Posts tagged with "broker"

Form U5 – Employment Termination in the Securities Industry

Broker-dealers, investment advisors, and issuers of securities routinely use Form U5 to terminate the registration of an individual whose employment has ended and to notify the appropriate jurisdiction or self-regulatory organization.  Employees are still subject to the jurisdiction of regulators for at least two years after the registration has been terminated and may have to provide information about the association with their former employer.  The section of Form U5 that may be the most problematic concerns the reason for the termination that must be provided by the employer.

Reason for Termination

If the employer elects to describe a full termination as “permitted to resign,” “discharged,” or “other,”, then an explanation must be provided.  No such explanation is necessary if the full termination is deemed “voluntary.”  Disclosure of the employee’s involvement in investigations, internal reviews, regulatory actions, criminal matters and customer complaints must also be made by the employer.

In many cases, an employer and employee may disagree on what led to an employment termination and on the circumstances of the departure.  A disparaging remark, untrue statement or misleading explanation on Form U5 can jeopardize the ability of an individual to continue working in the securities industry.  A prospective employer may pass over a job candidate who has what has come to be known as a “Dirty U5” from a previous employer.

Dirty U5s

The Financial Industry Regulatory Authority (“FINRA”) does provide a forum for an employee to pursue arbitration against a former employer to contest a “Dirty U5.”  However, the best course of action is to avoid the problem from ever arising.  Registered employees in the securities industry are well advised to seek legal advice and counsel once it becomes apparent that their employment may be coming to an end.  In many cases, the disclosures made in the Form U5 by the employer may be mutually agreed upon before the employment termination ever occurs.

Should you have any questions relating to the Form U5, or employment issues generally, please feel free to contact Joseph Maya or the other experienced education attorneys at Maya Murphy, P.C. today at (203) 221-3100 or by email at JMaya@Mayalaw.com.

Five Things You Need to Know About Connecticut Separation Agreements

As a result of the state of the economy, in general, and in Fairfield County, in particular, we in the Westport, Connecticut office of Maya Murphy, P.C. have seen a spate of Separation Agreements brought to us by recently terminated employees.  Our experienced employment-law attorneys review and critique these Agreements, and often advocate on behalf of our clients to enhance a separation package.

Here are five things you need to know about Separation Agreements:

They are here and more may be on the way. 

Companies are scrutinizing their bottom lines to try to increase profits, decrease expenses, and improve share value or owner’s equity.  If sales can’t be increased or cost-of-goods-sold decreased, one alternative is to cut personnel.  Often senior (and more highly paid) employees are let go in favor of younger (i.e., “cheaper”) employees, thereby also raising the specter of an age discrimination claim (a topic deserving of its own post).

They are complex. 

For an employee over the age of 40, a federal statute known as the “Older Workers Benefit Protection Act” requires that your Separation Agreement contain certain provisions, including a comprehensive release of all claims that you might have against your employer.  The statute also gives you specific time periods to review the Agreement prior to signing, and even to rescind your approval after you have signed.  It is not uncommon to have Separation Agreements exceed 10 pages in length.  All of the language is important.

They are a minefield. 

Separation Agreements frequently contain “restrictive covenants,” usually in the form of confidentiality, non-solicitation, and non-competition provisions.  These can have a profound effect on your ability to relocate to another position and have to be carefully reviewed and analyzed to avoid potentially devastating long-term consequences after the Agreement has been signed and the revocation period has expired.

They are not “carved in stone.”

Although many companies ascribe to a “one size fits all” and a “take it or leave it” policy with regard to Separation Agreements, such is not necessarily the case.  Often, Maya Murphy employment attorneys can find an “exposed nerve” and leverage that point to obtain for a client more severance pay, longer health benefits, or some other perquisite to ease the client’s transition into a new job with a new employer.  Every case is factually (and perhaps legally) different and you should not assume that your severance package should be determined by those that have gone before you.

You need an advocate.

