Broker and Brokerage Firm Earn TKOs in U5 Expungement / Promissory Note Arbitration

November 25, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2010, Claimant Di Pietro requested:

1. The expungement of allegedly false and defamatory statements from his Form U5;

2. about $100,000.00 in compensatory damages;

3. damages for lost earnings (past and future);

4. exemplary damages for Respondent's "willful and wanton misconduct;" and

5. attorneys' fees and costs.

Claimant asserted various causes of action arising out of his former association with Respondent First Allied Securities, including breach of contract, negligence, and defamation. In the Matter of the FINRA Arbitration Between Michael Albert Di Pietro, Claimant/Counter-Respondent, vs. First Allied Securities, Inc., Respondent/Counter-Claimant (FINRA Arbitration 10-01116, November 14, 2011). [Note: in some online FINRA records, Claimant is "Di Pietro" and in others "Dipietro".  We will use the first variant, which is noted in the arbitration under discussion.]

Respondent First Allied generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim.  In its Counterclaim, First Allied sought $137,467.91 in damages for the principal amount due under a promissory note (the "Note"), dated December 20, 2007 plus 18% per annum interest, attorneys' fees, costs and other fees.

SIDE BAR: The way this case set up, it appears that there was more than a drop of bad blood to go around between the former employee Di Pietro and his former employee First Allied.  He's suing them for the post-employment jam-up on his Form U5 and attendant nastiness; in turn, they're coming after him for the balance due on his Note.  Frankly, First Allied could just as easily initiated the lawsuit by filing a Statement of Claim before Di Pietro - and, in response, he likely would have filed his own Counterclaim alleging the very facts he set forth in this case. 

On June 29, 2010, Claimant filed a Motion to Strike Extraneous and Impertinent Material Contained in Respondent's Answer to Counterclaim and Affirmative Defenses to Statement of Claim, which the Panel denied after oral argument.

During the arbitration hearing. Claimant moved to allow witnesses to testify by telephone and to allow witnesses to testify who were not on the witness list, all of which Respondent opposed and which the Panel subsequently denied.


The FINRA Arbitration Panel found Respondent First Allied liable and ordered it to pay to Claimant  Di Pietro $180,000.00 in compensatory damages plus 10% interest from November 1, 2011, until paid in full.

The FINRA Arbitration Panel found Claimant Di Pietro liable and ordered him to pay to Respondent First Allied $153,076.00 on the Note (inclusive of interest at 10% per annum from May 24, 2010). Claimant was further ordered to pay $3,000 in attorneys' fee.

U5 Revised

The Panel determined that Claimant Di Pietro's Form U5 was false because he was not properly or with due cause under investigation, and, as such, the Panel deemed the U5's representations to the contrary as defamatory.  Consequently, The Panel ordered  the expungement of the Termination Comment on Claimant's Form U5 (dated December 26, 2008). The Panel did not amend the Reason for Termination: "Permitted to Resign" but recommended that the comment state:


Also, the Panel ordered  the expungement of the "Yes" answers and the substitution of "No" to the Internal Review questions on Claimant's Form U5 and the Termination questions on Claimant's Form U4 (the accompanying Internal Review and Termination "Disclosure Reporting Pages" be deleted in their entirety).

Bill Singer's Comment

When an employee and employer unhappily part ways, a number of options present themselves. If the departed employee and the former firm are intelligent, they will try to keep everything in a businesslike perspective and simply agree to go their separate ways.  Ah . . . but if that were to happen too often, lawyers would have little to do!

Instead of common sense and pragmatism prevailing, we often find ourselves caught up in the equivalent of a a schoolyard fight at recess.  Although the Form U5 is a regulatory filing and must be prepared in good faith, that's not always the byproduct.  Instead, angry former employers often fail to resist the temptation to use the U5 as a way to get in a few parting shots. 

Among the favorite ploys on a "dirty" U5 are to pretend that an employee who voluntarily quit didn't - and to mark up the U5 to state that the nature of the termination was "Permitted to Resign" or a "Discharge."  Of couse, once you've gone down that path, the employer may then inject all sorts of nasty ruminations about "possible" customer complaints or "uncertain concerns" about internal misconduct.  Further, there's always the torture of stating that a former employee is "under investigation," when, in fact, there's no such inquiry or no reason for same.

In Di Pietro, it seems to me that we have a mixed bag of rights, wrongs, and a whole lotta getting even.  Too bad that both sides couldn't have found a better way to amicably resolve their disputes short of washing their laundary in a somewhat public FINRA arbitration.