Employer U-5 Defamation, Collection of Promissory Notes, Expungement – All Rolled Into One

In a somewhat unusual FINRA arbitration award, multiple issues that often face brokers and their employers arose in a claim filed by a disgruntled broker.

Deborah Greenlee-Keck entered the securities industry in 2008. She joined JP Morgan Securities in October 2012 in Goshen IN. In June 2015 she joined Wells Fargo Advisors in Goshen.

After her hiring at Wells Fargo, JP Morgan filed a U-5 reporting that Greenlee-Keck was under internal review at the time of her voluntary resignation. As reported on Greenlee-Keck’s BrokerCheck disclosure report, the U-5 said that

Registered rep voluntarily resigned while under internal review for engaging in financial transactions with an individual who subsequently became a firm customer and a co-worker in violation of affiliate bank policy. Registered rep used one client's funds to pay down the credit card balance of another client of bank affiliate. The initial individual who subsequently became a client authorized the use of the funds to pay down the credit card balance of another client of bank affiliate.

The U-5 filed by Wells Fargo indicates that Greenlee-Keck was discharged in October 2015. Wells Fargo stated on her U-5 disclosure that she was discharged for failing to tell Wells Fargo during the hiring process that she was the subject of an internal review at her prior employer. Furthermore, Wells Fargo stated that Greenlee-Keck would not have been hired if they knew the circumstances of the internal review.

Six months later Greenlee-Keck filed a FINRA arbitration claim against both JP Morgan and Wells Fargo. The claim alleged U-5 defamation, tortious interference with business relationships and requested the expungement of the JP Morgan disclosure. She alleged damages of $2.3 million.

Wells Fargo filed a counterclaim against Greenlee-Keck. Wells Fargo alleged that Greenlee-Keck owed $297,838 under the terms of a promissory note.

The hearing was held before a three-person panel in Indianapolis, IN. The panel denied Greenlee-Keck’s claims. However, the panel did award Wells Fargo $327,521 plus interest on its counterclaim for repayment of the promissory note (during the hearing, Wells Fargo amended its damage claim to the amount that was awarded).

The panel denied the request for expungement of the JP Morgan disclosure of the internal review. Rather, the panel ordered that the following language be added to the end of the disclosure: “No theft or fraud was determined by the internal review.”

The panel further ordered that Greenlee-Keck obtain a court order confirming the award and present that order to FINRA’s Registration and Disclosure Department to effectuate the amendment.

As noted previously, Greenlee-Keck waited six months after her discharged by Wells Fargo before filing the arbitration claim. Presumably, as is the normal practice, Wells Fargo’s collection unit sent letters to Greenlee-Keck after her discharge demanding repayment of her up-front loan pursuant to the terms of the promissory note. She either objected to repaying the loan or could not negotiate a settlement at a lower amount. Her attorneys then determined to “fire the first shot across the bow” by filing the U-5 defamation claim.

Regarding the expungement request, the panel ordered that Greenlee-Keck obtain a court order confirming the award. However, FINRA Rule 2080 requires that a broker who obtains an expungement order from a panel in a customer dispute obtain confirmation of the award. The FINRA arbitration rules say nothing about having to get confirmation of an expungement order in a U-5 defamation case like this.

What this award does show is the need for an employee facing issues involving current or former employers to seek the counsel of experienced securities employment lawyers. If you have questions or concerns regarding your employer or former employer, contact the firm of Lubiner, Schmidt & Palumbo for assistance.