A former Chase branch-based financial advisor who said he was terminated under false allegations involving a notary prevailed over J.P. Morgan Securities in arbitration five years later.
Under a unanimous Feb. 4
Registered representatives filing cases against FINRA member firms alleging that the brokerage firms defamed them in Form U5 termination statements on BrokerCheck must spend tens of thousands of dollars or more on legal fees while facing steep odds against receiving damages. In one case decided in November, a former Merrill Lynch broker won the removal of the U5 allegation from BrokerCheck and
Firms that
U5 disclosures “can be and are abused by firms,” Valenti said, describing it as an industrywide issue rather than being specific to J.P. Morgan. “In my experience, they are used as a way to put a chilling effect on somebody's career. … It's not right, it's not a level playing field, and it's not fair to use the U5 and put things on there that will cause a problem for the advisor.”
Representatives for J.P. Morgan declined to comment on the case. News outlet AdvisorHub first
The number of intraindustry arbitration claims filed by reps against member firms
On the other hand, FINRA member firms often “struggle with this language” for U5 disclosures, going through rounds of internal discussions among compliance teams and counsel, according to Mitch Avnet, a 25-year industry veteran who is a consultant to brokerages and RIAs through the firm he founded, Compliance Risk Concepts. After terminating an advisor, the firms will face investigations from FINRA about when and if they detected a potential bad actor, Avnet said.
“Back in the ’90s and early 2000s, I think firms had a lot more flexibility in terms of what kind of language they could use on a U5,” he said. “It's a challenge for firms as to what to say and what not to say.”
The case
Avnet described the award in Luckett’s case as a “fairly substantial one” with complexity around the fact that he likely thought he was saving the client a hassle by getting a document notarized without them being present. J.P. Morgan Chase Bank fired Luckett in June 2017 based on allegations that he asked a colleague to notarize a document that the client had signed the day before and, upon finding out about the potential breach of policy, engaged in conduct the firm “deemed inconsistent with its anti-retaliation policies,”
In a lengthy response to the allegations, Luckett rejected the company’s claims and said that J.P. Morgan had become aware a month earlier that he intended to leave the firm over concerns about client retirement accounts, management turnover and limited investment options. He simply didn’t notice the requirement of a notary for one document on the day when the client signed it and, without any training from the firm or familiarity with the topic in general, asked a banker at the Louisville branch to notarize it, Luckett said.
“The banker indicated that he could [notarize the document],” Luckett wrote on BrokerCheck. “It was later determined he acted correctly and properly under Kentucky rules. If necessary, the signature could even be verified against bank signature cards, and days prior, we had jointly witnessed the client's driver's license. Relying on his knowledge of the rules governing him as a notary, I brought him the document, which he notarized.”
As for the sales assistant, Luckett denies he retaliated against her for raising a red flag about the notarization issue.
“I acknowledge that I requested to swap sales assistants with another advisor, but what JPMC also fails to mention was my repeated requests for nearly two years prior to be assigned a new assistant due to her on-going poor performance and client complaints,” he said. “My request for a new assistant after the notary event was not retaliation for what took place, but rather because I no longer had an assistant who was coming to work and a continuation of my on-going requests for a new assistant that had started two years earlier.”
Luckett filed the arbitration claim against J.P. Morgan in October 2019, alleging that the company’s U5 disclosure was defamatory. The case included further claims of invasion of privacy, breach of implied covenant of good faith and fair dealing, false light and interference with prospective business. In its answer, J.P. Morgan denied Luckett’s allegations.
The award
The panel ordered J.P. Morgan to pay the compensatory damages of $1.4 million, plus $600 to reimburse Luckett for filing fees and all of the hearing session costs of $17,250. The arbitrators provided very little reasoning for their decision, other than saying that they ruled in favor of the expungement “based on the defamatory nature of the information.”
Luckett must now send a copy of the decision to FINRA’s Credentialing, Registration, Education and Disclosure Department for its review and seek confirmation in court. If the decision receives the expected approval, the company’s U5 disclosure will change to “Non-investment related. After a dispute about a clerical process, RR became disillusioned with the company’s atmosphere requiring separation of his at-will employment.”
The former J.P. Morgan rep hasn’t been registered with FINRA since 2018, when he left Hilliard Lyons. Luckett still works as a financial advisor with a bank’s trust department, which doesn’t require him to have a FINRA license, according to his lawyer, Valenti.
“The panel weighed all the evidence and came to the right decision from our perspective,” Valenti said. “He is interested in getting back to the industry. He's particularly happy about the expungement, which is really what he's been seeking for years.”
