Act Promptly to Address FINRA Form U5 Issues Upon Termination

In the securities industry, an issue that frequently arises when there is a termination of employment is the “Uniform Termination Notices for Security Industry Registration”) (“Form U-5”).  This Form impacts any “Associated Person” under FINRA Rule 1011(b) and is maintained in the Associated Person’s file with the Central Registration Depository (CRD), which is used by NASD and NASAA to maintain records database related to securities representatives and principals who are employees of member firms.  It is used by members to make “informed employment decisions.”

Although the content and disclosures included in a Form U5 are often an afterthought for an employee in the context of termination or severance discussions, they should never be overlooked and, in fact, should be prioritized.  Here is why:

• In particular where the securities industry is the focus of political and media attention, a terminating employer may be motivated to over-report, or overstate any negative circumstances associated with termination.
• For similar reasons, prospective employers may be motivated to treat any negative Form U-5 information—i.e., anything other than “voluntary” termination—as disqualifying. For example, a prospective employee may be denied future employment merely because a U-5 Form states he or she was “permitted to resign.”
• An employer has only 30 days following termination to submit a Form U-5.
• Once filed, a U-5 Form cannot simply be modified. Instead, modifying the Form U-5 can happen only through a FINRA arbitration proceeding and an award recommending expungement of negative information, based upon a finding that a statement on the Form is “defamatory in nature.” Arbitration is time-consuming and expensive for an affected former employee, and there is no guarantee of obtaining a “clean” U-5.

Based upon these considerations, securities industry employees who are “Associated Persons” and are facing the possibility of termination should promptly initiate discussions with the employer regarding U-5 termination language.  The employer is obligated to tell the truth, of course. Nevertheless, depending on the circumstances, the employee may be able to discuss the termination language with the employer in connection with severance or termination negotiations.