such violations/misconduct.