Clever Stipulation In FINRA Expungement Arbitration

November 17, 2017

Before you initiate a FINRA expungement arbitration based upon alleged defamation, carefully -- and I mean very, very carefully -- consider that you may presently retain some ability to control your narrative of the underlying events. Even with your former firm's alleged defamatory commentary on CRD, on your U5, and on BrokerCheck, a former associated person often retains some flexibility to dispute or disagree with the posted remarks during job interviews. Admittedly, when the posted allegations are serious, a purported victim may have no choice other than to sue or leave the industry. As such, sometimes you may have the option to just get on with your life and other times, the only option is to hire a lawyer and sue the bastards. Just give that threshold issue a lot of thought.

If you pursue an expungement arbitration and lose, your ability to "spin" the events may be severely damaged if not destroyed because you now have to deal with a published, online FINRA Arbitration Decision, which may be viewed as finding you dishonest, a liar, an incompetent, and/or a rule breaker. Also, a losing expungement Claimant has insult added to injury by way of a lawyer's fees and the forum costs. 

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2016 and as amended thereafter, Claimant Grant asserted defamation; tortious interference with prospective economic advantage; and wrongful termination in connection with her employment by Respondent Merrill Lynch and the firm's alleged defamation of her on the Uniform Termination Notice for Securities Industry Registration ("Form U5") as maintained by the Central Registration Depository ("CRD"). Claimant sought $896,622.00 in compensatory damages; $400,000 in punitive damages; and $8,500 in legal fees. In the Matter of the FINRA Arbitration Between Jennifer Michelle Grant, Claimant, vs. Merrill Lynch Pierce Fenner & Smith Inc., Respondent (FINRA Arbitration 16-03709, November 14, 2017).

Respondent Merrill Lynch generally denied the allegations and asserted various affirmative defenses.  

The FINRA Arbitration Decision discloses the following:


For Claimant Jennifer Michelle Grant ("Grant"): Owen Harnett, Esq., AdvisorLaw LLC, Broomfield,  ado.

For Respondent Merrill Lynch Pierce Fenner & Smith Inc. ("Merrill Lynch"): Janell M. Ahnert, Esq., Bressler, Amery & Ross, P.C., Birmingham, Alabama.  


On April 26, 2017, Claimant Grant dismissed her claims for damages  and the parties filed a Stipulation Regarding Hearing of Grant's Expungement Claim ("Stipulation").

The Stipulation provided that a final hearing relating to Claimant Grant's request for the expungement of her Form U5 will be held in Birmingham, Alabama. Further, the parties agreed that this final hearing and all prehearing matters will proceed as follows:

a) Pursuant to FINRA Code of Arbitration Procedure for Industry Disputes Rule 13600(a), Grant and Merrill Lynch waive the right to a full hearing.  

b) Grant's request for expungement shall be limited to claim that the Termination Explanation is defamatory.  

c) The hearing will be conducted by a single arbitrator.  

d) The Chair will consider the evidence proffered and decide the issue described in section (b) as stated above. If the Chair determines the issue in section (b) favors Grant, the Chair will order that the description of such conduct should be expunged or modified. Moreover, the Chair will determine if Merrill Lynch's answer [sic] 7(f)(1) on Grant's Form U5 be changed from "yes" to "no" and that  Merrill Lynch's further comments relating to its investigation be removed.  

e) The hearing will be limited to six (6) hours of witness testimony with the time equally divided among the parties. The parties may call no more than two (2) witnesses each. Moreover the parties will not present any testimony, evidence, or argument concerning any claim other than that relevant to the issues outlined in section (b).  

f) Grant will not present any evidence or argument that is not relevant to the issues outlined in section (b), including that Merrill Lynch's findings at the conclusion of its investigation were false.  

g) The parties further stipulate and agree that the Chair will not issue a reasoned decision or findings of fact to support her [sic] decision. To the extent the Chair finds that the Form U5 or Amended Form U5 is defamatory in nature, it will be that the language is defamatory in nature and not that Merrill Lynch intentionally defamed Grant.  

