ARE YOU A FINANCIAL ADVISOR WITH A WRONGFUL TERMINATION OR DEFAMATION CLAIM?

            Advisors terminated by their broker-dealer should immediately retain experienced legal counsel.

The broker-dealer has 30 days after termination to file the mandatory U-5.  Legal counsel can help you negotiate fair and accurate language for this critical and potentially public disclosure.  Moreover, how the U-5 is completed above and beyond the narrative “reason for termination” can be pivotal.

          Many advisors fail to appreciate that, for the most part, their broker-dealer can terminate them without cause.  But there are contractual and public policy exceptions to this general rule that must be evaluated.  Cosgrove Law Group has extensive experience working with financial advisors who have been terminated, including not just U-5 issues, but also issues such as promissory notes and other compensation matters.

BROKER TERMINATIONS

Are you a financial adviser who has been terminated unfairly?  Well, if you are, you are not alone.  The attorneys at Cosgrove Law Group, LLC have represented advisers all over the country who have fallen prey to a system very unique to the financial services industry – the internet publication of involuntary termination justifications via the Form U-5.  And while the regulators thought this system would be a good thing for investors, it has proven to be a devastating system for many innocent advisers.  We refer to it as “the weaponization of the U-5.”

You will not obtain a new position with a Broker-Dealer or hybrid until your U-5 is filed.  And you probably will not get hired if it contains a negative narrative or one of the answers to question #7 (a) – (f) is marked in the affirmative.  Nor will your home state or FINRA register you until they are done investigating the purported reasons for termination.  If you are in this horrible situation, call us for help today.

How to Terminate, Discredit, and Interfere with a Financial Adviser: the U-5

I did not design the method I am about to share with you. Nor do I condone it. But I have observed its employment repeatedly during my legal representation of financial advisers. And although some of the players on the field participate unwittingly, there is always a motivating participant. So, this is how it often works:

1. A FINRA broker-dealer needs a sacrificial lamb (or two) to satisfy a regulator, or a manager or large producer has an ax to grind, or a large producer is seeking to leave with a substantial piece of the broker-dealer's overall assets, or Compliance is too lazy to ferret out a false accusation against a financial adviser.
2. The motivating participant employs Compliance to (unwittingly?) establish an alternative pre-textual basis for termination. Sometimes it is a sales or management practice that has been accepted or overlooked for years.
3. The motivating participant and Compliance employ Legal and Registration, under cover of the attorney-client privilege, to approve and issue a sufficiently disabling Form U-5 disclosure¹. Extra damage can be done by simply checking any of the “yes” boxes under U-5 question 7. This can be too-easily justified by expanding the scope of the term “industry standards” in question 7E. 7E will trigger a public disclosure and regulatory investigation.
4. Delay #1: The broker-dealer has 30 days after the termination to file the Form U-5. It can also update it at any time should updates be necessary.
5. Delay #2: State regulators will refuse to register the financial adviser until they can investigate the basis for the U-5 disclosure. They may take weeks or months to inquire of the financial adviser and broker-dealer, giving the unmotivated broker-dealer 30-60 days to respond to their request for information. Often times this lengthy response time is used by the broker-dealer to craft a letter that is misleading and refers to the financial adviser in the worst possible light. A copy is not sent to the financial adviser.
6. Delay #3: FINRA will likely demand documents and explanations as well from all of the parties.
7. During the pendancy of #'s 3, 4, and 5, the broker-dealer may aggressively enforce non-solicitation or non-compete provisions. The successor financial adviser will call the departing financial adviser's book and, among several tactics, claim that he/she does not have contact information for the departed financial adviser. He or she may also encourage the client to view any disclosures on BrokerCheck and to stay with the current broker-dealer².
8. Finally, a promissory note balance may be used to exert extra financial pressure or silence from the financial adviser.

This is the basic anatomy of a tortious scheme to interfere with a financial adviser's business relationships. If you are currently or about to be a part of this game, either as a victim or hesitant participant, I urge you to contact me³ immediately.

1Most 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.

2This is a critical footnote. One or more of the players may simply be mean-spirited or incompetent. While this person may be the motivating player, he or she is usually manipulated and used by the motivator. The ultimate financial adviser victim—typically our client—frequently has a character defect (like all of us) that is exaggerated and exploited.

3David Cosgrove has handled U-5 matters involving MetLife Securities, US Bancorp Investments, Questar, US Allianz, Edward Jones, Raymond James, Morgan Stanley, ING Financial partners, and others.    

Former Morgan Stanley Branch Manager Awarded $1 Million in Compensatory Damages in a FINRA New Years Day Award.

In 2011, Claimant Gregory Carl Torretta (“Torretta”) filed a claim with FINRA against Respondent Morgan Stanley Smith Barney (“Morgan Stanley”) for violations of FINRA rules, breach of employment contract, and wrongful termination.

Torretta was a former branch manager at Morgan Stanley at a two-branch complex in Garden City, New York. His termination allegedly stemmed from his oversight of another manager who was underperforming in his duties. The unidentified manager complained to Torretta about the oversight process in an email that was copied to Torretta’s boss. The email also implied that Torretta had discussions about leaving Morgan Stanley and suggested that Torretta encouraged the manager to follow him.

Despite denying the allegations of having those discussions with the manager, Torretta was given the choice to voluntarily resign or be terminated. Torretta chose to voluntarily resign. The key issue in the case was Morgan Stanley’s own procedures for handling such matters which Torretta alleged were not followed.

In Torretta’s statement of claim, he requested compensatory damages in the amount of $4.5 million. At the close of the hearing, Torretta requested compensatory damages ranging from $8 million to $9 million.

The hearing took place in New York City in front of Chairperson Marguerite Filson, Public Arbitrator Paul Blederman, and Non-public Arbitrator Joel Morton Newman. On January 1, 2013, the panel awarded Torretta $1 million in compensatory damages. In customary fashion, the panel did not explain the award.

If you believe you have been wrongfully terminated from a FINRA Member Firm, please contact the experienced attorneys at Cosgrove Law Group, LLC.

For a copy of the opinion, see FINRA Cause No. 11-01914.