Trepanier MacGillis Battina P.A. 8000 Flour Exchange Building 310 Fourth Avenue South Minneapolis, MN 55415 612.455.0500
Trepanier MacGillis Battina P.A. 8000 Flour Exchange Building 310 Fourth Avenue South Minneapolis, MN 55415 612.455.0500

Financial Execs Should Consider their U5 in Severance Negotiations

A public radio piece last October about fallout from the Wells Fargo scandal involving unauthorized bank accounts is a telling lesson for any executive in the securities or banking industry. In “Workers Say Wells Fargo Unfairly Scarred Their Careers,” National Public Radio told the story of Jeremy who worked in a Wells Fargo branch in Los Angeles. He told his District Manager at a L.A. Lakers basketball game that co-workers were falsifying accounts, that he did not approve, and that he would not participate. About a year later, he was told the bank was going to open an investigation as to whether he opened accounts of customers without their consent, or it would give him the option to resign. Frustrated, Jeremy resigned, but soon found it difficult to get hired at another bank. Finally, a hiring manager at another financial institution told him, “I really liked you, [but] there’s this thing on your U5. I can’t hire you.” Jeremy eventually determined that Wells Fargo wrote on his U5 that he admitted to opening accounts for customers without their permission. He is now seeking legal relief.

The Form U5 – Uniform Termination Notice for Securities Industry Regulation – is a form required by the Financial Industry Regulatory Authority (“FINRA”). Each time a financial firm governed by FINRA hires an employee to work in investment and securities operations it must file a Form U4 for that individual, which lists him or her on the FINRA Central Registration Depository (“CRD”). Over 640,000 U.S. employees are currently listed in the CRD. When an employee governed by FINRA is subsequently terminated, the former employer must file a U5 within 30 days that includes the reasons for termination. Other FINRA firms can then access this information through the CRD before making a final decision to hire that person. FINRA rules require that the information on the U5 be truthful and sufficiently detailed to allow a reasonable person to understand the circumstances that triggered the termination. A negative U5 may make it impossible for an individual to work again in the financial services industry.

Any individual who signs a U4 agrees that any employment disputes will be resolved through FINRA arbitration. An executive who thinks his or her U5 is inaccurate must therefore seek relief through this confidential arbitration process. The arbitration demand should be filed within 6 years of the entry on the U5 and should specifically request expungement. The individual may also seek compensatory damages for defamation or wrongful termination.
Arbitration can be expensive, and can take up to a year to complete. A more pro-active approach is to address the U5 in the context of severance negotiations. Although financial firms must tell the truth in a U5, sometimes a discussion with the executive’s attorney may assist the company in understanding the facts and negotiating the characterization of events. (U5’s may be amended if new information comes to light.) Financial executives and executive law attorneys should therefore remember to consider the U5 in the context of a termination.

About the Author
Trepanier MacGillis Battina P.A. is a Minnesota executive law firm located in Minneapolis, Minnesota. Their executive law attorneys can be reached at 612.455.0500.