Termination and Form U5 Counsel
Form U5 is the Uniform Termination Notice for Securities Industry Registration used by broker-dealers and investment advisers to report information about a variety of matters regarding a registered representative or investment adviser representative ("associated person") of that firm. The information on Form U5 is stored in the Central Registration Depository ("CRD") system, where securities firms and regulatory authorities report a variety of disclosure events regarding associated persons, including civil judicial actions, criminal matters, customer disputes and complaints, employment terminations, internal reviews or investigations of an associated person, financial matters (e.g., personal bankruptcy) and regulatory and disciplinary actions.
Financial industry reporting firms are required to file a Form U5 when an associated person leaves a firm for any reason. A firm must provide enough detail on Form U5 so that a reasonable person may understand the circumstances described on the form. In practice, if an associated person is fired, that person prefers to have a generic description of the circumstances relating to the termination, which are almost universally unfavorable for the associated person.
Conversely, the member firm from which the associated person was terminated has an obligation to provide details so that a reader (i.e., a regulatory agency, a new employer or a prospective client) of the form disclosures can ascertain why the associated person was let go. For example, it is not sufficient to report that an associated person was terminated for a violation of "firm policy;" instead, the firm should identify the policy and provide enough detailed facts and circumstances to enable the reader to appreciate what conduct was involved.
When it comes to U5 matters, generally, it makes sense to consult with experienced regulatory counsel whom are familiar with the rules that apply to reporting firms, and to the Form U5 reporting process. Either on the forefront of discussions or behind the scenes, working with an attorney during this initial period after a termination can provide an associated person with a deeper understanding of the overall Form U5 reporting process and help to set reasonable expectations.
Where necessary, injecting counsel directly into the discussions can help demonstrate that an associated person is taking the Form U5 disclosures seriously. Experienced securities counsel can serve as a knowledgeable advocate to ensure that all the parties arrive at an accurate disclosure of the relevant details.
For more information or to speak with a securities attorney, call our California law office directly at 619.298.2880 or contact us online.
Legal Risk Management Tips
- Wolters Kluwer: Practical Compliance & Risk Management For the Securities Industry, 04.2017