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Can I Successfully Sue My Employer In The Securities Industry In New Jersey For Defaming Me On A Form U-5?

  • By: David Rich
  • Published: April 11, 2011

To successfully sue a brokerage firm or other former employer in the securities industry in New Jersey for defaming him or her on a Form U-5, a broker or other registered employee must prove the usual elements of defamation, plus that the former employer acted with malice.

Form U-5 (Uniform Termination Notice for Securities Industry Registration) is a form which brokerage firms must complete and file with securities regulators to report the termination of a broker’s or other registered employee’s employment.  On the Form U-5, the brokerage firm must state the reason for the broker’s termination, and whether the broker voluntarily quit, was allowed to resign, or was fired.

If a brokerage firm is looking to retaliate against a broker or other registered employee, the firm may include defamatory information on the Form U-5 that injures the broker’s good name and severely hampers the broker’s ability to obtain new employment.

Under New Jersey law, to prevail on a defamation claim, the plaintiff must prove: (1) a false and defamatory statement concerning plaintiff, (2) unprivileged publication to a third party, (3) fault amounting to at least negligence on the part of the publisher, and (4) damages.

In New Jersey, statements made by an employer on a Form U-5 are subject to a qualified privilege on a defamation claim brought by the terminated employee.

However, New Jersey law recognizes that ” ‘a conditional or qualified privilege is limited as the title suggests.’ ”  Merrill Lynch, Pierce, Fenner & Smith Inc. v. Savino, 06 Civ. 868, 2007 WL 895767 (S.D.N.Y. Mar. 23, 2007), aff’g Savino v. Merrill Lynch, Pierce, Fenner & Smith, Inc., NYSE Docket No. 2003-014887 (Dec. 22, 2005).

The qualified privilege — shielding, from a terminated employee’s libel claims, any statement made by a brokerage firm on the employee’s Form U-5 — may be lost through abuse if “(1) [the brokerage firm] knows the statement is false or [the brokerage firm] acts in reckless disregard of its truth or falsity; (2) the publication serves a purpose contrary to the interests of the qualified privilege; or (3) the statement is excessively published.”  Savino, 06 Civ. 868, 2007 WL 895767.

“In other words, the qualified privilege may be lost through proving [the brokerage firm] acted with malice.”  Savino, 06 Civ. 868, 2007 WL 895767.

Thus, in the Savino case, the U.S. District Court for the Southern District of Manhattan (Preska, J.), applying New Jersey law, held that a Manhattan Stock Exchange (“NYSE”) arbitration panel did not reversibly err insofar as that panel held that the petitioner brokerage firm, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), had defamed the three respondent brokers by stating on their Forms U-5 that Merrill Lynch fired the brokers for “fail[ing] to follow specific directives and firm policy prohibiting certain short-term trading activities in  mutual funds” and for “engag[ing] in other related violations of Merrill Lynch policy.”

As a result, the Savino Court granted the three brokers’ cross-motion to confirm, and denied Merrill Lynch’s motion to vacate, the NYSE arbitration panel’s award, which had granted, to the three claimant brokers, damages of $12.5 million against Merrill Lynch “for loss of income and pain and pain and suffering resulting from [Merrill Lynch’s] defamation of claimants” in, among other media, their U-5 Forms, and had directed Merrill Lynch to pay the claimants attorneys’ fees of $576,035.96 and “to amend [the Form] U-5s for Claimants for item 3, so that the notice[s] of termination read[]: ‘was not for cause’. ”

If you are a securities industry professional with negative information on your Form U-5 which you need expunged or for which you want other relief and you reside in the New Jersey area, call Attorney David S. Rich at (347) 941-0760.

David Rich, Esq.

David Rich David S. Rich is the founding member of the Law Offices of David S. Rich, LLC,
a Manhattan Employment and Business Litigation Law Firm, in New
York City and in Englewood Cliffs, New Jersey...View Profile