Gross v. HSBC

Background

Adam Gross worked for HSBC as a Managing Director and was terminated in September 2020. Because HSBC is a member of the Financial Industry Regulatory Authority (FINRA), it had to file a Uniform Termination Notice for Securities Industry Registration Form, known as a Form U-5, when Gross left. The form stated that Gross had violated HSBC’s internal rules and practices and faced alleged regulatory violations.

Gross said that information was inaccurate and made it harder for him to find other employment. After Gross and HSBC reached a private settlement, he sought to remove the termination language from the Form U-5. The parties agreed that HSBC could not remove the language on its own and that Gross had to seek relief from a FINRA arbitration panel.

Arbitration and Federal Court Proceedings

At a 53-minute arbitration hearing, Gross testified that he had not violated HSBC’s internal rules or practices and that he had voluntarily separated from HSBC. HSBC did not contradict that testimony and had agreed not to contest Gross’s request for expungement. The panel asked whether HSBC would issue a new Form U-5, but HSBC said it believed it lacked the power to remove the original language. The panel also expressed uncertainty about whether it could substitute a different reason for the one HSBC had reported.

The panel ultimately wrote only that Gross’s claims were denied in their entirety. It gave no explanation for the denial. Gross initially filed a complaint seeking relief related to the Form U-5 and the FINRA panel, but he then reformulated the matter as a petition to vacate the arbitration award. The court treated that petition as replacing his original complaint. HSBC stated that it did not oppose the petition in federal court.

Legal Standard

The Federal Arbitration Act governs judicial review of FINRA arbitration awards. The Court of Appeals for the Second Circuit also permits a court to vacate an award when it was rendered in “manifest disregard of the law.” That standard applies only in unusual cases involving an obvious and serious error by the arbitrators. An award ordinarily must be upheld if it has even a minimally plausible justification that can be inferred from the record.

FINRA Rule 2080 identifies circumstances in which expungement may be granted, including when the registered person was not involved in the alleged violation or when the information is false. FINRA Rule 13805(c) requires a panel ordering expungement to identify the applicable ground and briefly explain its reasons.

Court’s Analysis and Ruling

The court found that the panel’s unexplained denial, together with the undisputed evidence that Gross had not violated HSBC’s rules or practices, left no discernible basis for the award. The court could not identify any possible findings that would justify the panel’s decision. The absence of an explanation was especially significant because the panel appeared to reach a conclusion that neither side had advocated: that the Form U-5 information was accurate and should remain unchanged.

The court therefore held that the award could not stand under the manifest-disregard standard. It granted Gross’s petition to vacate the FINRA arbitration award and remanded the matter to the FINRA panel for further proceedings. The court stated that the panel did not necessarily have to reach a different result, but it had to provide an explanation so the court could determine whether the law had been disregarded.