You need an experienced attorney to elevate discussion of your Separation Agreement above the HR level.  HR directors have limited discretion and are tasked with keeping severance benefits to an absolute minimum.  Maya Murphy’s goal is to generate a dialogue with more senior management to drive home the point that a particular client under certain circumstances is equitably entitled to greater benefits than initially offered.

If you find yourself in the unfortunate position of having been presented with a Separation Agreement, you should contact Joseph Maya and the other experienced employment law attorneys in our Westport, Connecticut office by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Expunging a Dirty U-5—Be Careful What You Ask For!

Expunging a Dirty U-5

The view from the impending “fiscal cliff” takes in much of Fairfield County’s “Gold Coast”—Greenwich, Stamford, Darien, and Westport.  We at Maya Murphy, P.C. represent many residents employed in the financial industry, both within and without the State of Connecticut.  Some of their financial employers may be considering reductions in personnel depending upon the results of the upcoming Presidential election, Congressional action (or inaction) concerning “taxmaggedon” and “sequestration,” and their own Q4 and year-end results.  If a financial firm retrenches, there will be a dirty U-5 on “the street.”

We are often asked about the possibility of “scrubbing” a U-5 or expunging it altogether.  The current economic climate and new proposed rules from FINRA warrant a warning that usually accompanies our advice.

The current FINRA Customer and Industry Codes do not afford “unnamed persons,” i.e., the subject of allegations but not named parties to the underlying arbitration, to seek expunging of allegations reported to the Central Registration Depository (“CRD”) on Form U-5 (and available to the public through such resources as “Broker Check”).  To rectify that situation (recognizing that a dirty U-5 impacts one’s livelihood), FINRA has proposed In re expungement rules seeking to balance the respective interests of the registered professional and the investing public.  Public comment on the proposed rules was closed on May 21, 2012.

The purpose of this post is not to critique the new rules that, while not problem-free, at least address the issue of incorrect allegations remaining on CRD records in the absence of an evidentiary hearing to determine the accuracy of those allegations.  The purpose of this post is to point out that the new rules, in whatever final form they may take, can be a cure worse than the disease.

The Original Language

There is no denying the injustice of having a registered representative’s U-5 amended to reflect a customer complaint without the representative being named as a respondent in subsequent arbitration. The net effect is to have the representative tried in absentia without the ability to present evidence or cross-examine witnesses by way of defense.  The proposed In re expungement rules, however, may not be all they are cracked up to be.  A recent FINRA arbitration decision points up the problem.

In the Matter of the FINRA Arbitration between Eduard Van Raay, Claimant v. Raymond James Financial Services, Inc., et al., Respondents (FINRA 11-04544, July 16, 2012), the underlying claim was settled and an arbitrator was appointed solely for the purpose of considering a request for U-5 expunging.  The original offending, terminating language was: “Violation of firm policy. Failure to disclose an outside business activity (personal representative relationship with a client).”  After the arbitration, the recommendation was for the language to be amended to read: “Permitted to resign. Advisor chose to continue unapproved outside business activity.”  This was hardly an improvement to that which he sought to have expunged.

The Post-Arbitration Language

The original language was cryptic, susceptible to differing interpretations, and perhaps easily explained.  The post-arbitration language, however, was clear, concise, damaging, and most importantly, the product of FINRA arbitration.  Instead of vague allegations of a personal relationship with a client, the representative’s CRD will now be saddled with a finding that he chose to continue an unapproved outside business activity.  The takeaway is that the outcome would not survive a rigorous pre-arbitration risk/reward analysis.  Arbitrations, as with lawsuits, are a lot like wars—they are easier to start than to stop.  They often bring with them unintended consequences.

The new In re expungement rules present registered representatives with an additional option that was previously unavailable.  Assuming their future adoption, that does not mean that every offending CRD entry should be the subject of a FINRA arbitration.

Whether, and when, to pursue expunging is a decision that should be discussed thoroughly with a seasoned litigator familiar with the FINRA Rules and decisions.  We, here, in Maya Murphy’s Westport, Connecticut office stand ready to assist in that regard.  Please contact Joseph Maya and the other experienced attorneys at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com to schedule a consultation today.

