FINRA Arbitrators Slam JP Morgan Over Defamatory Termination

May 13, 2019

It's a rare thing when our publisher Bill Singer, Esq. is left speechless. Mark your calendar. Today, Bill is left in a state of stunned silence by a phenomenal FINRA Arbitration Decision, which found that a former JP Morgan representative had been defamed by her former employer. This is what mandatory FINRA intra-industry arbitration should look like. This is the appropriate extent of content and context that should be found in a Decision adjudicating such a complex and nuanced dispute. 

Case In Point

In a FINRA Arbitration Statement of Claim filed in May 2018, associated person Rose Mascarenhas asserted defamation allegedly arising from FINRA member firm Respondent J.P. Morgan Securities' statements on her Forms U4 and U5, which purportedly caused her to

suffer great financial loss and to be unable to find comparable employment in the financial industry.

Claimant Mascarenhas sought $740,000 in compensatory and punitive damages, costs, fees, and an expungement of her Central Registration Depository records ("CRD"). In the Matter of the Arbitration Between Rose Mascarenhas, Claimant, v. J.P. Morgan Securities, LLC, Respondent (FINRA Arbitration Decision 18-01879)

Respondent JP Morgan sought the denial of Claimant's claims.


The FINRA Arbitration Panel found that the Form U5 contained defamatory information; and, accordingly, the arbitrators recommended the expungement of Claimant Mascarenhas' Form U5 "Termination Explanation," and proposed that it be revised to state:

Terminated by Affiliate Bank - Not securities related. Reg. rep. as an affiliate bank employee opened two checking accounts for a long-time customer who had previously opened over 70 accounts. To accommodate the customer, and consistent with the branch practice prior to the recent arrival of a new manager, Reg. rep. opened the accounts without customer being present for the entire opening process, other than appearing to execute the account documents, which was contrary to policies of the Bank.

Damages and Fees

The FINRA Arbitration Panel found Respondent JP Morgan liable and ordered the firm to pay to Claimant Mascarenhas $28,867 in attorneys' fees; $974.72 in costs; $425 in filing fee; and $1 in compensatory damages. FINRA and/or the Panel assessed on Respondent JP Morgan; $2,475 in Member Surcharge; $5,075 in Member Process Fee; $200 in discovery fees; and $6,500 in hearing session fees

Arbitrators' Findings

The FINRA Arbitration Decision includes an "Arbitrators' Findings," which is set forth in its entirety as follows:

Relevant Facts 

Claimant was a long-time employee of Respondent and the principal banker for a family business which was a very large and active customer of the bank, having opened over 70 accounts over the years. The policies and procedures of the bank provide a 14-part computer process for opening business accounts, the first step of which is to verify at the beginning of the process that the customer is present in the bank in person. If the "in person" button is not pressed, the account opening process cannot proceed. 

It is undisputed that under Claimant's prior bank manager (and perhaps more than one prior bank manager), it was generally allowed that for large, well-known customers such as these, the banker (including Claimant) was allowed to perform most of the process with the customer not present, including pressing the "in person" button. This allowed the account opening procedure, which can take as long as 40 minutes for each account, to be completed without the customer having to be present for the entire process, arriving only to sign the account opening documents. Respondent presented testimony that the branch manager who assumed her responsibilities on January 8, 2018 insisted that the account opening procedure no longer occur without the customer present for the entire process of opening the account. 

The customers here contacted Claimant and requested that she prepare two new checking accounts on February 3, 2018 for two separate out-of-state branches of their business, and asked that they be required to appear only for so long as necessary to sign documents. Claimant agreed to do that, as she had on prior occasions, and prepared the materials for their signature. It appeared undisputed that prior to the arrival of the customers, she performed each of the electronic tasks called for in the process with respect to the first account she opened that day, including pressing the "submit" button for that account. She then set aside the signature documents that had been created by the computer in the course of that process, and began the account opening process for the second account. It was not clear whether the "submit" button was pressed for the second account prior to the customers' arrival. It was further undisputed that the customers appeared that day, sometime after the "submit" button had been pressed for the first account, and signed the account opening documents for both accounts. There was no allegation that there was anything irregular about any aspect of the accounts or the opening procedure, other than the dispute about whether the customer needed to be present for the entire process. 

Respondent terminated Claimant on March 16, 2018 as a consequence of her conduct on February 3. Claimant was a licensed banker, holding Series 6 and 63 licenses. As a consequence, the bank submitted a Form U5, which included an answer to Section 3, regarding "Termination Explanation" which Claimant alleged was false and defamatory. In addition, Claimant alleged that the answer to question 7F(1) was false and defamatory. 


