Robert W. Pearce, a Florida based securities lawyer with a practice that includes representation of financial advisors answers one of the more frequently asked questions: How can I protect my CRD or my BrokerCheck record?
My name is Robert Pearce and I often get the question, “Well, how can I protect my CRD or my BrokerCheck record?” Both records are sourced from the same information, both records are controlled by FINRA. The sources of information that appears on your CRD or your BrokerCheck is information filed by the broker-dealers, the initial Form U-4 or the one that is filed as an Amended U-4 later on during the course of your employment or information filed on a Form U-5 or an Amended Form U-5 after your employment is terminated at the firm.
Most brokers know the importance of having clean CRDs and BrokerCheck records. They know they don’t want to have a large number of complaints in their record. They don’t want to read that the broker may have engaged in
some potential misconduct that the broker dealer was investigating at the time of termination. They know that brokerage firms today, far more today than it was in the past, have very limited willingness to hire employees with checkered records. They know that regulators, when they see checkered records, are more likely to hold up a registration in a particular state. Particularly when you change employers, you have to file a new application not only with FINRA, but each state and get re-registered and state regulators see these records and when they see multiple complaints or some notation by the prior brokerage firm that you worked for that you were under investigation and they’ll hold up the registration. They might outright deny the registration. So you want to have as clean record as possible.
Now it’s a lot easier for a regulator to deny an application, that is, the privilege to be registered in their state than it is for them to take away that license. So while you’re employed with the firm, if there is an Amended U-4 that is filed because of a customer complaint and you believe it’s unfounded and it’s not prosecuted through an arbitration, or it goes through an arbitration and you win, you want to try and have that bogus complaint expunged because if it has no merit, it shouldn’t appear in your record.
The Form U4 not only contains information about customer complaints, but they have information about bankruptcies, final judgments, tax liens and if you’re under internal investigation by the firms for some violation of securities laws or other investment statutes or the firm’s policies and procedures, all that information can appear on your Form U-4 and have consequences.
If your employer is unaware of a disclosable event, you have an affirmative obligation to advise the employer and see that your Form U-4 is amended because if you fail to do that, FINRA can initiate an action against you for failing to disclose a reportable event. In fact, there was a widespread sweep several years ago about tax liens that many, many thousands of FINRA
brokers were caught up in because they had not disclose that information to their employers. Similarly, not only failing to disclose information, but if you answer a question incorrectly on the Form U-4 or an Amended U-4, you could be prosecuted by FINRA for filing a false answer similar to non-disclosure.
Rarely will you want to initiate an arbitration dispute with your current broker dealer with respect to something on a Form U-4 and so, before it appears there, you want try to to negotiate with them and make sure it’s toned down so that it doesn’t cause you problems in the future. The one exception to that rule is if there’s a false customer complaint that’s been filed against you, one that went to arbitration that the broker dealer and you won, you want to get that of your CRD and off your BrokerCheck as soon as possible. And the only way you can do that is through the filing of an expungement proceeding, in which your broker dealer and/or the customer, typically the respondents.
Now, the document that most often triggers a black mark on your CRD or your BrokerCheck is the filing of a Form U-5 and that’s the Termination Notice, where the broker-dealer indicates whether the termination is voluntary which causes no problems. But when you’re “permitted to resign” or you were “discharged for cause”, the broker must fill out the form and provide an explanation as to what happened and this could cause you a problem.
These notations on the Form U-5 are what trigger the most disputes between the broker and the broker-dealer. Sometimes before the U-5 is filed … and I should say not sometimes, more times than not, you get notice from your former employer about what’s going to appear on the U-5 and they have 30 days to file the document. And so generally you have a very short window after you’re terminated to hire an attorney, and get that attorney to speak to your former employer, and tone down the explanation. Maybe you can get a change from a “discharge” to a “permitted to resign” or “permitted to resign” to a “voluntary” termination notice. You’re certainly not going to get them to go from a “discharge” to a “voluntary” termination reason. But you need to get an attorney involved because now is the time to try to protect your record. Because if you don’t protect it at this point in time, or if you wait, or if you ignore it, the only way that you can get a false and defamatory remark on your record eliminated, expunged is to file an arbitration against that firm. And by that time, the regulators could have picked up on it; your future employer could have picked up on a disclosure, and refuse to hire you any longer; or the state regulators can refuse to register you. So you need to act very quickly when you’re terminated from a broker-dealer and receive a draft of the Form U-5, that’s going to be filed. If it’s false, if it’s defamatory, you need to act quickly, hire an attorney who can hopefully talk the broker-dealer out of making a mistake and protecting your CRD and your BrokerCheck without going to arbitration.
Click the following link to watch Attorney Pearce’s video on how to clean up CRD records.