Defining “Marketing” in Connecticut Non-Compete Agreements

Express Scripts, Inc. v. Sirowich, 2002 Conn. Super. LEXIS 3444
Case Background

Ms. Patricia Sirowich worked as a broker at Express Scripts, Inc. (ESI) offering pharmacy benefit management products and services to employers, unions, and third-party administrators.  ESI had Ms. Sirowich sign a contract in connection with her employment with the company wherein she agreed to a restrictive covenant.  The March 1, 1990 document contained a non-compete agreement that prohibited her from marketing services similar to ESI’s for a competitor for two years to any ESI client in New England (defined as Maine, Vermont, New Hampshire, New York, Connecticut, Massachusetts, and Rhode Island).

Ms. Sirowich voluntarily terminated her employment with ESI on December 31, 2000 and started her own company, Pharmacy Benefit Intermediary (PBIrx).  In response to her actions at her new company, ESI alleged that Ms. Sirowich “marketed competitive products and services to its clients in violation of the parties’ non-competition agreement”.  In particular, ESI alleged that Ms. Sirowich marketed products to Diversified Group Brokerage and Group insurance, two of its clients.

The Court’s Decision

ESI sued Ms. Sirowich for breach of the non-compete agreement and sought to enjoin further violations through December 31, 2002.  Ms. Sirowich claimed that she had not violated the covenant because her activities were not marketing, but merely introducing clients to National Medical Health Card (NMHC), a direct competitor of ESI.  She claimed that she did not do any presentation or consummate the sale between the parties.  The court however rejected Ms. Sirowich’s defenses and held that she had indeed violated the covenant by marketing similar products as ESI, triggering the lawful enforcement of the agreement.

“Marketing”, according to the court, included not only the actual sale of products/services but also any efforts to promote and effectuate a sale of products/services.  Facilitating a deal through arranging a meeting between prospective parties amounted to “marketing” as prohibited in the non-compete agreement.  The court held that “the entire thrust of the defendant’s [Sirowich’s] efforts was the replacement of pharmacy benefit management services and products of the plaintiff [ESI] with those of its competitor [NMHC]”.

The general purpose of a non-compete agreement is to prevent former employees from using privileged information and favored relationships with clients acquired during their time as an employee of the company to the disadvantage of the company upon termination.  This case is a prime example of legitimate reasons for the enforcement of the agreement in order to safeguard the operations of the employer from the detrimental actions of a former employee.

If you have any questions relating to your non-compete agreement or would to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

What is “FINRA” and What Does (Should) It Do?

Attorneys here at Maya Murphy frequently are called upon to represent individuals who are the subject of a FINRA inquiry, or a party to a FINRA arbitration.  We routinely post to our website client alerts regarding FINRA-related decisions but it occurred to us that we should take a step back and issue a post about FINRA itself—what it is, what it does (or doesn’t do), and where it came from.  Knowledge is power and because FINRA so pervades the financial industry to be forewarned is to be forearmed.

What is FINRA?

“FINRA” is an acronym for the “Financial Industry Regulatory Authority,” a so-called “Self Regulating Organization.”  On July 30, 2007, the New York Stock Exchange and the National Association of Securities Dealers (“NASD”) combined to form FINRA.  To be sure, FINRA is cloaked in official garments of the purest silk.  It was established under § 15A of the Securities Exchange Act of 1934, 15 U.S.C. § 78o-3, Karsner v. Lothian, 532 F.3d 876, 879 n.1 (D.C. Cir. 2008). It is authorized to exercise comprehensive oversight over “all securities firms that do business with the public.”  Sacks v. SEC, 648 F.3d 945 (9th Cir. 2011) (quoting 72 Fed. Reg. 42170 (Aug. 1, 2007)).