Claimant contends that the Termination Explanation and the answer to question 7F(1) in the U5 were false and defamatory in that the first implied that the account was opened without customer approval and the second falsely asserts that Claimant was alleged to have violated an investment-related regulation when the offending conduct involved only opening a checking account. Beyond citing the language itself, Claimant presented documentary evidence from a prospective subsequent employer which showed that those bank officials had read the U5 as reporting that Claimant had been terminated for opening an account without customer authorization. 


a. Termination Explanation 

The Panel finds that the explanation contained in the U5 Form is defamatory in that it incompletely and inaccurately describes the reason for termination. 

Respondent argued that that the statement was accurate because Respondent considered the account to be "open" at the moment the "submit" button was pressed and it was pressed for the first account before the customer appeared. That is an unfairly literal reading of that language. It omits facts sufficient to give the reader an understanding of what actually occurred, and how it constituted inappropriate conduct. The statement is therefore incomplete and inaccurate and defamatory in allowing the impression that the account was opened without customer approval. 

It is notable in this regard that the representative of the registration department testified that the only information in their possession regarding the basis for the termination was the report from the HR department that "Rose opened an account for a customer without them being present." The representative and her team were therefore unaware of whether the customer knew about the account, was there for part of the time or was there for none of the time. In the context of the long history of the bank with that customer, the description of what occurred was therefore false and defamatory and the individual who prepared and submitted the U5 did so with an incomplete and therefore inaccurate understanding of the basis for the discharge. 

(The expungement recommendation is stated above in the Award section.) 

b. Answer to Question 7F(1) 

The answer to question 7F(1) should be "no" because the opening of a checking account was not "investment-related." Respondent relies upon FINRA Regulatory Notice 10-39 as requiring that any allegation related to the products of a Bank are drawn within the definition of "investment-related" by the third bullet point of the second page of RN 10-39 where it states as follows: 

A firm should err on the side of interpreting the term "investment-related" in an expansive manner in line with the scope of the term when reporting information on Form U5. The scope of the term pertains to securities, commodities, banking, insurance or real estate (including, but not limited to, acting as or being associated with a broker-dealer, issuer, investment company, investment advisor, futures sponsor, bank or saving association." Accordingly, a firm may be required to provide an affirmative answer to a question even if the matter is not securities related. 

The panel concludes that this language is intended to convey to the reporting entity that it should not focus on the nature of the institution at which the alleged misconduct occurs, but rather on the nature of the financial event being addressed. It was undisputed here that a checking account is not an investment. Respondent's witness testified that a checking account was not an investment. The fact that it was opened as part of "banking" cannot logically make it "investment-related." 

Respondent was also unable to identify any particular statute, regulation, rule or industry standards of conduct that was violated. Respondent's position appeared to be that Claimant's conduct violated its Code of Conduct, which barred employees from falsifying company records which Respondent argued occurred when Claimant pressed the "in person" button when the customer was in fact not present in person. The panel was persuaded that, because the prior branch manager(s) had accommodated this very large and demanding customer to allow them not to be present for the entire account opening, that the customers were present to complete the process and none of the information submitted to create the accounts was inaccurate, there was no falsified record but rather a technical violation that had theretofore been allowed by management. Critically, the internal investigation performed by Respondent determined that there had been no violation of the Code of Conduct precisely because of the context in which the events occurred.

Bill Singer's Comment

Online FINRA BrokerCheck records as of May 13, 2019, disclose that Claimant Mascarenhas was first registered in 2008 with FINRA member firm Chase Investment Services, Corp. and, thereafter, was registered from October 2012 to April 2018 with J.P. Morgan Securities LLC. Under the BrokerCheck heading "Employment Separation After Allegations," is a statement by the FINRA member firm concerning its alleged reasons  --- now deemed "defamatory" by three independent FINRA arbitrators -- for Mascarenhas' March 15, 2018 discharge. In response to her former employer's now-defamatory allegations, Mascarenhas provided on BrokerCheck a "Broker Comment" stating:

THE REASON GIVEN FOR MY TERMINATION WAS NEVER INVESTIGATED BY JP MORGAN CHASE. AS STATED ON THIS U5 FORM "THIS IS AN ALLEGED INCIDENT' AND THEREFORE, I WAS WRONGFULLY TERMINATED! Blog readers may have expected that I would launch into a diatribe about the many disgraceful points noted by the arbitrators.There is no need. The FINRA arbitrators have done a remarkable job, which, to paraphrase Abraham Lincoln, has gone far above my poor power to add or detractSuffice it to say that today's featured FINRA Arbitration Decision is superb and superior! As such, a profound thank you  to:

Presiding Chair/Public Arbitrator James J. Stamos
Public Arbitrator Victoria Wolf
Non-Public Arbitrator Nancy L. Hendrickson

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