FINANCIAL ADVISER TERMINATIONS

It’s what we do here at Cosgrove Law Group, LLC.

              Believe it or not, there are instances in which a broker-dealer seeks out pre-textual reasons for a termination.  Some reasons are more frivolous than others.  For many advisers, an involuntary termination is nothing more than the first chapter of a multi-chapter nightmare.

            The broker-dealer has 30 days from the date of termination to file the U-5, a disclosure to FINRA that modifies the adviser’s U-4 with information regarding the termination.  The U-5 disclosure includes both narratives and the checking of “yes” or “no” boxes.  Notably, which boxes are checked or not will impact what, if any, information is added to the publicly accessible BrokerCheck Report.

            Once the U-5 is filed, and sometimes before that, FINRA and state regulators will make inquiry as to the disclosure.  Before that, however, potential employers will want to know what is, or will be, on the U-5.  During this early post-termination window, while the adviser is trying to get hired and registered, it is common for the former broker-dealer’s agents to solicit the departing adviser’s clients.  Sadly, these solicitations frequently cross the line between fair competition and tortious interference/defamation.

            It should be obvious from this brief summary that it is critical to retain counsel as soon as you begin to even sense that things are going south with your current broker-dealer.  Sometimes the legal department of the broker-dealer will step in and correct its clients’ improper behavior.  Moreover, there are times when the U-5 language initially intended can be modified to be, while still accurate, less prejudicial or inflammatory in nature.  If all else fails, filing an arbitration claim for compensatory and punitive damages and an expungement is a final avenue of recourse.  Please do not try to navigate these treacherous waters by yourself.

The attorneys of Cosgrove Law Group, LLC represent investment advisors, brokers, and other associated persons nationwide in securities employment and regulatory matters, including U-5 defamation matters. Our attorneys also practice in a variety of other areas of law.  If you have a legal matter or concern, please give us a call and speak directly with one of our experienced professionals.

REPRESENTING ELDERS AND ATHLETES

It wouldn’t seem likely that elders and athletes would have much, if anything, in common.  But they do.  They are frequently blessed with substantial semi-liquid assets, and are therefore the targets of fraudulent or reckless investment schemes.

Much has been written about why professional athletes are frequent victims.  And the last professional athlete I represented possessed many of the following common attributes:

·         Young and inexperienced with finances;

·         Rapidly accumulating substantial wealth;

·         Easily identified as a person with substantial wealth subject to potential investment;

·         Highly focused on meeting the demands of a career requiring singular attention, frequent travel, and unplanned relocations.

As a result, the media is littered with accounts of massive investment losses suffered by current and former athletes.  Some of the statistics are shocking.  For example, from 1999-2002 78 NFL players lost over $40 million to fraud.  According to a Sports Illustrated article, approximately 60% of NBA players are “broke” within five years of their retirement from the league.  And in 2014 former Yankee star Jose Pasada sued two financial advisers that allegedly bilked him of $11 million through real estate and hedge-fund investments.

The National Football League Players’ Association took action in 2002 and created a Financial Advisors Program. The Program required advisers to apply and be screened for approval for inclusion in the program.  But it was not sufficiently robust.  For example, just a few years after the program was initiated, an approved financial adviser lured several active players in to a hedge fund.  The players lost almost $20 million and the adviser was convicted of securities fraud and money laundering.  Moreover, some approved advisers use their NFLPA registration as a marketing tool.  One even suggests that their athlete clients can be free of financial distractions while the adviser constructs a “bulletproof” financial retirement plan.  That type of pitch seems to encourage the very characteristics that lead to the financial victimization of athletes.  Laurence Landsman wrote an excellent article that was published in the National Sports Law Institute’s Journal in 2010.  He called for reforms to the NFLPA program.  And the NFLPA made them in 2012.  Now when will the NBA, NHL, and MLB get on board?

There are strong parallels between the methodology and prevalence of financial exploitation of athletes and elders.  Our firm has represented several elder investors over the years.  And all of us are former securities regulators that witnessed the pace and pattern of financial elder abuse.  Elders frequently have a large accumulation of wealth available for investments, and they are prone to over-trust and over-rely on their financial advisers.

In 2012 Stephen Dunn published in Forbes a list of do’s and don’ts for professional athletes.  They are, however, equally applicable to our elders.  Just a few of them are:

·         An adviser’s trustworthiness is paramount;

·         Invest with advisers associated with a well-established firm;

·         Don’t pretend you are a business mogul.  Kurt Schilling’s saga may be a good tale of caution, and;

·         Avoid complex investment schemes.

And I have one final self-serving but sound piece of advice:  retain an attorney that is independent of your financial adviser and who is also sophisticated in investment matters.  That attorney should be called upon to interface with your adviser and help you evaluate the wisdom and risk of your adviser’s proposals, background, etc.  Food for thought.

1.  https://www.sec.gov/news/pressrelease/2016-83.html
2.  ESPN's "Broke" : https://www.youtube.com/watch?v=Elfw0ESih-A