With respect to the creation of FINRA, the NASD, itself, made it clear that the new entity was directed at “the regulation of the financial markets.”  Id. “By virtue of its statutory authority, NASD wears two institutional hats: it serves as a professional association, promoting the interests of its members; and it serves as a quasi-governmental agency, with express statutory authority to adjudicate actions against members who are accused of illegal securities practices and to sanction members found to have violated the Exchange Act or Securities and Exchange Commission  . . . regulations issued pursuant thereto.”  NASD v. SEC, 431 F.3d 803, 804 (D.C. Cir. 2005) (citations omitted).

FINRA is a private corporation and the largest “independent” regulator of securities firms in the United States, overseeing approximately 4,800 brokerage firms, 172,000 branch offices, and 646,000 registered securities representatives.  It (not necessarily by claimant choice or mere happenstance) benefits from up to 9000 arbitration filings every year.  FINRA has a staff of approximately 3,000 employees and in 2009, collected revenue of $775 Million.  Senior FINRA management enjoys seven-figure annual salaries.

Codes for Industry Disputes and Customer Disputes

FINRA maintains two separate but similar “Codes of Arbitration Procedure”: one for “customer disputes” and another for “industry disputes.” In drafting its Industry Code, FINRA has apparently chosen to “trim some of the fat” off of the controlling law.  For example, Rule 13209 (amended December 15, 2008) states: “During an arbitration, no party may bring any suit, legal action, or proceeding against any other party that concerns or that would resolve any of the matters raised in the arbitration.”

In Arnold Chase Family, LLC v. UBS AG, 2008 U.S. Dist. LEXIS 58697 (D. Conn. Aug. 4, 2008), Judge Kravitz (in analyzing the analogous FINRA “customer” Rule 12209) demonstrated remarkable restraint in reminding UBS that within the Second Circuit (which includes Connecticut and New York) since at least 1998, United States District Courts have had not only the right, but also the duty to entertain requests for preliminary injunctions during the pendency of arbitration.  See Am. Express Fin. Advisors, Inc. v. Thorley, 147 F.3d 229, 231 (2d Cir. 1998). But FINRA’s arbitral disdain for the twin plinths of fundamental fairness and the opportunity to confront one’s accusers does not stop there.

Code Requirements

The Code’s §§ 13400-13402 require that at least one “non-public arbitrator” (i.e., one who within the last five years was associated with, or registered through, a broker or a dealer) serve on every three-person arbitration panel.  Given the state of the economy, in general, and the sudden appearance, disappearance, and consolidation of Wall Street firms, in particular, it is not unreasonable for a “non-public arbitrator” to have past connections or future aspirations with respect to a corporate party to the arbitration.[1] 

This ethical tar pit is bottomless, as evinced by Rule 13410, which vests in the “Director of FINRA Arbitration” discretion to retain an arbitrator who fails to make a required disclosure, notwithstanding a timely notice of disqualification by one of the parties See, generally, Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 2005).

Interfering with Productive Arbitration

FINRA also makes it clear that it will not permit its Code to let the discoverable truth get in the way of an otherwise productive arbitration.  Rule 13506(a) ostensibly permits pre-arbitration requests for documents or information, provided such requests do “not require narrative answers or fact finding,” thereby rendering such requests virtually useless.  Rule 13510 states outright that depositions are “strongly discouraged” and permitted “only under very limited circumstances.”  The absence of meaningful pre-arbitration discovery makes the proceeding something akin to “trial by ambush.”  Rule 13604(a) states: “The panel will decide what evidence to admit.  The panel is not required to follow state or federal rules of evidence.”

Finally, Rule 13904 permits rendition by the panel of a skeletal or elliptical award devoid of underlying factual findings or legal reasoning.  Even if the parties jointly request an “explained decision” (requiring an additional $400.00 “honorarium” to the FINRA chairperson), only “general reasons” for the award are required, and inclusion of legal authorities and damage calculations is specifically not required.  Under these circumstances, mere comprehension of the basis for the award, much less meaningful judicial review of the award even under the most stringent “manifest disregard” standard (assuming such standard of review still exists, see Stmicroelectronics, N.V. v. Credit Suisse Securities (USA) LLC 648 F.3d 68, 78 (2d Cir. 2011), is rendered impossible.

