CCO Fined and Suspended for Filing Misleading U5s to Intimidate Departing Reps
The Chief Compliance Officer of a broker-dealer was fined $50,000 and suspended from the industry for filing misleading Form U5s in an effort to harass and intimidate a group of resigning brokers. According to FINRA, the CCO filed U5s alleging that 4 Reps were under internal review for computer fraud, illegal taking of customer information, misrepresentations, wrongful solicitation, and breach of contract. FINRA acknowledges that some of the charges may have been legitimate against one of the Reps but found that no reasonable basis existed for such statements with respect to all four. FINRA alleges that the CCO and the CEO threatened and filed the U5s “for the purpose of harassment.” The CCO also sent the misleading U5s to 99 state regulators and informed the police, who arrested one of the Reps.
OUR TAKE: This is one of the major problems with the U5: a Registered Rep can lose his reputation based on misstatements from a spiteful former employer. FINRA should consider this unintended consequences of making CRD information more easily available.