We all know the game: your former firm makes defamatory and fraudulent misstatements on your Form U5 to delay approval of your new registration. They claim to have fired you, when you actually quit. They reference an ongoing internal investigation that you know nothing about. Some unnamed client(s) have complained about you, but there is no indication as to when or about what.
Sometimes the nonsense rises a notch with scandalous telephone calls to your clients. It's often terribly hush-hush — callers from your former firm tell the client that they're just trying to confirm he doesn't have any complaints about you. They claim to be interested only in the customer's protection; they claim to have heard some stuff about you; they claim not to want to alarm the client with the details. And then they drop the hint that if the client were to file a complaint against you, the firm might just toss in a few dollars as part of a “settlement.”
Unfortunately, the one regulator best positioned to reform the history of employment-related abuse hasn't exactly responded with enthusiasm to complaints about the above by afflicted registered reps. FINRA (formerly NASD) is often described as the nation's largest self-regulator, but the “self” pulling the strings here is the FINRA member firm — not the registered rep.
Ever wonder why you're forced to arbitrate industry disputes before a FINRA arbitration panel? Fact is, FINRA offers voting rights for its elective offices and rulemaking only to its member firms — individual registered persons are disenfranchised. Some seven years ago, I called for allowing individual registered reps a limited vote on NASD rule proposals pertaining to the employee-employer relationship (See this article, August 16, 2002, at http://www.rrbdlaw.com/2002/Q3/hollomon.htm). An NASD spokesperson responded:
“Mr. Singer's agenda is clearly out of step with the times, pandering to those who would seek less, not more oversight and accountability. For example, Mr. Singer's proposal that registered representatives vote on all regulatory changes governing their behavior would almost certainly block or delay any effort to enact meaningful reforms. We will resist proposals that would water down industry oversight.”
Calling for fair play is “pandering”? Seeking the vote for employees on employee-employer matters is tantamount to seeking a vote on “all regulatory changes governing their behavior”?
Inexplicably, FINRA feels that its venerable member firms can be trusted to act as stalwarts for regulatory integrity, but the lowly registered reps will only “block or delay any effort to enact meaningful reforms.” Surely, FINRA's member firms never tried to water down regulatory oversight. Surely, FINRA never failed to diligently regulate. Perish the thought.
Years ago, amidst growing complaints from the public against NASD member firms that were wrongfully delaying account transfers, the self-regulator was forced to promulgate account transfer rules and protocols. NASD passed and has repeatedly amended Procedural Rule 11870: Customer Account Transfer. I urge all departing registered reps to read this rule to better understand the obligations and time limits imposed upon FINRA member firms when handling request for account transfers.
Similarly, on June 15, 2009, FINRA Rule 2140: Interfering With the Transfer of Customer Accounts in the Context of Employment Disputes becomes effective. Before you leave your current firm, copy this Rule and be prepared to cite it should your former firm start playing games:
No member or person associated with a member shall interfere with a customer's request to transfer his or her account in connection with the change in employment of the customer's registered representative where the account is not subject to any lien for monies owed by the customer or other bona fide claim. Prohibited interference includes, but is not limited to, seeking a judicial order or decree that would bar or restrict the submission, delivery or acceptance of a written request from a customer to transfer his or her account. Nothing in this Rule shall affect the operation of NASD Rule 11870.