The take-away from this is that for financial industry professionals, FINRA rules, investigations, and arbitrations (however unsatisfying) are often the only game in town.  If you find yourself trying to negotiate the FINRA minefield and need help, contact us at the Maya Murphy, P.C. office located in Westport, Connecticut, at (203) 221-3100.

Should you have any questions relating to FINRA, arbitration or employment issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.


[1] In Arnold Chase Family, LLC v. UBS AG, 2008 U.S. Dist. LEXIS 58697 (D. Conn. Aug. 4, 2008), Judge Kravitz made pointed reference to both the sudden demise of Bear Stearns and the fact that securities customers do not have much say in the writing of FINRA’s rules.  Id. at *8-9, *13-14.

Court Finds That Form U5 Employment Termination Statement is Absolutely Privileged Under New York Law

Rosenberg v. Metlife, Inc., 493 F.3d 290; 2007 U.S. App. LEXIS 15341 (2d Cir. 2007)

Mr. Rosenberg brought an action against his former employer, MetLife, Inc. (“MetLife”).  Mr. Rosenberg’s allegations included an assertion that MetLife’s statements on his Form U5 were malicious and defamatory.  Form U5 stated the following reason for Mr. Rosenberg’s employment termination from MetLife:

An internal review disclosed Mr. Rosenberg appeared to have violated company policies and procedures involving speculative insurance sales and possible accessory to money laundering violations.

Judge Rakoff of the United State District Court for the Southern District of New York held that such statements are absolutely privileged and granted summary judgment to MetLife on the libel claim.  Rosenberg v. Metlife, Inc., 2005 U.S. Dist. LEXIS 2135 (S.D.N.Y. 2005).  The United States Court of Appeals for the Second Circuit found on appeal that the issue of whether the statements were subject to an absolute or qualified privilege was a question of New York law.  Rosenberg v. Metlife, Inc., 453 F.3d 122 (2d Cir. 2006). 

The Second Circuit certified to New York State’s highest court, the New York Court of Appeals, to rule on the issue.  Id.  The New York Court of Appeals ruled that such statements are subject to an absolute privilege.  Rosenberg v. Metlife, Inc., 866 N.E.2d 439, 8 N.Y.3d 359, 368, 834 N.Y.S.2d 494 (2007).  Thereafter, the Second Circuit affirmed the initial summary judgment ruling on the libel claim.


Should you have any questions relating to the Form U5, expunging information on the Form U5 or employment issues generally, please feel free to contact Joseph Maya and the other experienced attorneys by telephone at (203) 221-3100 or by e-mail at JMaya@Mayalaw.com.

FINRA Arbitration Awards Employer Over $500,000 for Promissory Notes Accelerated by Employee’s Termination

In the Matter of the Arbitration between Claimants Morgan Stanley Smith Barney and Morgan Stanley Smith Barney FA Notes Holdings, LLC v. Respondent Robert W. Hathaway (2012 WL 2675417)

In a recent Financial Industry Regulatory Authority (FINRA) arbitration, a sole FINRA arbitrator held that an employee is liable to satisfy his indebtedness on promissory notes, including interest, to his employer upon termination of employment.

Case Details

In this case, Morgan Stanley Smith Barney (“MSSB”) and Morgan Stanley Smith Barney FA Notes Holdings, LLC, alleged that Robert W. Hathaway (“Hathaway”) was in breach of two promissory notes executed while he was employed by MSSB.  In its arbitration filing, MSSB claimed the principal balances due under both notes, per diem interest for both notes, and costs of collection and arbitration.  This matter proceeded pursuant to Rule 13806 of the Code of Arbitration Procedure because Hathaway neither filed a Statement of Answer nor appeared at the hearing.

