FINRA Discloses Its September 2025 Disciplinary and Other Actions

The self-regulatory body that monitors the conduct of financial professionals just issued its results for last month. The following are just a sampling of the summaries it provided:

Greenbird Capital, LLC (CRD #306692, Boca Raton, Florida)  

July 24, 2025 - An AWC was issued in which the firm was censured and fined $50,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it lacked a system reasonably designed to supervise solicitations of private placement offerings. The findings stated that the firm’s written procedures did not prohibit registered representatives from engaging in a general solicitation of such offerings or provide any guidance on what constituted a pre-existing, substantive relationship. In addition, the firm did not have a system to reasonably monitor and document when the firm had established a substantive relationship with a prospective investor, or to confirm, before a prospective investor was solicited for an offering, that the firm had such a relationship with that investor. In connection with the offerings, registered representatives made hundreds of thousands of calls to prospective investors without a reasonable system to ensure that the firm established substantive relationships with those individuals prior to soliciting the individual for a specific investment. The findings also stated that the firm failed to establish, maintain, and enforce a system reasonably designed to achieve compliance with FINRA’s telemarketing rules. The firm had no system or procedure to monitor outbound calls made by the firm’s registered representatives for number on the national do-not-call list. In addition, although a principal of the firm occasionally checked whether registered representatives called customers during the times permitted by FINRA Rule 3230, the firm did not specify when, or how often, such reviews took place. Subsequently, the firm implemented the use of a pre-existing relationship form, revised its WSPs to include language addressing general solicitation and the pre-existing relationship form, and stopped engaging in cold calling. (FINRA Case #2023077022001)

Noble Capital Markets, Inc. (CRD #15768, Boca Raton, Florida)

            July 29, 2025 – An AWC was issued in which the firm was censured and fined $45,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with provisions of the federal securities laws related to the general solicitation of private placement offerings. The findings stated that the firm’s WSPs failed to address Rule 506(b) of Regulation D of the Securities Act of 1933, and incorrectly permitted the general solicitation of all private placements sold in reliance on Rule 506(b) as long as the prospective investors met certain suitability qualifications. The firm’s WSPs also failed to provide guidance on the need to establish a pre-existing, substantive relationship with prospective investors or address how designated supervisors should ensure the firm had established such a relationship. In addition, the firm also had no process to check whether private placement investors had pre-existing, substantive relationships with it even in the case of investors who first opened accounts at the firm after its participation in the offering. The findings also stated that the firm failed to reasonably supervise a registered representative who, in connection with two private offerings, cold-called more than 40 prospective investors who did not have substantive relationships with the firm prior to its participation in the offerings. Seven of the investors invested a total of $775,000 in one of the private placement offerings. The firm later revised its WSPs to provide updated guidance to the firm’s registered representatives and supervisors on the requirements of Regulation D. (FINRA Case #2020065533402)

Eric Anthony Dupre (CRD #2174456, San Antonio, Texas)

            July 17, 2025 – An AWC was issued in which Dupre was barred from association with any FINRA member in al capacities. Without admitting or denying the findings, Dupre consented to the sanction and to the entry of findings that he borrowed at least $2,236,000 from two customers without providing prior notice to, or obtaining written approval from, his member firm. The findings stated that Dupre borrowed $65,000 from a married couple, who were his customers, which Dupre repaid. Dupre also borrowed at least $2,171,000 through a series of loans from a senior customer. Dupre told the senior customer that he would pay back the principal of the loan plus an additional amount. Dupre needed the loans because he was experiencing financial difficulties. To loan a significant portion of the funds to Dupre, the senior customer borrowed funds on margin from his account, which he transferred to a personal bank account before loaning to Dupre. As a result, the senior customer incurred substantial margin debt. Given Dupre’s financial circumstances at the time he borrowed the money from the customer, he did not have a reasonable expectation of repaying the loans, and to date, he has not repaid any portion of the funds loaned to him by the senior customer. (FINRA Case #2023079280501)

Calvin Lee Gray (CRD #7575351, Salem, Missouri)

            July 21, 2025 – An OHO decision became final in which Gray was barred from associating with any FINRA member in all capacities for failing to produce information and documents requested by FINRA during its investigation. The sanctions were based on the findings that Gray’s member firm informed FINRA that he had been indicted in June 2024 in the United States District Court for the Eastern District of Missouri for conspiracy to commit bank fraud, fraud in connection with identification documents, aggravated identity theft, and other chargers. The findings stated that the indictment alleged that, using account information that he stole from the firm, Gray obtained credit and debit cards that he used to make fraudulent purchases and transfer money to his control. FINRA’s investigation included trying to determine whether Gray had committed fraud or had engaged in identity theft since August 27, 2024, in a county jail in Salem, Missouri. On April 21, 2025, Gray pled guilty to the criminal charges and is scheduled to be sentenced on July 29, 2025. (FINRA Case #2024083063101) 

Donald Franklin Spivey (CRD #847360, Camden, South Carolina)

            July 21, 2025 – An AWC was issued in which Spivey was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, Spivey consented to the sanction and to the entry of findings that he refused to appear for on-the-record testimony requested by FINRA in connection with its investigation into whether certain recommendations were suitable for or in the best interests of retail customers. The findings stated that Spivey initially cooperated with FINRA’s investigation but ceased doing so. (FINRA Case #2023078794801)

Meredith Archer Webber (CRD #2435263, Cobleskill, New York)

