Q: Over six months ago, I left my brokerage firm. After I left, an arbitration claim was filed against me and the firm, and we’ve now settled that case for an amount in excess of $15,000. My new employer went to amend my U4 to report the settlement but did not see the arbitration listed. However, it does show up on my CRD report. How can it show up on CRD, but not on my U4? How can I update this to reflect the settlement? Does the fact that it doesn’t show up on my U4 mean that I don’t have to disclose it, or will I get in trouble because it’s not on my U4?
A: While this may seem confusing at first, the answers are fairly simple.
First, the arbitration is not showing up on your U4 because your prior employer submitted it on a U5. (Or, rather via an amended U5). The U5 is the form that’s filed when a registered representative terminates their registration with their broker-dealer.
When the arbitration claim was filed, the broker-dealer filed an Amended U5. It does seem a bit odd that the U4 and U5 wouldn’t be linked to display the same information, but this a quirk of the CRD system.
Your former employer will likely file another amended U5 to update the Disclosure Reporting Page (DRP) and report the settlement, but your current employer should also file an amended U4 to report the same information.
This may cause the information to appear twice on your CRD report, but that’s fairly common and anyone looking at it will see that it’s the same incident.
You do still have to report the matter even though it didn’t initially show up on your U4 and since the matter settled for an amount in excess of $15,000, you would have to answer “yes” to that question on your U4, specifically Question 14.I(4)(a).
Since the matter was disclosed via the Form U5, I don’t think you’d have any disciplinary concerns for failure to disclose, but keep in mind that, in the final analysis, it’s the representative’s responsibility to make sure a filing gets done. If your prior firm had neglected to report the arbitration, or if they failed to update the information with the settlement, you would have a failure to disclose problem.
U4s must be amended promptly whenever there’s a matter that needs to be updated. Article V, Section 2[c] of FINRA's bylaws requires an associated person to keep the Form U4 "current at all times," and file any amendments to the Form U4 "not later than 30 days after learning of the facts or circumstances giving rise to the amendment."
If you have a question for compliance expert Alan Foxman, please send it to: email@example.com