SIFMA Requests Changes to Form U5 Expungement

Recently, SIFMA has expressed concerns to FINRA about the current state of Form U5 defamation claims in FINRA’s arbitration forum. Essentially, they are concerned with claims for expungement based on “the defamatory nature of the information” instead of “actual claims for defamation”(Carroll) and they feel the current system does not provide enough guidance for arbitrators and firms. They feel this method, along with “lack of training” can lead to unfair arbitration outcomes. SIFMA has proposed several changes, including pre-filled Form U5 questions and a safe harbor provision to protect reporting firms.

These changes are unnecessary and make it extremely difficult for defamed financial advisors to get their Form U5 expunged. The timeline and manner in which a firm file their description of why a financial advisor left is their own responsibility. If the Form U5 is amended or has pre-filled options to choose from, it makes reasoning more vague and harder to define the specifics of the situation. When reasons are entered in manually, they are more accurate. Additionally, the request for a safe harbor is unnecessary when compliance officers are already in place to sign off on truthful and accurate information.

Furthermore, SIFMA in proposing these changes, fails to accept the responsibility of firms providing numerous false and defamatory Form U5 entries, which are resulting in arbitration awards against firms. These claims are being ruled on by a Panel of arbitrators who are trained neutral professionals provided by FINRA. SIFMA is not factoring in firms weaponizing the Form U5 to make it difficult for financial advisors to move their book of business or find other employment in the industry. Compliance officers for firms are required to check off the information provided is accurate and honest. This is more of a failure for major firms and there should be increased penalties for firms that violate their duty to be honest and accurate.

The Form U5 is in place today to provide truthful explanations as to why a financial advisor is leaving a firm. If those claims are inaccurate, then the financial advisor is able to seek assistance from a team like us at HLBS Law, to file for expungement or file a claim for damages. Without this system, financial advisors will be wrongfully terminated and will not be able to clear their unjust tarnished record.

Lastly, the argument for changing the form U5 based on the notion: the firms are losing lots of money due to the mistakes of the financial advisors and brokers, is frankly biased. Many of these large firms have “deeper pockets and vast resources”(Taffe) which is significantly more than the individual broker, who often has to take the fall while the firm gets to wash their hands of any errors.

Bibliography:

Carroll, Kevin. “Form U5 Defamation Claims for Money Damages: Recommendations to Improve the Fairness of Adjudications.” SIFMA, 20 Feb. 2024, www.sifma.org/resources/submissions/form-u5-defamation-claims-for-money-damages-recommendations-to-improve-the-fairness-of-adjudications/.

Taffe, Michael. “Rising Defamation Claims Prompt Industry Call for U5 Changes.” Financial Advisor IQ, 8 Apr. 2024, www.financialadvisoriq.com/c/4471074/583464/rising_defamation_claims_prompt_industry_call_changes.

Photo by: Cytonn Photography