On or about March 8, 2008, Hathaway executed the first promissory note with MSSB for $729,560, at an interest rate of three-percent per annum, to be repaid in nine consecutive annual installments beginning on March 19, 2009.  The terms of the note included an agreement to pay all costs and expenses of collection, including reasonable attorneys’ fees.  On or about June 9, 2009, Hathaway executed the second promissory note for $75,257.83 at an interest rate of 2.25-percent per annum, to be repaid in eight consecutive annual installments beginning on June 9, 2010.

The Decision

On or about September 19, 2011, Hathaway’s employment at MSSB ended.  MSSB alleged that termination of employment triggered acceleration of the promissory notes and made a demand for immediate re-payment.  Hathaway failed and refused to satisfy the indebtedness.

After considering the pleadings and the submissions, the sole arbitrator decided that Hathaway was liable for the principal balance due under each promissory note.  Hathaway was also liable for per diem interest accruing from the date employment was terminated through the date of payment on each note.  Finally, Hathaway was to reimburse MSSB for the non-refundable portion of its initial claim filing fee.  The final award to MSSB totaled $542,816.00.


Should you have any questions relating to FINRA, arbitration or employment issues generally, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County at 203-221-3100 or at JMaya@Mayalaw.com.

Court Confirms FINRA Arbitration Award for Employee in the Amount of $150,000 with Interest

Scoble v. Blaylock & Partners, L.P., 2012 U.S. LEXIS 13706 (S.D.N.Y. 2012)

Matthew W. Scoble (“Scoble”) filed a petition against his former employer, Blaylock & Partners, L.P., subsequently known as Blaylock & Company, Inc. (“Blaylock”), to confirm an arbitration award pursuant to § 9 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  Scoble claimed that Blaylock breached a contract between the parties by failing to make a severance payment of $150,000 to him after Blaylock terminated his employment without cause.

The Financial Industry Regulatory Authority (“FINRA”) appointed a panel of three arbitrators to hear the matter after both parties agreed to submit the dispute to arbitration for a decision and award.  Both parties participated in the arbitration hearing that lasted several days.  Thereafter, the Arbitration Panel issued an award to Scoble in the amount $150,000 in compensatory damages.  The responsible party, Blaylock, would be liable for post-judgment interest pursuant to FINRA’s Code of Arbitration Procedure if it did not pay the award within thirty days.

The Court found that Scoble’s petition was sufficiently supported and indicated that there was no question of material fact.  Blaylock did not move to modify, vacate or correct the arbitration award and did not submit an opposition to the petition.  The petition to confirm the arbitration award was granted and judgment was entered for Scoble in the amount of $150,000 with post-judgment interest.

If you have any question relating to FINRA or arbitration, please do not hesitate to contact Joseph Maya and the other experienced employment law attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation.

Federal Court Found Form U-4 and FINRA Rules to Constitute a Sufficient Basis for an Arbitration Agreement Between the Parties

Lawrence R. Gilmore v. Scott T. Brandt, 2011 WL 5240421 (D. Colo. Oct. 31, 2011).

In a case before the United States District Court for the District of Colorado, Lawrence Gilmore (“Gilmore”) filed a motion to confirm the Financial Industry Regulatory Authority (“FINRA”) arbitration award in his favor, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  Scott Brandt (“Brandt”) responded by filing a motion to vacate the FINRA award pursuant to the FAA, 9 U.S.C. § 10.  The court granted Gilmore’s motion to confirm the award, entered judgment for the award, and denied Brandt’s motion to vacate the award.

Case Details

The dispute underlying the FINRA arbitration began when Brandt, a representative of Lighthouse Capital Corporation, suggested that Gilmore invest $92,000 in Diversified Lending Group, Inc. (“DLG”).  Gilmore made the investment, which was quickly decimated.  Gilmore alleged that DLG was a Ponzi scheme and filed a Statement of Claim with FINRA.  Rather than seek a stay of arbitration, Brandt contested the issue of arbitrability by appending a statement of jurisdictional objection to his FINRA Arbitration Submission Agreement and raising jurisdictional objections throughout the arbitration proceedings.