            July 28, 2025 – An Order Accepting Offer of Settlement was issued in which Webber was barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, Webber consented to the sanction and to the entry of findings that she failed to provide documents and information or appear for on-the-record testimony requested by FINRA as part of its investigation into whether she misappropriated funds from two elderly customers. The findings stated that the information and documents and on-the-record testimony requested by FINRA were material to its investigation because they directly related to whether Webber misappropriated funds and were necessary for FINRA to complete its investigation. Webber’s failure to provide the requested documents and information or provide testimony impeded FINRA’s investigation into her potential misconduct. (FINRA Case #2024082788802)

Devin Lamarr Wicker (CRD #4228250, New York, New York)

            July 28, 2025 – The U.S. Court of Appeals for the District of Columbia Circuit dismissal of Wicker’s appeal of an SEC decision became final. Wicker was barred from association with any FINRA member in all capacities and ordered to pay $50,000, plus interest, in restitution to a customer. The SEC had sustained the findings and sanctions imposed by the National Adjudicatory Counsel (NAC). The sanctions were based on the findings that Wicker converted a customer’s funds. The findings stated that the customer hired Wicker’s member firm to serve as the underwriter for its anticipated public offering and transferred $50,000 to the firm for the sole purpose of paying a retainer to a law firm, but Wicker used the funds for other purposes. Wicker never used these or any other funds to pay the law firm, and he never returned the funds to the customer, even though he received at least seven written requests from the customer and the law firm to do so. Instead, after the customer wired the $50,000 to the firm’s bank account, essentially all of that account’s funds were used to pay the firm’s other expenses, as well as to transfer approximately $440,500 into Wicker’s personal bank account. Wicker controlled the firm’s bank account into which the retainer was wired, and he authorized withdrawals and payments from the account for other purposes, including substantial payments to himself. To date, Wicker has not repaid the customer or sent the money to the law firm. (FINRA Case #2016052104101) 

Brian Richard Baine (CRD #1355980, Rye, New York)

            July 1, 2025 – An AWC was issued in which Baine was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for three months. Without admitting or denying the findings, Baine consented to the sanctions and to the entry of findings that he signed or caused a third party to sign non-securities customers’ signatures, including senior customers, on insurance-related documents without the customers’ permission. The findings stated that Baine did so to expedite the insurance application process and not in furtherance of other misconduct. The underlying transactions were authorized and none of the customers complained. The suspension is in effect from July 7, 2025, through October 6, 2025. (FINRA CASE #2023080198401)

Michael Ciro Colletti (CRD #4577898)

            July 10, 2025 – Colletti appealed a NAC decision to the SEC. The NAC affirmed the findings and sanctions imposed by the OHO. Colletti was fined $10, 000, suspended from association with any FINRA member in all capacities for eight months, ordered to pay $5,417, plus interest, in restitution to a customer, and required to requalify by examination as a General Securities Representative before again serving in that capacity. The sanctions were based on the findings that Colletti executed unauthorized trades in the customer’s account and engaged in quantitatively unsuitable trading. The findings stated that Colletti selected the security that was traded and determined the volume and frequency of the trading in the customer’s account. As a result, Colletti exercised de facto control over the account. In addition, Colletti’s trading was inconsistent with the customer’s investment objectives and investment profile. The customer was in his 60s at the time he opened his account with Colletti, nearing retirement, his account was an individual retirement account (IRA), and he listed his risk tolerance as “moderate” and his objectives as income and growth. Colletti engaged in a pattern in the account of buying a stock, holding it a short time, and selling it to buy another stock, which was also sold after a short time, until the customer closed his account. Colletti’s trading resulted in losses of $5,417. For these traders, Colletti charged $5,081 in commissions. The sanctions are not in effect pending review. (FINRA Case #2019061942901)

Daniel Michael Roper (CRD #6188279, Omaha, Nebraska)

            July 17, 2025 – An AWC was issued in which Roper was assessed a deferred fine of $15,000, suspended from association with any FINRA member in all capacities for two years, ordered to pay deferred disgorgement of unlawful profits in the amount of $80,747, plus interest, and required to requalify by examination as a General Securities Representative prior to associating with any FINRA member. Without admitting or denying the findings, Roper consented to the sanctions and to the entry of findings that he entered more than 14,000 equity trades and 6,300 options trades in his customer’s self-directed retail account for a share of the customer’s profits. The findings stated that Roper did not disclose to his member firm that he and the customer had entered into an oral profit-sharing agreement related to the trading, and the firm did not provide authorization to him to share in the profits in the customer’s account. Rather, Roper took numerous steps to conceal his conduct from his firm. In total, Roper received $80,747 in profit-sharing payments from the customer. The findings also stated that Roper exercised discretion without prior written authorization in connection with the equity and options trades in the account of the customer with whom Roper had a profit-sharing agreement. The customer orally authorized Roper to exercise discretion in his account, but never provided him with prior written authorization to exercise such authority, and his firm never accepted the customer’s account as discretionary. In addition, Roper attested in his firm’s annual compliance questionnaires that his disclosures were complete and account maintained with the firm over which he exercised discretion. The findings also included that Roper exchanged thousands of text message and emails with the customer with whom he had a profit-sharing agreement using his personal mobile device. These messages and emails included, among other things, communications about account performance information, the trades that Roper entered in the customer’s account, and profit-sharing payments that the customer made to Roper. Roper did not provide his firm copies of the text messages or personal emails, which caused the firm to maintain incomplete records of business communications. The suspension is in effect from July 21, 2025, through July 20, 2027. (FINRA Case #2023079598001)

