Advice to Advisors: Read Your U5s Carefully
After Barbara Doran resigned from Morgan Stanley in New York City August 2015 to join a boutique firm, she learned that the wirehouse described her exit as having occurred while she was under review over trading in several clients’ accounts.
Doran, who has been a registered broker for more than 20 years and had discretion over most of her clients’ accounts, could have ignored the language, but the voluntary resignation showed up as a disclosure on her BrokerCheck record and she decided to fight back by seeking expungement.
On Thursday, a three-person Financial Industry Regulatory Authority arbitration panel upheld her case and ordered Morgan Stanley to withdraw the U5 filing. Making the victory even sweeter is that Doran fought her case without using a lawyer.
Her tale is a cautionary one in two ways. Brokers should be good consumers and always read the fine print when they take and leave jobs, and they shouldn’t be afraid to challenge regulatory filings that they think are inaccurate, lawyers said. In most cases, they add, they should also be wary of trying to defend themselves.
Doran’s case, however, appears to have been reasonably open and shut.
She argued that Morgan Stanley misinformed her about the consequences of her leaving amid an investigation, and demanded payment by the firm of her arbitration filing and hearing session fees.
Morgan Stanley denied her allegations and did not have to pay her fees, but acceded to her main goal of expunging notice of her resignation “while under internal review” from her records. The language of the notice was “defamatory,” the arbitration panel ruled.
“Everyone thinks their case is so straightforward, but in mine it was well-documented,” Doran said.
The decision could encourage brokers who are reluctant to fight deep-pocketed former employers to challenge regulatory filings, especially when Finra is aggressively advising customers to review BrokerCheck records, said Dochtor Kennedy, a lawyer who specializes in expungement cases at AdvisorLaw in Broomfield, Colo.
To be sure, he cautioned, it is risky for brokers to fight without a lawyer’s help.
While Doran’s case may have been straightforward, she was not asking for monetary damages. When that occurs, most firms fight back aggressively, requiring document preparation, witnesses and sometimes complex procedural knowledge.
“Obviously a lot of people ask if they should do it themselves,” Kennedy said, noting that even the simplest case could add $3,000 to $4,000 in lawyer’s fees on top of filing and administrative fees.
Doran, who worked briefly at the now-defunct wealth unit of Lebenthal & Co. and is now a registered investment adviser at Yorkbridge Wealth Partners, said the entire expungement effort cost her $3500.
“It was worth it,” she said.