FINRA appointed a panel of arbitrators to hear the matter, however, the arbitration panel did not directly address Brandt’s jurisdictional challenge.  In December 2010, the panel issued an arbitration award in Gilmore’s favor for compensatory damages of $106,024.68, post-judgment interest, and attorneys’ fees.

Arbitrability of a Dispute

In his motion for vacatur, Brandt argued that he never entered into an arbitration agreement with Gilmore; therefore, their dispute should not have been subjected to arbitration. The district court found that Brandt had sufficiently preserved his objection to arbitrability, and that it fell to the court to decide whether the dispute was in fact arbitrable.

Because arbitration is entirely a matter of contract, a party cannot be required to arbitrate a dispute that it has not agreed to submit to arbitration. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995).  When Brandt first sought to be licensed to sell securities, he executed a Uniform Application for Securities Industry Registration or Transfer (“Form U-4”), which contained a section agreeing “to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of [FINRA].”

The court determined that the agreement embodied in Brandt’s Form U-4 would constitute an agreement to arbitrate the dispute with Gilmore only if FINRA rules required this dispute to be arbitrated.

FINRA Rule 12200

FINRA Rule 12200 is a broad provision that generally applies to any customer dispute arising in connection with the business activities of a FINRA member.  Specifically, FINRA Rule 12200 requires that a dispute must be arbitrated under the FINRA Code of Arbitration Procedure if: (1) arbitration is required by written agreement or requested by a customer; (2) the dispute is between a customer and a FINRA member or associated person; and (3) the dispute arises in connection with the business activities of the FINRA member or associated person.

By submitting his Statement of Claim to FINRA for arbitration, Gilmore was clearly requesting arbitration of the dispute.  The district court found that Gilmore was in a customer relationship with Brandt because Brandt had induced him to invest in DLG.

The Court’s Decision

Additionally, the district court found that Gilmore’s claims related to Brandt’s recommendation of an investment in particular securities fell within the class of disputes reasonably regulated by FINRA.  Therefore, the district court determined that FINRA Rule 12200 required the dispute between Gilmore and Brandt be submitted to arbitration.  Because of this result, Brandt’s U-4 Form was determined to be his agreement to submit to arbitration of the dispute.

Because the arbitration panel had jurisdiction to decide the dispute, the award decision is entitled to deference by the federal court.  9 U.S.C. § 9-11.  Because Brandt provided no argument that satisfied the statutory grounds for vacatur of an arbitration award, 9 U.S.C. § 10(a), the court granted Gilmore’s motion for confirmation of the arbitration award of compensatory damages of $106,024.68, with interest, and attorneys’ fees.


Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya of Maya Murphy, P.C. in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

ERISA Claim Challenges Vague Language of FINRA Arbitration Award in order to Include Back Pay as Benefits-Eligible Compensation

Ronald A. Roganti  v .Metropolitan Life Insurance Company, et el, 2012 WL 2324476 (S.D.N.Y.  June 18, 2012)

In a case before the Southern District of New York, Ronald Roganti (“Roganti”), a former employee of the Metropolitan Life Insurance Company (“MetLife”), asserted claims under the Sarbanes–Oxley Act of 2002, 18 U.S.C. § 1514A (“SOX”), and the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 (“ERISA”). Both claims challenge MetLife’s denial of Roganti’s request that a 2010 Financial Industry Regulatory Authority (“FINRA”) arbitration award be treated as benefits-eligible compensation.  MetLife moved to dismiss both claims on several grounds.  The court granted MetLife’s motion with respect to the SOX claim and denied the motion with respect to the ERISA claim.

Case Background

The underlying dispute in this case arose during Roganti’s employment with MetLife, which lasted from 1971 to 2005.  In 1999, Roganti began to voice concerns regarding allegedly-suspect business practices at MetLife and continued to do so until he terminated his employment in 2005.   Roganti claimed that throughout that time period, MetLife repeatedly disregarded his complaints and actively retaliated against him, including undermining his authority within the business subsets he oversaw and reducing his compensation with the specific purpose of reducing his pension benefits.