Chad Michael Rogers (CRD #4029698, Tuttle, Oklahoma)

            July 22, 2025 – An AWC was issued in which Rogers was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 45 days. Without admitting or denying the findings, Rogers consented to the sanctions and to the entry of findings that he impersonated customers during phone calls to his prior member firm. The findings stated that Rogers impersonated the customers to facilitate the transfer of their accounts to his employing member firm, or, in some instances, to transfer funds to the customers’ bank accounts. Although the customers consented to transferring their accounts or funds, none of them gave Rogers permission to impersonate them during these calls. The suspension is in effect from August 4, 2025, through September 17, 2025. (FINRA Case #2023079833901)

Andrew Steven Mack (CRD #5932062, New York, New York)

            July 23, 2025 – An AWC was issued in which Mack was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for three months. Without admitting or denying the findings, Mack consented to the sanctions and to the entry of findings that he exercised discretion without written authorization in connection with trades in customer accounts. The findings stated that although the customers understood that Mack was conducting trading in their accounts, none had given him prior written authorization and his member firm had not accepted the accounts as discretionary. For six months during the relevant period, Mack was on a heightened supervision plan that prohibited his exercise of discretion, yet he placed discretionary trades without written authorization in customer accounts during that time. Furthermore, Mack inaccurately stated that he did not exercise discretion in customer accounts on three of the firm’s annual compliance questionnaires. The suspension is in effect from August 4, 2025, through November 3, 2025. (FINRA Case #2023077059101)

Charles Scott Burford Sr. (CRD #1658201, Dallas, Texas)

            July 28, 2025 – Burford appealed an SEC decision to the U.S. Court of Appeals for the Fifth Circuit. The SEC sustained the findings and sanctions imposed by the NAC. Burford was fined $10,000 and suspended from association with any FINRA member in all capacities for six months. The sanctions were based on the findings that Burford executed unauthorized trades in, and facilitated unauthorized withdrawals from, his deceased customer’s account. The findings stated that Burford did not submit the customer’s death certificate to his member firm until over 14 months after his death. Further, Burford executed the trades and facilitated the withdrawals in the account on instructions from the customer’s widow. Burford did not submit the death certificate to the firm until it was necessary to permit the customer’s widow, who was named beneficiary, to take the required minimum distribution from the customer’s beneficiary IRA by year’s end. When Burford submitted the death certificate for this purpose, he failed to inform the firm that the customer’s account remained open and active. Burford executed additional trades and withdrawals in the account. In all, at the widow’s request, Burford executed nine sales transactions totaling nearly $130,000 and facilitated eight withdrawals totaling nearly $85,000. After learning that the customer’s daughter planned to contest the customer’s will, Buford asked the firm to freeze the customer’s account. Even then, Burford failed to inform the firm that he had improperly effected any transactions in the customer’s account until the daughter’s attorney informed Burford that she had challenged the will and warned him that the firm might be liable for the distributions from the customer’s account. The sanctions are not in effect pending review (FINRA Case #2019064656601)

Venugopal Ramakrishnappa Reddy (CRD #5125813)

            July 29, 2025 – An AWC was issued in which Reddy was assessed a deferred fine or $5,000 and suspended from association with any FINRA member in all capacities for six months. Without admitting or denying the findings, Reddy consented to the sanctions and to the entry of findings that he participated in private securities transactions without providing prior notice to his member firm. The findings stated that Reddy and a partner formed an investment fund and several affiliated entities for the purpose of raising capital to invest in early-stage technology companies. Reddy timely disclosed his role as co-owner and co-manager of these entities to his firm. Among other things, Reddy disclosed that the entities would engage in “investment related” activities, including offering interests in the fund to investors, and that he would be entitled to receive a share of carried interest under certain circumstances. Reddy also provided draft offering materials to the firm. Ultimately, the firm approved Reddy’s involvement in these entities as outside business activities (OBAs). 36 accredited investors committed a total of $9.2 million in capital to the fund and affiliated entities. Reddy participated in transactions involving nine of these customers and approximately $5 million in capital by helping to solicit investments and by executing subscription agreements on behalf of the fund and affiliated entities. To date, Reddy has not received any carried interest. Once the firm became aware of the transactions, its chief executive officer signed forms documenting the firm’s approval of them. The suspension is in effect from August 4, 2025, through February 3, 2026. (FINRA Case #2022076766202)

            If you are an aggrieved investor or a professional dealing with FINRA, we are here to provide you with experience-based assistance. Please give one of our attorneys a call today.

Conflict Management for Terminated Financial Advisors

There is plenty of room for conflict when a financial advisor is leaving his or her broker-dealer. Although the departure may start off in an amicable fashion, tensions often flare once promissory notes and client retention issues arise. Moreover, an involuntary or “for-cause” termination may implicate defamation and regulatory issues. In other words, your broker-dealer may defame you on your U-5/U-4[1] providing you with an arbitration claim but also subjecting you to months of regulatory scrutiny from FINRA and state regulators. So here is my lecture: it is wise to retain independent counsel as soon as you are even contemplating leaving your current broker-dealer. Your legal counsel can help you achieve a smooth transition or at least advocate for you during the termination process. Our firm has represented countless departing brokers on a nearly endless array of issues. We have also recouped millions of dollars in defamations awards and settlements. Food for thought.

Please follow us on Twitter @CosLawGroup, on LinkedIn at Cosgrove Law Group, LLC, and on Facebook at Cosgrove Law Group, LLC.  

