An irreverent Wall Street Blog
by Bill Singer

Chase Settles Termination Dispute With Revised U5 And Cash

July 30, 2014

Wall Street terminations often turn into bloody messes. Not only is there the anger over the causes prompting the end of the employee-employer relationship, but litigation may subsequently develop over whether someone voluntarily resigned, was permitted to resign, or was discharged. If not handled fairly, a termination can destroy a registered person's reputation and an employer is quickly tagged as a place to be avoided by successful stockbrokers. In today's BrokeAndBroker.com Blog, we examine one such battle.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2013, and as amended thereafter, registered representative Claimant Prochorenko asserted defamation on his Uniform Termination Notice for Securities Industry Registration ("Form U5") and breach of settlement agreement. Claimant sought $1,000,000 in punitive damages plus compensatory damages, interest, fees, and costs. Also, Claimant requested the expungement of his Central Registration Depository records. In the Matter of the FINRA Arbitration Between Walter Prochorenko, Claimant, vs. Chase Investment Services Corp., Respondent (FINRA Arbitration13-02344, July 22, 2014).

Respondent Chase Investment Services Corp. generally denied the allegations and asserted various affirmative defenses.

Settle Down

On June 19, 2014, the parties notified the FINRA Arbitration Panel that they settled this matter pursuant to a Proposed Stipulated Award, which is extracted in pertinent parts as follows:

PROPOSED STIPULATED AWARD 

Claimant, Walter Prochorenko, and Respondent, J.P. Morgan Securities, LLC ("JPMS"), (formerly known as Chase Investment Services Corp. ("CISC")) (the "parties"), stipulate to the following award in connection with the matter captioned above and the hearing held June 17, 2014 through June 19, 2014 and move for the Panel for entry of an Award as follows:

1. Any and all claims against Respondent JPMS are dismissed in their entirety, with prejudice.

2. The Form U-5 filed by CISC on July 20, 2012 and maintained by the Central Registration Depository ("CRD") for Walter Prochorenko (CRD # 4681754) should be amended as provided below.

3. In Section 3 of the Form U-5, the Termination Reason shall remain as "Discharged."

4. In Section 3, the Termination Explanation shall be amended to provide as follows: 

TERMINATED BY BANK - NON-SECURITIES RELATED. REGISTERED REP WAS TERMINATED FOR OFFICE CONDUCT INCLUDING THE RECORDING OF CONVERSATIONS BETWEEN COWORKERS AND CUSTOMERS TO WHICH HE WAS NOT A PARTY IN VIOLATION OF THE BANK'S CONFIDENTIALITY POLICY. REGISTERED REP STATED THAT HE MADE THE RECORDINGS UNDER THE BELIEF THAT HIS ACTIONS WERE PERMITTED AND THE RECORDINGS WERE INTENDED SOLELY FOR USE BETWEEN THE REGISTERED REP AND THE BANK.

5. The "Yes" answer to Question 7(F)1 shall be replaced with "No" and the accompanying Termination Disclosure Reporting Page shall be deleted in its entirety.

6. Claimant shall be awarded $5,000.00 in compensatory damages.

7. Any and all other relief not specifically addressed herein, including Claimant's request for punitive damages and legal fees, is denied.

8. Claimant's registration records are not automatically amended to include the changes indicated bow. Claimant must obtain confirmation of the Award from a court of competent jurisdiction before CRD will execute the directive to amend the Form U-5 as specified in the Award. Respondent agrees not to oppose Claimant's efforts to obtain confirmation of the Award. Claimant must then forward a copy of the Award along with a court's order confirming the Award to FINRA's Registration and Disclosure Department for the amendments to be incorporated into Claimant's CRD records.

9. All fees generated in connection with this matter, including but not limited to Discovery-Related Motion fees (if any), Fees Related to Respondent's Motion to Dismiss, and any other Pre-Hearing Session Fees, shall be split evenly between the parties, except that Respondent agrees to assume full responsibility for Hearing Session fees relating to the hearings that took place on June 17, 2014, June 18, 2014, and June 19, 2014. . .

SIDE BAR: Item 7F of the Form U5 asks, in part:

Termination Disclosure

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?
Bill Singer's Comment

The proposed language was adopted by the FINRA Arbitration Panel and serves as the basis for the Decision in this matter. Both parties achieved a measure of victory with the stipulated wording and revisions, which cover a host of sins and ticks off many boxes. 

Claimant Prochorenko aggressively went after a major industry player with guns blazing and waving a $1 million demand for damages. Others in Claimant's position may have sulked and skulked off. Likely a case steeped in the so-called "matter of principle," the to-the-mat posturing likely sent the necessary message to the former employer and served this industry employee well.

Claimant will be able to tell his version of this dispute with the tag line that he "won," because, Item 7F is answered in the negative and, after all, I was awarded thousands of dollars in compensatory damages.  Even though modest and perhaps more symbolic than anything, the award of $5,000 in compensatory damages still gets your attention.

Similarly, the flip side of the telling of this tale is that Respondent Chase will continue to assert that it had acted correctly because its former employee was still deemed as having been "discharged" and the Termination Explanation ordered by the Panel largely justifies the firm's actions.

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