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.
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.
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
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
In addition to seeking the
expungement of her Central Registration Depository record and Uniform Termination Notice for
Securities Industry Registration("Form
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,
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.
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
Stock Account ("the
"Plan") be forfeited, stating that it was willing for the Claimant
remain in the Plan subject to the same terms and
conditions regarding eventual
payment that apply to all other
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
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
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
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"
If the Reason for Termination entered above is Permitted to Resign,
Discharged or Other, provide an explanation
Similarly, under item 7F in "Termination
Disclosure" category is the
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:
- violating investment-related
statutes, regulations, rules or industry standards of
- fraud or the wrongful taking of property?
- 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.