In July 2004, Roganti filed his initial Statement of Claim with the National Association of Securities Dealers (“NASD”) to arbitrate his disputes with MetLife.  FINRA, the successor to NASD, appointed a panel of three arbitrators to adjudicate four claims brought by Roganti: (1) the breach of contract claim, based on MetLife’s reduction of Roganti’s compensation; (2) violation of SOX retaliation provisions, based on MetLife’s retaliation against Roganti for reporting questionable business practices; (3) for the value of services rendered by Roganti; and (4) for violating ERISA, on the theory that, in reducing Roganti’s compensation, MetLife also sought to reduce his pension benefits.

In August 2010, the FINRA panel held that MetLife was liable to Roganti for $2,492,442.07 in “compensatory damages … above [MetLife’s] existing pension and benefit obligation to Claimant.” The arbitral award explain neither how the arbitrators arrived at this sum nor for what the award was intended to compensate Roganti. FINRA Docket Number 04-04876.

Benefits Claim

On March 24, 2011, Roganti filed a benefits claim with MetLife, in its capacity as the Plan Administrator, asking that the arbitral award be treated as compensation for income which MetLife had improperly denied him, and that the award be factored into the calculation of the benefits which he was entitled to under his pension plan with MetLife. MetLife denied the request for three reasons.

First, only income of current employees was benefits-eligible; therefore, since Roganti was not employed by MetLife when he received the award, it did not qualify as benefits-eligible compensation.  Second, FINRA broadly termed the award as “compensatory damages” rather than stating it was compensation for lost income.  Finally, the FINRA award did not indicate to which years of Roganti’s employment the award applied; therefore, even if the award represented unpaid income, it would be impossible for MetLife to determine concretely how the award should affect Roganti’s pension benefits. Roganti appealed this decision to MetLife, and MetLife again denied his claim.  Subsequently, Roganti filed SOX and ERISA claims in federal district court.

Because Roganti’s current SOX and ERISA claims are based on the 2011 denial of pension benefits, the court determined that these have not already been dispositioned by the 2010 FINRA arbitration.  Therefore, the court denied MetLife’s motions to dismiss both claims on grounds of res judicata and collateral estoppel.  However, because Roganti did not exhaust administrative remedies before filing his SOX claim in federal district court, the court determined that his SOX claim must be dismissed.

ERISA Claims

Roganti made two claims under ERISA, which creates a private right of action to enforce the provisions of a retirement benefits plan. 29 U.S.C. § 1132(a)(1)(B).  First, he alleged that the FINRA arbitral award compensated him for unpaid wages that resulted from MetLife’s retaliation against him.  Second, he argued that because the award constituted back pay, it must be taken into account in calculating his pension benefits.  The court determined that central to both claims is the issue of whether the FINRA arbitration award constitutes back pay to compensate Roganti for services rendered while he was a MetLife employee, which would properly be included in pension benefits calculations.

The Court’s Decision

Neither the brevity of the FINRA arbitration award nor Roganti’s statement of claims to FINRA provided the court with sufficient clarity to resolve the factual issue of exactly what the award represented. The court, therefore, construed the ambiguity in the award language in the light most favorable to Roganti.  The court concluded that he had met his burden and denied MetLife’s motion to dismiss the ERISA claim.

Because the three-month timeframe to seek clarification from a FINRA arbitration panel pursuant to 9 U.S.C. § 12 had elapsed, the court ordered the ERISA Plan Director to closely review the arbitral record, in the context of the evidence offered and arguments made by both sides at the arbitration, to determine whether or not the award represented back pay for Roganti.  The court found it unacceptable that the initial denials of benefits were based on the terse language of the arbitration award, rather than a more detailed analysis as to what the award amounts represented.


Should you have any questions relating to FINRA, employment, compensation or benefits issues please do not hesitate to contact Attorney Joseph C. Maya of Maya Murphy, P.C. in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.