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[1] In 2020, U5 defamation cases were the fourth most common intra-industry claim filed with FINRA, behind breach of contract, promissory notes, and compensation claims. (https://www.littler.com/publication-press/publication/form-u5-defamation-claims-rise-finra-be-prepared)

U-5 Filings and the Compelled Self-published Defamation Doctrine

 

Last year, the California Court of Appeals issued a highly instructive opinion in the area of U-5 defamation. Some excerpts from that opinion will help us get started on a variety of blogs. The case is Tilkey v Allstate Insurance Company.

INTRODUCTION

While Michael Tilkey and his girlfriend Jacqueline Mann were visiting at her home, the two got into an argument. Tilkey decided to leave the apartment. When he stepped out onto the enclosed patio to collect his cooler, Mann locked the door behind him. Tilkey banged on the door to regain entry, and Mann called police. Tilkey was arrested and pled guilty to a disorderly conduct charge only, and other charges were dropped. After Tilkey completed a domestic nonviolence diversion program, the disorderly conduct charge was dismissed as well.

Before the disorderly conduct charge was dismissed, Tilkey's company of 30 years, Allstate Insurance Company (Allstate), terminated his employment based on his arrest for a domestic violence offense and his participation in the diversion program. Allstate informed Tilkey it was discharging him for threatening behavior and/or acts of physical harm or violence to another person. Following the termination, Allstate reported its reason for the termination on a Form U5, filed with Financial Industry Regulatory Authority (FINRA) and accessible to any firm that hires licensed broker-dealers like Tilkey. Tilkey sued Allstate for wrongful termination and compelled self-published defamation.

The jury returned a verdict in Tilkey's favor on all causes of action and awarded him $2,663,137 in compensatory damages and $15,978,822 in punitive damages. The Court of Appeals concluded that compelled self-published defamation is a viable theory, and substantial evidence supported the verdict that the statement was not substantially true. The court did, however, remand the matter for recalculation of the punitive damages award.

FACTS

On August 31, 2014, Mann sent an e-mail to Tilkey at work mentioning the charges that had been filed against him. A field compliance employee later discovered this e-mail while conducting a routine compliance review and forwarded it to Human Resources (HR). HR professional Tera Alferos conducted the initial investigation, and she interviewed Tilkey. She noted Tilkey had been asked to accept a plea deal to have two of the three charges dropped, then the last one dismissed. She never spoke with Mann or interviewed the arresting officers. She also did not investigate Mann's background or review her social media accounts.

A couple weeks later, Alferos sent her supervisor a summary of her investigation, which stated that the police report had been reviewed and noted Tilkey had been charged with but not convicted of a crime. The summary also explained there was no FINRA reporting obligation because there were no felony charges, and it concluded there had been no violation of company policy.

A supervisor then changed the conclusion to state Tilkey's behavior may have been at a level that caused the company to lose confidence in him. At the supervisor’s request, Alferos next added references to the domestic violence charge because it suggested Tilkey had engaged in behavior that could be construed as acts of physical harm or violence toward another person, in violation of company policy. In an e-mail referencing the decision to terminate Tilkey's employment, a Ms. Metzger wrote that they were amending the reason for terminating Tilkey to be "violence against another person whether employed by Allstate or not. "It identified the policy violation as "[t]hreats or acts of physical harm or violence to the property or assets of the Company, or to any person, regardless of whether he/she is employed by Allstate." When the company terminated his employment, it informed Tilkey, "Your employment is being terminated as a result of engaging in behaviors that are in violation of Company Policy. Specifically, engaging in threatening behavior and/or acts of physical harm or violence to any person, regardless of whether he/she is employed by Allstate."

The company then filed a Form U5 with FINRA reporting its reason for terminating him as follows: "Termination of employment by parent property and casualty insurance company after allegations of engaging in behaviors that are in violation of company policy, specifically, engaging in threatening behavior and/or acts of physical harm or violence to any person, regardless of whether he/she is employed by Allstate. Not securities related."

Tilkey sued Allstate asserting three causes of action: (1) violation of California section 432.7; (2) wrongful termination based on noncompliance with section 432.7; and (3) compelled self-published defamation to prospective employers. Following trial, the jury returned a verdict for Tilkey and awarded $2,663,137 in compensatory damages, with $960,222 for wrongful termination and $1,702,915 for defamation, and $15,978,822 in punitive damages. Allstate moved for a new trial, which the trial court denied. Allstate appealed.

I: WRONGFUL TERMINATION

Allstate argued it did not violate the California wrongful termination statue (432.7) when it used as a factor in its termination decision Tilkey's arrest and subsequent conditional plea and entry into a diversion program. Tilkey countered that the company's reliance on his arrest records violated section 432.7; thus, he was wrongfully terminated. The parties' disagreement hinged on the interpretation of section 432.7, subdivision (a)(1), which prohibits employers from utilizing as a factor in employment decisions any record of arrest or detention that did not result in conviction or any record regarding referral to or participation in any pretrial or post trial diversion program.

Allstate argued a conditional plea agreement qualifies as a conviction. Tilkey contended he never entered a guilty plea; thus, there was no conviction. The court concluded we conclude the term "conviction" as defined in section 432.7 does not require entry of judgment: “The plain language here makes clear that a judgment is not required because the conviction can exist without respect to sentencing. (See ibid.) The statute's legislative history supports this interpretation.” A conviction under section 432.7 does not require an entry of judgment; it simply requires entry of a guilty plea. Thus, Allstate did not violate section 432.7 by using Tilkey's arrest as a factor in its decision to terminate his employment.

