To Quit or Not To Quit, That Is the Question on Item 14J

Your branch manager is a jerk. The broker/dealer is run by idiots. Worse, those morons just reprimanded you for unsatisfactory production and warned you to shape up or ship out. Okay, so you've reached the point in your career when you face the dreaded choice: Should you quit, or should you let them fire you? There's a lot of quitting-related nonsense floating around out there. Old Murray, who's been

Your branch manager is a jerk. The broker/dealer is run by idiots. Worse, those morons just reprimanded you for unsatisfactory production and warned you to shape up or ship out. Okay, so you've reached the point in your career when you face the dreaded choice: Should you quit, or should you let them fire you?

There's a lot of quitting-related nonsense floating around out there. Old Murray, who's been in the biz for 30 years, advises that you let ‘em fire you because you will be a more sympathetic “victim.” Then Stan, the office guru, says it's better to beat management to the punch by walking out late Friday afternoon with all your account records.

Before you follow either guy's advice, it would be good to arm yourself with some specific knowledge that will help in making a smart decision. After all, no one wants to make a career-altering decision based upon myths and half-truths.

Read the Damn Form U4!

The first step in deciding how to leave a job is to learn the language of the regulators. A termination does not mean you were fired. That term covers three separate situations: 1) A “voluntary resignation,” meaning you quit; 2) A “discharge,” meaning you were fired; 3) “Permitted to resign,” meaning you quit before they fired you.

The reason the definition of termination matters is because many reps believe (erroneously) that a termination results in a permanent “yes” answer on the Uniform Application for Securities Industry Registration or Transfer (U4)…and that no one will ever hire them again, and that the regulators will treat them as a Statutorily Disqualified individuals, and on and on.

In fact, Item 14J on the U4 leaves significant wiggle room on the matter of leaving a firm. Here is what the item specifically says:

Item 14J: Termination Disclosure

14J. Have you ever voluntarily resigned, been discharged or permitted to resign after allegations were made that accused you of:

  1. Violating investment-related statutes, regulations, rules, or industry standards of conduct?

  2. Fraud or the wrongful taking of property?

  3. Failure to supervise in connection with investment-related statutes, regulations, rules or industry standards of conduct?

Notice that Item 14J only requires a “yes” answer if you were terminated after “allegations were made that accused you of …” the circumstances set forth in 14J(1), (2), and (3). Consequently, if you quit or were fired before any of the defined allegations were made, you have no obligation to respond “yes” in this section.

But beware: Sometimes b/ds get cute and will file an amended form U4 in which they allege all sorts of things they, somehow, just forgot to disclose when you first left. These amended filings often argue that you were accused of violating some rule or engaging in fraud days or weeks before the termination date previously disclosed on the original U4. If you've moved on to a new firm, its compliance department might well require you to amend your responses to Item 14J to reflect that you are accused of the misconduct prior to quitting or being fired. You might even get a query from a regulator suggesting the same. But before you follow their “suggestions,” read the actual language in 14J, and then fight, fight, fight against the dreaded “yes” response, marshalling as many facts as you can to combat the amended portion of the firm's U4 filing.

On the Way Home

Among the things many reps fail to consider when they decide to leave a job with panache — i.e., slamming the door behind them after declaring, “I quit!” — is the impact of termination upon deferred-compensation agreements, on employee forgivable loans and on noncompete and nonsolicitation provisions. Also, if you voluntarily quit or you are terminated or permitted to resign because of “gross misconduct,” those may also be grounds to deny unemployment benefits. You should check with your state unemployment insurance office to learn of the qualifications imposed.

Whether you quit or are fired, either event might have a serious impact upon your health coverage. The Consolidated Omnibus Budget Reconciliation Act (COBRA) protects your group health insurance coverage when your employment is terminated. However if your termination was for “gross misconduct,” your eligibility for coverage continuation may be jeopardized. Under the Health Insurance Portability and Accountability Act (HIPAA), if you generally have at least 12 months of continuous coverage, a group health plan can't apply pre-existing condition exclusions to your coverage. (Your insurer may not be obligated to pay for treatment related to a pre-existing condition.) Further, if you need to purchase individual coverage because you can't find another job, your new employer doesn't offer a group health plan or you become self-employed, HIPAA guarantees the right to purchase individual coverage.

However, there are several qualifying conditions, including that you must have had at least 18 months of prior continuous coverage. Consequently, before you terminate your employment, check to see how much time in service you have and verify whether you've met the qualifying timeframes under COBRA and HIPAA; if you haven't, you might want to consider some delays.

When leaving a job, it's human nature to want to do so in style, and that holds particularly true in this industry, which — let's face it — is full of people with outsized egos. The urge to tell someone to “take this job and shove it” can be overwhelming at times.

But as in most other endeavors, it's important not to let vengeful or proud feelings take precedence over clear thinking. In the brokerage industry, there are few things as important as a rep's record with the regulators. Maintaining a cool head and taking the time to fully understand Item 14J can go a long way towards letting a rep make a break from his firm in a way that ensures his ability to continue to work successfully in the industry.

Writer's BIO: Bill Singer
is a partner with the law firm of Gusrae, Kaplan & Bruno. rrbdlaw.com

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