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.
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.
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 Russell J. Sweeting, Esq. by telephone at (203) 221-3100 or by e-mail at email@example.com.
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