II: DEFAMATION

Allstate next challenged the defamation verdict, contending that self-compelled defamation should not provide a basis for a defamation per se cause of action. It further contended there was no evidence that Tilkey's self-publication was compelled by its publication of the reason for his employment termination on the Form U5 because that publication contained a privileged statement. Finally, Allstate maintained that its statement was substantially true, justifying reversal of the verdict.

For a valid defamation claim, the general rule is that "the publication must be done by the defendant." (Live Oak Publishing Co. v. Cohagan (1991) 234 Cal.App.3d 1277, 1284 (Live Oak Publishing).) But there is an exception "when it [is] foreseeable that the defendant's act would result in [a plaintiff's] publication to a third person." For the exception to apply, the defamed party must operate under a strong compulsion to republish the defamatory statement, and the circumstances creating the compulsion must be known to the originator of the statement at the time he or she makes it to the defamed individual.

Compelled Self-Published Defamation Per Se

In an action for defamation per se, the meaning is so clear from the face of the statement that the damages can be presumed. The originator of the statement is liable for the foreseeable repetition because of the causal link between the originator and the presumed damage to the plaintiff's reputation but the publication must be foreseeable.  The presumed injury is no less damaging because the plaintiff was compelled to make the statement instead of the employer making it directly to the third party. Allstate offered several other arguments for why the Court should not accept a theory of compelled self-published defamation.

Form U5 Privilege

Allstate provided a written explanation for Tilkey's termination of employment on the Form U5 to FINRA, which was available to every prospective employer of similarly licensed employees. Thus, disclosure was not absolutely privileged. Thus, Tilkey was compelled to explain the reason for his discharge, and this repetition was reasonably foreseeable.

Additionally, the qualified privilege that attaches to communications about an employee's job performance when made without malice or abuse to a third party likewise protects an employer against compelled self-published defamation. This conditional privilege helps protect the free flow of reference information.

Firms are required to file a Form U5 with FINRA whenever a registered representative leaves the firm. If the registered representative's employment has been terminated, the form asks the firm to provide a reason for termination. When the Form U5 identifies allegations of improper conduct by a broker-dealer, an issue that FINRA may need to investigate, it can on those occasions be considered "a communication made 'in anticipation of an action or other official proceeding.' (Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th [1106,] 1115.)" (Fontani v. Wells Fargo Investments, LLC (2005) 129 Cal.App.4th 719, 732, disapproved of on other grounds in Kibler v. Northern Inyo County Local Hospital District (2006) 39 Cal.4th 192.) In those instances, the information reported on the Form U5 would be protected by the absolute privilege outlined in Civil Code section 47, subdivision (b), at least in California.

Section 7 of the Form U5, however,  includes a list of disclosure questions for full terminations that asks if the terminated employee was the subject of a governmental investigation; was under internal review for fraud, wrongful taking of property, or violated investment related laws, regulations, or industry standards relating to compliance; was convicted of or pled guilty to a felony; or was convicted of or pled guilty to a misdemeanor that related to investments, fraud, false statements, bribery, perjury, forgery, counterfeiting, extortion, or wrongful taking of property. These questions make clear that FINRA seeks termination information that allows it to assess whether the employee's conduct lacked compliance with regulatory requirements in the securities arena. FINRA does not ask for information about non-securities-related activities because that information falls outside its scope of regulation.

Thus, according to the California Court, the absolute privilege extends to communications required by FINRA, i.e., fraud- and securities-related information. However, the communication of Tilkey's termination here did not regard improper securities-related conduct, and Allstate did not limit its responses to fraud- and securities-related information. Instead, Allstate explained Tilkey's departure was the result of a "termination of employment by parent property and casualty insurance company after allegations of engaging in behavior that are in violation of company policy, specifically, engaging in threatening behavior and/or acts of physical harm or violence to any person, regardless of whether he/she is employed by Allstate. Not securities related." This statement did not contain allegations of improper securities conduct, theft, or allegations or charges of fraud or dishonesty. It was not offered in anticipation of or to initiate an investigation; nor was it offered in the course of any other official 29 proceeding. (See Civ. Code, § 47, subd. (b).) Thus, the absolute privilege does not apply[1].

Substantial Evidence Supported the Jury Findings That Tilkey Was Compelled to Self-Publish a Statement That Was Not Substantially True

The jury concluded that Tilkey was under strong pressure to communicate Allstate's defamatory statement to another person. There was ample evidence to support this conclusion. A “vocational evaluator” testified Tilkey would have a difficult time ever getting another job because he had been terminated, and the reason for termination reported on the Form U5 was negative. He also noted that because Tilkey sold life insurance, he was required to hold securities licenses, and agencies and employers hiring those with securities licenses would have access to U5 forms. Tilkey's supervisor at Allstate, testified that Allstate routinely reviewed the securities public information from the Form U5 of any person they were hiring, and he could not recall ever hiring anyone at Allstate whose Form U5 stated he was terminated for cause. Tilkey testified that when he recruited agents, he would have someone check the Form U5, and he never hired anyone whose Form U5 showed the termination was for cause. He also never received an interview from any company that had access to a Form U5, even though he had 30 years of experience and performed well, receiving the third largest bonus in the state just a few weeks before his termination. Even if the company never offered any specific information about the reason for Tilkey's discharge from employment to prospective employers, its statement at the time of discharge and its reporting of the information on the publicly available Form U5 necessitated Tilkey's self-publication in other settings. In sum, the Court of Appeals upheld the defamation verdict but concluded that the punitive damage award was excessive. More on that later.

