Every day, a stockbroker is asked to sign an amendment to NASD Form U-4, the securities industry's Uniform Application for Securities Registration. A brokerage firm is required to amend the Form U-4 upon the occurrence of certain specified events as described in the form. In particular, customer complaints and arbitrations which allege damages over the dollar thresholds must be disclosed.
Unfortunately for the brokers, truthful allegations are given the same weight as untruthful ones. A customer can allege unauthorized trading, for example. The firm is required to repeat that allegation on the Form U-4. The firm is not permitted, however, to pass judgment on whether or not the allegations are truthful. For a broker with no particular experience with amendments to the form U-4, signing a form with such heinous allegations is especially distasteful. What's a broker to do in this situation?
Box 28 is the answer. A little-publicized fact is that the broker has the right to provide his/her rebuttal to the disclosure in Box 28. The instructions say that this rebuttal should be written "in the space provided." In many instances, Box 28, when printed, has no space at all. But there is space available for the asking.
What should go in Box 28? A broker should write a brief, truthful, factual rebuttal to the allegations that the firm has disclosed. For instance, in the case of unauthorized trading, if the broker is 100% certain that all trades were discussed with the client prior to entry, a broker could write this fact. In the case of a client who makes allegations of losses in a portfolio, a broker could write that the client's account was profitable for the period the broker handled the account. Again, the Box 28 text must be truthful and, I suggest, should not be opinion, only fact.
In the case of a manager named for "Failure to Supervise," the manager could write in Box 28, if truthful, that the manager was not the manager during the time of the allegations.
Why fill in Box 28? When a customer or prospective employer requests a full CRD printout, Box 28 language will print out along with the customer's allegations. CRD reports are sometimes introduced into evidence at arbitration hearings. Having Box 28 completed with factual, objective, rebuttal language will take some, but not all, of the sting out of disclosing the complaint in the first place.
A lawyer is not required to complete the language for box 28. However, an experienced securities attorney can assist the broker in crafting the rebuttal in a light most favorable to the broker. This entire process, barring any unforeseen glitches, shouldn't take very long and will give the broker some peace of mind and feeling of involvement in the process.
That's the view from The Law Planet, Jupiter, Florida.