I’m a branch manager for a medium-sized brokerage firm. I recently learned that several reps in my office who have not resigned yet have executed Letters of Intent with a new broker-dealer to move client accounts. I plan on terminating them but I’d like to warn them about the consequences of selling away if they try to take these accounts.

-T. S., Virginia

First of all, what are you waiting for? You probably should have terminated them immediately, when you learned they had signed LOIs with another broker-dealer. Why continue to allow them access to client information? Second, the issue really isn’t one of “selling away.” FINRA Rule 3040 deals with selling away and it refers to “transactions for compensation” and “transactions not for compensation.” The key word is “transactions.” Taking a client account is not a transaction per se.

More of a concern here is violation of the reps’ employment contracts. I assume they have non-compete and/or non-solicitation clauses in their contracts with your firm. Assuming your firm is not a signatory to the Broker Protocol (which addresses what information a registered rep can take when he leaves a firm), a well drafted non-compete/non-solicitation clause should make them think twice about removing information.

Additionally, Regulation S-P prohibits a representative from providing non-public client information to an unaffiliated third party. Any non-public client financial information they provide to their soon-to-be employer, while they are still working for you, would constitute a violation of Reg S-P and could subject both the reps and their new firm to significant sanctions.


My wife and I recently divorced. She received ownership of our small brokerage firm and she’s the chief compliance officer. She just told me she’s going to terminate me and put some negative information on my U5. I don’t believe this information warrants disclosure; I think she’s just doing it to be vindictive. Will this hurt my ability to get another job and, if so, what can I do to stop her?

-C. M., New York

There is, unfortunately, not much you can do to stop her from including the information on your U5. You might be able to file for an injunction or temporary restraining order, but to get one you usually have to show a likelihood of success when you bring the full case to a hearing. You may have difficulty proving that in this instance, since you’d be talking about bringing a defamation suit, and such suits are notoriously difficult to win.

The second option would be to wait until she puts the information on your U5 and then file the defamation suit. If you win, you could then try to have the matter expunged. But meantime, the information would remain visible on your CRD report. You can provide your own explanation on the U5, which might make her look petty and vindictive. And if what she puts down is inaccurate or misleading, she could wind up subjecting herself to sanctions from the regulators as well.

You might also consider letting the regulatory authorities know what she’s doing. But if the disclosure is factually accurate, there’s nothing they can do, and such a move could subject you both to scrutiny. As for your chances of getting another job, that depends on the firm you’re applying to, what exactly she says on your U5 and whether it’s true or not. Some firms will look past a minor rule violation; others want only reps with spotless records. 


Alan J. Foxman is an attorney with the law offices of Rita G. Dew, P.A., and a senior consultant with National Compliance Services in Delray Beach, Fla. He can be reached at alanfoxman@bellsouth.net.


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