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[1] Had Allstate instead eliminated the specifics in its statement, privilege may have attached because Allstate was required to report the termination. For example, it could have supplied the following statement: "Termination of employment by parent property and casualty insurance company after allegations of engaging behavior that are in violation of company policy. Not securities related."

Presidential Candidate Requests Information on Proposed Amendments to FINRA’s Expungement Rules

The Central Registration Depository (“CRD”) and the publicly available online portal, BrokerCheck, comprise FINRA’s registration and licensing system.  Via BrokerCheck, customers, employers, and regulators can access information regarding customer complaints levied against an individual broker.  BrokerCheck plays a key role in allowing customers to evaluate their broker’s track record before making investment decisions.  By the same token, adverse claims can have a devastating effect on a broker’s ability to retain their clients.   

As such, FINRA has established rules for the expungement of certain adverse claims from CRD.  Currently, FINRA Rules 12805 and 2080 control customer complaint expungement proceedings.  Rule 12805 requires that a broker file a Statement of Claim requesting expungement of the customer disclosure.  The panel must:

·    hold a recorded session regarding the appropriateness of the expungement;

·   when applicable, review settlement documents and consider the amount of payments made to any party;

·    provide a written explanation which indicates which of the grounds for expungement under Rule 2080 is the basis for the order; and

·    assess all fees for the hearing against the party requesting expungement.[1] 

Under Rule 2080, grounds for expungement include:

·    the claim, allegation or information is factually impossible or clearly erroneous;

·  the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or

·    the claim, allegation or information is false.[2] 

Following an arbitration award recommending an expungement, the broker must then file a petition in a court of competent jurisdiction to obtain an order confirming the award and directing such expungement.

In December 2017, FINRA published Regulatory Notice 17-42, a proposed amendment relating to requests to expunge customer dispute information.  Regulatory Notice 17-42 would create a roster of arbitrators with specific training and experience to handle all expungement requests.  It would also require:

·       the broker to appear at his or her expungement hearing;

·       unanimous agreement of the three person arbitration panel;

·      expungement requests to be brought within one year of the dispute; and

·       minimum fees for filing expungement requests.[3] 

Since publishing Regulatory Notice 17-42 for public comment, FINRA has not submitted it to the SEC.  As such, the proposed expungement rules are not currently in effect.  In a March 2019 letter to FINRA President and CEO Robert Cook, Senator Elizabeth Warren requested an update on FINRA’s proposed rule changes to its customer dispute information expungement process.[4]  If eventually submitted and finalized, the new process for removing customer dispute information from a broker’s CRD will be more onerous on the broker and likely decrease the frequency with which expungement requests are granted.  Senator Warren’s letter requests, among other things, a timeline for when FINRA will submit Regulatory Notice 17-42 to the SEC for approval.

It is unclear if or when the new CRD expungement rules will be submitted to the SEC and put into effect.  FINRA spokespersons have declined to comment on the substance of Senator Warren’s letter, stating, “We have received the senator’s letter and are working to respond accordingly.”[5] 

Given the uncertainty of the status of FINRA’s expungement rules, it is important that brokers seeking CRD expungement select an attorney capable of guiding them through expungement proceedings under the current and any potential future FINRA rules.  Cosgrove Law Group, LLC has represented numerous individuals in CRD expungement proceedings under the current rules and stands ready to represent brokers in proceedings governed by the proposed amended rules.  If you are seeking expungement of customer complaints from your CRD/BrokerCheck, you may wish to consult with experienced counsel at Cosgrove Law Group.

BY: Max Simpson

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[1] FINRA Rule 12805, http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=7229

[2] FINRA Rule 2080, http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=8468

[3] Regulatory Notice 17-42, http://www.finra.org/industry/notices/17-42

[4]Letter, Sen. Warren to Cook, March 21, 2019, https://www.warren.senate.gov/imo/media/doc/2019.03.21%20Letter%20to%20FINRA%20re%20Broker%20Expungement%20Data.pdf

[5] Financial-Planning.com, Warren presses FINRA for answers on expungement reform, https://www.financial-planning.com/news/elizabeth-warren-presses-finra-for-answers-on-expungement-reform

FINRA’S NEW DISCLOSURE REVIEWS MAY HELP LIFT BURDEN FOR FIRMS AND REPRESENTATIVES

Beginning July 9, 2018, FINRA will conduct an individual public records search on every applicant when a broker-dealer files a form U-4 application for registration.  FINRA currently performs this search for all registered persons—but only annually.  This additional records search—

which will satisfy the requirement to perform a search of records for judgments, bankruptcies, and liens only—will provide added benefit to member firms and registered persons, according to FINRA.  In FINRA’s May 18, 2018 Information Notice, FINRA claims this additional search is “likely to: (1) reduce the costs to firms associated with conducting these public records checks, which often involve finding and hiring a vendor; (2) result in more timely reporting of disclosure information to the benefit of regulators, investors and firms; and (3) result in a significant reduction of late disclosure fees related to judgments and liens[1].”

Numbers (1) and (2) seem like probable benefits to both the member firms and the registered persons.  Saying the same for number (3), however, appears to be a stretch.  Regardless, the burden of these public records searches is real, especially to smaller broker-dealers.  FINRA taking over this requirement is a welcome change and one that makes sense given that it is already performing the annual searches.  Firms and agents will still need to respond to and file any items that are found in these searches, but the searches themselves will no longer have to be performed in-house or by a third-party vender for each registered hire. 

