Tracy Stoneman - Stoneman Law
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U-4 & U-5 Violations

The regulatory Form U-4 is a lengthy document that is required to be filled out by any stockbroker seeking employment and licensing with a brokerage firm. It covers numerous areas of inquiry which must be continually updated. For example, the following are some of its disclosure requirements:

  • Sro Registrations
  • Jurisdiction Registrations
  • Examination Requests
  • Professional Designations
  • Identifying Information/Name Changes
  • Residential History
  • Employment History
  • Other Businesses
  • Criminal Disclosures
  • Regulatory Action Disclosures
  • Civil Judicial Disclosures
  • Customer Complaints/Arbitrations/Civil Litigation
  • Termination Disclosures
  • Financial Disclosures, Such As In A Bankruptcies, And
  • Any Judgments Or Liens.

Both the broker and his firm must sign off on the Form U-4 and any updates. In addition, when an update is required by, for example, a customer complaint that is filed, both the broker and the firm will report the complaint. Sometimes those reports are dramatically different, especially if the broker has moved on to a different brokerage firm. Defamation claims based upon false information reported on the Form U-4 typically arise in this scenario.

However, it is also a violation for a stockbroker to not accurately answer all questions honestly on the Form U-4. Brokerage firms and stockbrokers do not like to receive complaints, so sometimes they do not accurately report them or timely update the form. I have seen many a Form U-4 where a complaint is reported and under status, it states that the complaint is still pending although it was filed five years earlier. In reality, the complaint was settled, but the firm never updated the Form U-4. Accurate reporting is required for all sales practice related complaints.

It used to be that Forms U4 and U5 required member firms to report allegations of sales practice violations that were made against a registered person only when the registered person was actually a named party. If, for example, the brokerage firm was named as a respondent and the stockbroker was only identified in the body of the Statement of Claim, no reporting was required. Fortunately, that all changed in 2009 and now brokerage firms must report arbitrations against their brokers when the stockbroker is identified throughout the body of the Statement of Claim, but is not an actual Respondent.

Stockbrokers often fail to disclose on the Form U-4 that they have had felony arrests. Felony convictions or guilty pleas result in a statutory disqualification from working as a stockbroker.

The Form U-5 is generated when a stockbroker leaves employment at a brokerage firm and is filled out only by the brokerage firm. The most common U-5 violations occur when the brokerage firm reports a termination for reasons that are not true. These violations give rise to two claims on the part of the stockbroker against the broker dealer: wrongful termination and defamation/libel.

The following are some of the disclosure requirements on the Form U-5:

  • whether the termination was a full or partial termination
  • date of the termination
  • if permitted to resign or discharged or “other”, the brokerage firm must provide an explanation.
  • Was the broker under investigation at the time of termination?
  • Was an internal review going on at the time of the termination?
  • Are there any criminal, regulatory action, or customer complaint disclosures?
  • Form U-5 defamation cases have been on the rise at FINRA and stockbrokers who prevail often receive substantial awards for such things as lost wages and emotional distress.

Contact Ms. Stoneman - Stoneman Law Offices - Texas & Colorado. (800) 783-0748 Free Consultation - Representing Clients Nationwide

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If you suspect securities or brokerage fraud against your hard-earned investments and need an advocate, call Tracy Pride Stoneman - NOW! I was a victim of churning, improper sale of unsuitable private placements, compliance violations, and more. I blamed myself at first and didn't think I had a case, but I was referred to Tracy after another lawyer balked, thinking all was lost. She took the emotion out of it, got down to the facts, made the case, and in hands-on fashion worked hard for the best result possible. She's an excellent communicator and the kind of experienced securities arbitration lawyer you need in your corner. Ms. Stoneman achieved a settlement for me that far exceeded expectations. She has my highest recommendation. Jeffrey B.
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Tracy was a wonderful lawyer in my and my husband's huge case against Prudential Securities. She was relentless in going after the stockbroker and firm, determined to obtain all of the documents that helped our case and hurt theirs (that's why the firm didn't want to produce them!). No matter what curve ball the brokerage firm threw, Tracy came up with an angle to overcome it. My husband always commented how smart Tracy was in handling our case. Throughout it all, Tracy was extremely cheerful and easy to work with - unlike most lawyers I know! Carolyn W.
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