In the Matter of the Arbitration Between Gary Duane Hicks, Claimant, vs. Pruco Securities, LLC and The Prudential Insurance Company of America, Respondents (FINRA Arbitration 09-05528, April 19, 2010), Claimant Hicks asserted that Respondents filed false and misleading language on his Form U5. He sought $100 in damages, attorneys' fees, costs, and an Order of Expungement.
The FINRA Arbitrator found Respondents jointly and severally liable for compensatory damages of $100.00 and denied attorneys' fees. Based upon the "defamatory" nature of the statements, the Arbitrator recommended expungement of Section 3 of Claimant's Form U5 dated February 5, 2008, which stated:
REGISTERED PRINCIPAL REPRESENTED TO THE COMPANY THAT HE HAD IMPLEMENTED A PROCESS IN THE OFFICE TO HELP ENSURE COMPLIANCE WITH STATE REPLACEMENT REQUIREMENTS, SEVERAL MONTHS EARLIER THAN WHEN SUCH PROCESS ACTUALLY WAS IN PLACE, BACKDATED CLIENT LETTERS RELATING TO SUCH PROCESS TO MAKE THEM APPEAR THAT THEY HAD BEEN CREATED EARLIER THAN THEIR ACTUAL CREATION DATES, AND DID NOT OBTAIN REGISTERED PRINCIPAL REVIEW OF SUCH LETTERS.
The Arbitrator recommended that the above Section 3 Comment be changed to
PRINCIPAL DID NOT FOLLOW APPROPRIATE INTERNAL PROCEDURES REGARDING PASSIVE CONSENT NOTIFICATION TO SEVERAL NEW INSURANCE CLIENTS.
Additionally, the Arbitrator recommended expungement of the "Yes" answers to Questions 7F(1) and 7F(2) of Claimant's Form U5 dated February 5, 2008 and all subsequent disclosures including but not limited to Claimant's Form U4 dated May 19, 2009, Questions 14J(1) and 14J(2). The Arbitrator recommended that the "Yes" answers be changed to "No" and that the accompanying Disclosure Reporting Pages be deleted in their entirety.
The Arbitrator left undisturbed the Reason for Termination as "Discharged"
Hicks' registration records are not automatically amended to include the Arbitrator's proposed changes. Claimant Hicks must forward a copy of the Award to FlNRA's Registration and Disclosure Department for the amendments to be incorporated into his registration records, in accordance with FINRA's detailed expungement protocol.
Bill Singer's Comment: This is an odd case because the outcome -- at first blush -- seems impressive for Hicks. After all, some five dozen or so words in the initial U5 Comment are now reduced to about a dozen or so. Clearly, the original language suggests that Hicks lied about implementing a policy. Essentially, the U5 asserted that Hicks implemented the policy on a later date than what he represented and that he backdated client letters as part of what presents itself as a cover-up. Truly, that sounds pretty bad. The revised language presents the impression that Hicks merely failed to follow internal procedures regarding new client notifications.
Was the change substantive enough to warrant going to Arbitration? If Hicks paid for legal counsel, was the expense worth it? That's a tough call. On the one hand, the reduction of the more damning, detailed language is a plus; but, on the other hand, Hicks still comes off as failing to follow internal client policies and his U5 presents him as having been "Discharged." The fact that the Arbitrator awarded Hicks $100 in compensatory damages may somewhat tip the scale in his favor as a victim rather than a victimizer. Still, it's a close call and I leave it to you to reach your own conclusion.
For your reference, Item 7F on the Form U5 (which is substantially similar to Item 14J on the Form U4) asks:
7F: 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?