Finally, firms and registered persons are still required to report unsatisfied liens and judgments within 30 calendar days of learning of the event as long as the agent is registered and to report other activity, such as certain criminal matters per FINRA Rules.

Cosgrove Law Group, LLC regularly assists registered persons with disclosure matters, regulatory inquiries, registration matters, and other matters related to industry registration compliance.  We also have experience assisting broker-dealers with regulatory inquiries related to their registration filings.

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[1] Firms and registered persons are required to report unsatisfied liens and judgments within 30 calendar days of learning of the event. FINRA determines whether a filing is late based on the date the registered person learned of the judgment or lien and, if it is late, will assess the late disclosure fee based on that date. See Information Notice 8/17/12 (Late Disclosure Fee Related to Reporting of Judgment/Lien Events). Occasionally, an individual is unaware of the existence of a judgment or lien. The public records search facilitates the identification and timely reporting of these events

Financial Advisors Expunging Baseless Customer Complaints in State Court

The Internet is awash with articles about “bad brokers” with clean U-4s, and “rouge brokers” obtaining expungements of valid customer complaints.  Indeed, studies have been published ostensibly demonstrating that state regulators poses more valuable information on their system than what appears on FINRA’s public Broker-Check data base.  In sum, there is a consensus that too many complaints are being expunged.  But whether that consensus is based on fact is subject to debate.

Regardless, FINRA has repeatedly responded to the hue and cry by making it increasingly difficult for a financial adviser to obtain an expungement of a customer complaint published on his or her professional record.  But amidst all of this anguish and gnashing of teeth, a politically incorrect truth has been left in the shadows.  I feel compelled to share it with you.  Here it is:  some customer complaints are baseless.  There; I said it.

Another often-overlooked fact is that FA’s are able to go straight to a court of law, rather than a FINRA arbitration, to obtain an expungement.  Almost exactly one year ago, FINRA issued new guidance to its arbitrators raising ever higher the procedural bars for a panel to recommend expungement[1].  Should a FA surmount the procedural hurdles and slim avenues to success, the FA still has to go to court to get the Award confirmed.  And, in that state court action, he or she still needs to name FINRA as a party so that they can show up and oppose the FINRA arbitrator’s recommendation.

But FINRA Rule 2080 actually reads as follows:

2080. Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System

(a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.

(b) Members or associated persons petitioning a court for expungement relief or seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents unless this requirement is waived pursuant to subparagraph (1) or (2) below.

(1) Upon request, FINRA may waive the obligation to name FINRA as a party if FINRA determines that the expungement relief is based on affirmative judicial or arbitral findings that:

(A) the claim, allegation or information is factually impossible or clearly erroneous;

(B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or

(C) the claim, allegation or information is false.

(2) If the expungement relief is based on judicial or arbitral findings other than those described above, FINRA, in its sole discretion and under extraordinary circumstances, also may waive the obligation to name FINRA as a party if it determines that:

(A) the expungement relief and accompanying findings on which it is based are meritorious; and

(B) the expungement would have no material adverse effect on investor protection, the integrity of the CRD system or regulatory requirements.

(c) For purposes of this Rule, the terms "sales practice violation," "investment-related," and "involved" shall have the meanings set forth in the Uniform Application for Securities Industry Registration or Transfer ("Form U4") in effect at the time of issuance of the subject expungement order.

It seems as if very few have read the actual rule.  I recently read an attorney blog that makes no mention of the direct-to-court avenue whatsoever!  Well, our attorneys are very familiar with both the state court and arbitration options and procedures. 

   

There is actually some case law out there on a financial adviser’s right to go to court to seek an expungement.  In Lickiss v. FINRA, 208 Cal.App. 4^th 1125 (2012), the California Court of Appeals reversed a lower court’s dismissal of the FA’s petition.  In fact, it held that the trial court abused its discretion by limiting itself to the criteria set forth in Rule 2080(b), rather than employing the court’s broad equitable power and discretion.  The Court of Appeals stated in part:

            FINRA has established BrokerCheck, an online application through which the public may obtain information on the background, business practices and conduct of FINRA member firms and their representatives.   Through BrokerCheck, FINRA releases to the public certain information maintained on the CRD, thereby enabling investors to make informed decisions about individuals and firms with which they may wish to conduct business.   This data includes historic customer complaints and information about investment-related, consumer-initiated litigation or arbitration….

            The issues surrounding Lickiss's sale of CET stock occurred more than 20 years ago, and the one regulatory matter against him resolved 15 years ago in 1997.   Since then, his record has been clear, yet Lickiss attested that he suffers professional and financial hardship relating to the prior sale of CET stock because current and potential clients increasingly use the Internet to obtain his BrokerCheck history.

Lickiss petitioned for expungement of his CRD records, asserting that the superior court had jurisdiction “pursuant to (1) FINRA Rule 2080(a);  [and] (2) the Court's equitable and inherent powers to effectuate expungements.”…

FINRA removed the action to federal court.   Upon Lickiss's motion, the federal district court remanded the matter back to the state superior court, ruling that it did not have subject matter jurisdiction over the case because there is no statute, rule or regulation imposing a duty on FINRA to expunge….

Had Lickiss merely petitioned the court for expungement relief under rule 2080, without also invoking the court's equitable powers, that might be the end of the matter.   However, Lickiss explicitly invoked those powers….

