Published in Uncategorized on October 29, 2024
FINRA requires employers to detail why an employee left a firm in the securities industry on a Form U5. A recent case resulted in a $29 million Pennsylvania state court jury defamation verdict in favor of a terminated employee because the language on the terminated employee’s Form U5 was found to be untrue and damaging to the former employee’s reputation.
Form U5 filings are maintained in FINRA’s Central Registration Depository and are accessible by prospective employers and clients. False statements on U5 filings can adversely impact the professional future of individuals in the financial services industry.
If a Form U5 contains information implying misconduct, and that information is false or misleading, it can form the basis of a defamation claim. This has led to an increase in Form U5 defamation claims, as employees argue that their reputations were unfairly tarnished by inaccurate or exaggerated descriptions of their terminations. FINRA has advised firms to ensure Form U5s are accurate and clear to minimize exposure to such claims and possible monetary damages.
In some cases, if the Form U5’s wording is found to be defamatory, the implicated firms face substantial payouts, as shown in recent cases where arbitration panels awarded damages to claimants whose records were harmed by these disclosures. The case of Daniel Michalow vs. D.E. Shaw was a landmark defamation case decided through FINRA arbitration, in which Michalow, a former managing director at D.E. Shaw, alleged that the hedge fund and some of its executives defamed him by implying he engaged in sexual misconduct. Michalow contended that these claims were baseless and severely damaged his reputation and career. After an extensive 25-day arbitration hearing, the FINRA panel ruled in Michalow’s favor, finding that he had not committed any misconduct and awarding him $52 million in damages. This verdict is one of the largest awards given in a FINRA defamation case and underscores the severe repercussions that defamatory statements in professional contexts can have on an individual’s career.
If you have been the victim of false statements on a Form U5, call and see if we can help.