Impact of an Employment Separation After Allegations Disclosure on your CRD: As recently as a few years ago, few investors either knew of or utilized the BrokerCheck portal for the purposes of vetting current and potential advisors. An ESAA disclosure at that time went, for the most part, undetected. The very same disclosure is now easily found and taken into consideration not only by future employers, but by current and potential investors alike. The recent proximity of harm caused by the ESAA affords reps the opportunity to seek an expungement of the ESAA as well as a monetary award to indemnify them for the economic impact it has had upon their business.
Current & Potential Clients In 2015, the annual number of BrokerCheck searches executed on the site jumped to 71 million; compared to 29.4 million in 2014. This steep increase clearly demonstrates the growing habit among the investing public of vetting current and potential advisors. When investors view an advisor’s BrokerCheck profile and choose not to invest with the advisor because of an ESAA disclosure on his or her BrokerCheck profile, the affected broker is rarely made aware of the basis for their decision.
Prospective Employers/Transitioning With ever-changing B/D ownership/acquisitions, regulatory road blocks, and changing product lines, advisors are sometimes left with little choice but to transition in order to satisfy the investment needs of their clients. Despite the clear benefits to both the advisor and the investors, transitioning to firms with even a single ESAA disclosure has become increasingly more difficult. In addition, the amount of consideration/compensation given to the transitioning advisor is typically scaled back as a result of the ESAA disclosure.
Forward-looking Regulatory Hurdles Experienced advisors easily grasp the notion that disclosures beget more disclosures. Data reveals an increasing likelihood of an additional disclosure based upon the total number of disclosures on any individual advisor’s BrokerCheck profile. This commonality is consistent throughout market cycles and regulatory shifts, regardless of tenure.
Seeking Expungement and/or Indemnification Through Arbitration: Simply put, neither the former employer who filed the U5 nor your current employer may unilaterally remove the event entirely from the CRD. Full removal of an ESAA disclosure and the underlying U5 must be granted by a FINRA arbitration panel.
Because the harm caused did not occur until the popularity and use of BrokerCheck grew (in recent years), the clock on the six-year limitation on filing an arbitration claim likely only began to run very recently.
False or Misleading “Allegations” or “Broker Comments” If you have an Employment Separation After Allegations disclosure on your CRD, it is important to consider whether it contains allegations that are untrue or could in any way mislead readers, or whether it is populated with a broker comment which you did not author. If so, there is a high likelihood that your business has been negatively impacted by the existence of the disclosure. Likewise, the false or misleading information may amount to defamation; which is the basis by which both an expungement award and monetary damages can be obtained.
Arbitration as a Solution The mechanism available to all FINRA registered reps and affiliated individuals is to seek an expungement award through formal arbitration. Through the very same process, a secondary component of the arbitration filing is a request for monetary relief to offset the loss of income resulting from the ESAA. Most often, the expungement is coupled with the request for monetary damages due to the substantial interplay between the misleading information published on BrokerCheck and the injury which it has caused.
The pathway to receiving either or both the expungement award and the monetary damages requires a great deal of precision. FINRA recently issued a decision on a request for expungement (Case Number 16-00580) filed in April of 2016 and decided in September of 2016. In this matter, the claim was dismissed with prejudice. Such a dismissal means that the matter may not be brought before FINRA on another occasion. It will remain on the rep’s CRD for good.
If you are interested in further exploring what is involved in removing a U5/ESAA from your CRD, call or email us today.