Equity aims to do right and accomplish justice.  (Hirshfield v. Schwartz (2001) 91 Cal.App.4th 749, 770.)… 

The equitable powers of a court are not curbed by rigid rules of law, and thus wide play is reserved to the court's conscience in formulating its decrees… 

This basic principle of equity jurisprudence means that in any given context in which the court is prevailed upon to exercise its equitable powers, it should weigh the competing equities bearing on the issue at hand and then grant or deny relief based on the overall balance of these equities…

The choice of a very narrow, rigid legal rule to assess the legal sufficiency of Lickiss's petition—a choice that closed off all avenues to the court's conscience in formulating a decree and disregarded basic principles of equity—was nothing short of an end run around equity…

This is not, as FINRA contends, merely a request for a remedy.   Rule 2080(a) essentially recognizes the right of members and associated persons to seek expungement of information from the CRD system by obtaining an order from a court of competent jurisdiction directing such expungement. 

See also Lickiss v. FINRA, Fed.Sec. L. Rep. P.96, 345 (2011). Compare Updegrove v. Betancourt, 2016 WL 3442762 (2016).

  

If you are a FA who has a U-4 scarred by one or more clearly erroneous customer complaints, we would be happy to evaluate your prospects for success in seeking an expungement in state court or arbitration.  Your chances of erasing an unfair or unfounded complaint in a court of law at a reasonable cost might be better than you think.

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[1] http://www.fa-mag.com/news/finra-continues-to-tighten-lid-on-expungements-with-newly-enhanced-arbitrator-guidance-23443.html

http://finra.complinet.com/en/display/display.html?rbid=2403&record_id=15841&element_id=11616&highlight=2081#r15841

FINRA's BrokerCheck Posting Terminations More Quickly, but Firms Still have 30 days to Report

FINRA's RegulatoryNotice 15-39 is getting a little blog time, but sadly some law firms writing about it seem to misunderstand not only the Notice itself, but also the implications of the changes that have been implemented.  

FINRA Rule 8313 governs the body’s public disclosure of the professional history, business practices, and conduct of their security industry member firms, associates, and those affiliated with the Central Registration Depository (CRD). The Notice, issued December 12, 2015, advises of the approved change to this rule that effects the timeframe in which FINRA releases information to the public through its online BrokerCheck report system.

FINRA currently requires firms to report the termination of a representative’s registration/employment with them within 30 days of the termination through the CRD system[1]. In other words, once a representative leaves or is fired from his or her job with XYZ Financial Services, XYZ has 30 days to file a Form U5 regarding that termination. Once the U5 has been processed, it becomes available for FINRA to post on BrokerCheck, and the states to provide in the CRD Snapshot. 

The Notice states that the time FINRA must wait (after processing the filing) before making the U5 available for public access has decreased by 80 percent, from 15 days to three (3).  While this is a big change, and worthy of plenty of blog time, it in no way effects the 30-day window employment firms have to make the U5 filings.  

Now to the real heart of the matter:  Fairness.  

According to FINRA, “a three-business-day waiting period is more reasonable than a 15-day period because it allows investors to more quickly access disclosure information reported on Form U5 while at the same time still providing brokers with the opportunity to comment on the reported disclosure event.” FINRA claims this was necessary for it to fulfill its mandate to, “prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest[2].”  

While FINRA's argument is for prompt disclosure to the public, they miss a key element in this process—the accuracy of the firm's Form U5 filing.  The problem is that firms sometimes have reasons to file improper or down-right false U5s[3]. (See a previous blog titled “How to Terminate,Discredit, and Interfere with a Financial Adviser: the U-5.”) 

Until FINRA member firms are held accountable for improper U5 termination language, the shorter window does little to ensure that fair and accurate information is being provided to the public, much less in a prompter fashion.  The initial 15-day window was selected to provide the representative with at least some amount of time to respond to the filed termination language before it became public.  Changing that window to three days eliminates that opportunity.  While FINRA seems to be trying to make strides to be more transparent and customer-friendly, they once again ignore that their own members are, at least initially, able to wantonly disparage brokers and reap the benefits that an improper, overly harsh, inaccurate, or unfair U5 can bring to them.  

David Cosgrove and Cosgrove Law Group, LLC have handled many U-5 defamation cases over the past several years. If you believe you are a victim of U5 defamation, please contact our firm and speak with one of our qualified attorneys.

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[1] The CRD is an online registration and licensing database that allows for the filing of required forms related to the securities industry that must be submitted for a multitude of reasons, such as “Form U5 – Uniform Termination Notice for Securities Industry Registration.” Regardless of the circumstances surrounding a representative leaving the firm to which they are registered, a U5 must be filed by the firm with the CRD within 30 days of the date of termination, as well as be provided to the representative. FINRA determines what portions of the CRD filings become publicly available on BrockCheck.

[2] Securities and Exchange Commission (2015 September 25). Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Change to Amend FINRA Rule 8312 (FINRA BrokerCheck Disclosure) to Reduce the Waiting Period for the Release of Information Reported on Form U5 (Release No. 34-75988; File No. SR-FINRA-2015-032) [electronic format]. Retrieved from https://www.sec.gov/rules/sro/finra/2015/34-75988.pdf

[3] Most U-5 disclosures, however, are free of defamatory content or tortious intent. In other words, most broker-dealers satisfy their obligation to ensure a full, fair, and accurate reporting. There are, however, far too many times where this is not the case.