h) As is set forth herein, Grant waives any claim for damages and shall notify  FINRA in writing in advance of the hearing that she has dismissed any claims for  damages, costs or fees arising from the Claims in this matter. If for some reason the Chair should award damages, costs, or fees to Grant in spite of this notification, Grant agrees to forfeit and/or waive those damages, costs or fees pursuant to this Agreement and will not enforce or pursue payment of the same.  

i) Hearing session fees for the expungement hearing shall be shared equally by Grant and Merrill Lynch. However, Grant is responsible for all other costs and fees incurred in pursuit of expungement or modification of his [sic] Form U5.  

j) In the event that the Chair finds in favor of Grant and orders expungement or modification of his [sic] Form U5, Merrill Lynch agrees to take such action as  specified in the order within forty-five (45) calendar days of its receipt of the  Chair's award to process any updates to Grant's Form U5 through FINRA's CRD  system in accordance with the Chair's Order.  

k) Grant further agrees she will not file any other proceeding in court or any other forum to seek expungement of relief relating to the Form U5 issued on her behalf  by Merrill Lynch.  

l) The parties agree that no appeal or motion to vacate will be pursued regarding the Arbitrator's award addressing the expungement claim.  The Arbitrator conducted an in-person hearing on October 24, 2017, so the parties could present oral argument and evidence on Grant's request for Form U5 expungement.  

Arbitrator's Recommendation

Having found the disputed Form U5 language to be defamatory, the FINRA Arbitrator recommended the expungement of the "Termination Explanation" (with conforming changes to the "Termination Disclosure Reporting Page") and proposed that it be revised to read:

Failure to comply with industry and firm standards in handling client documents  and failure to adhere to firm standards regarding acting as a notary. 

The Arbitrator left unchanged the "Reason for Termination."

SIDE BAR: The applicable section on the Uniform Termination Notice for Securities Industry Registration ("Form U5"):

Note: A "Yes" response will terminate ALL registrations with all SROs and all jurisdictions.

Reason For Termination:
[]Discharged []Other []Permitted to Resign []Deceased []Voluntary

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

Bill Singer's Comment

I'm an old warhorse when it comes to securities industry litigation and, okay, I agree, I'm also a grouch and cynic when it comes to how regulators regulate, arbitrators arbitrate, and lawyers lawyer. That being said, at my age, it's nice to be pleasantly surprised when I see that the adults in an arbitration hearing room are all acting professionally and craft an impressive and constructive approach. As such, tip of the hat to both Owen Harnett, Esq. and Janell M. Ahnert, Esq. for handling this expungement dispute in a clever manner and for crafting a refreshing set of ground rules for this expungement hearing.

Owen Harnett's online bio:

Janell Ahnert's online bio:

Harnett and Ahnert negotiated a set of ground rules heading into the expungement hearing that avoided certain delays and costs that are the baggage of a plenary hearing. Further, they focused the hearing on one and only one point of contention; namely, whether the U5 "Termination Explanation" was defamatory. The parties limited the hearing to six hours of total testimony with no more than two witnesses called by each side. Time is money and that mutual agreement to limit the duration and hone the focus of the ensuing hearing saved lots of dollars for both sides.

As brokered by the two lawyers, if the FINRA Arbitrator found Claimant Grant had been defamed, the challenged language will be expunged/modified as outlined in the Stipulation. Further, the parties rejected the issuance of a "reasoned decision or findings of fact" and provided that the only published explanation would be that "the language is defamatory in nature and not that Merrill Lynch intentionally defamed Grant." I applaud the inclusion of that explanation and clarification in FINRA's published Arbitration Decision because it alerts the public and the industry to the fact that both parties did not desire the disclosure of the alleged defamation. Further, Respondent Merrill Lynch may have been encouraged to enter into the Stipulation because the agreement eliminated the firm's liability for "intentional" defamation and monetary damages.

I have read the currently posted language about Grant's termination on FINRA's online BrokerCheck but given the Stipulation and the Arbitrator's recommended expungement, I have opted to not republish that narrative, which will likely be amended within 45 days or thereabouts. In my opinion, Grant did not achieve that much of an amelioration and may have been better off not publicizing the employment issue because she is now confronted with a public and published FINRA Arbitration Decision. On the other hand, Grant obtained an important victory in having her former employer's contested narrative deemed defamatory.