FINRA Investigating Reports that Wells Fargo Retaliated Against Whistleblowers

FINRA is asking terminated Wells Fargo employees to come forward if they believe they were fired for blowing the whistle on the bank’s practice of opening phony customer accounts and exposing the bank’s aggressive sales practices.

Of the approximately 5,300 employees terminated by Wells Fargo for engaging in improper sales practices, FINRA has found more than 600 of those employees were working for Wells Fargo subsidiaries and registered with FINRA, of which 207 were terminated.

FINRA requires member firms to file a Uniform Termination Notice for Securities Industry Registration, a Form U5, within 30 days of a registered representative employee leaving the firm.  Form U5 includes information on why the employee left the firm and is usually reviewed by other investment firms when the employee seeks a new position within the securities industry.   Disclosures made by member firms on the Form U5 are maintained by FINRA’s Central Depository (“CRD”) and typically available through FINRA’s online BrokerCheck system, which allows the public to access information on registered representatives, including the “reasons” for their termination.

Although employees are afforded the right to explain the reasons for their termination or to file claims for expungement with FINRA to remove or alter the language a member firm places on their U5, many jurisdictions, like New York, provide member firms with an “absolute privilege” to place whatever language they want on a registered representative’s U5 without threat of defamation damages.  The New York Court of Appeals has reiterated that the remedy of an associated person to protect himself from defamatory language on a Form U5 is to commence an arbitration seeking an order expunging such defamatory language.  See Rosenberg v MetLife, Inc., 8 NY3d 359, 368 (2007) (“We further note that registered employees who are maliciously defamed on a Form U5 are not wholly without remedy as they may commence an arbitration proceeding or court action to expunge any alleged defamatory language.”).

There have been several reports that Wells Fargo employees were allegedly fired by the bank after refusing to open accounts without customers’ permission and that Wells Fargo nonetheless reported defamatory information on the Form U5 in retaliation for their refusal to comply with the firm’s instruction.

This begs the question?

Is it time to reconsider having an “absolute privilege” in these types of employment cases; particularly, like in these Wells Fargo cases, the dispute is between a member firm and a registered representative and not associated with a customer complaint against a broker or a member firm for alleged wrongdoing.

I think so.

Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s