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.
Jersey, statements made by an employer on a Form U-5 are subject to a
qualified privilege on a defamation claim brought by the
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 New York (Preska, J.), applying New Jersey law,
held that a New York 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 York City area, call
Attorney David S. Rich at (212) 209-3972.
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