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Tuesday, February 13, 2007

Securities Industry Employees’ Rights at Stake in Court Case

Today, the New York Court of Appeals (New York’s highest court) will decide whether securities industry employees have a legal right to sue their employers for defamation stemming from statements made in the N.A.S.D. Form U-5, the standard termination form. The case is entitled Rosenberg v. MetLife; which will decide whether brokerage firms have an "absolute" or "qualified" privilege from defamation claims. To be sure, the stakes could not be higher for securities industry employees and securities employment attorneys.

If the Court rules in favor of a "qualified" privilege, then securities industry employees will be able to bring arbitration suits against their employers who defame them on Form U-5 and can seek expungement of defamatory language contained therein. Many times the desired affect of a defamatory or damaging Form U-5 is to blackball an employee from the securities industry and prevent him or her from moving to another firm with a book of business.

Even more distressing is the recent use of the Form U-5 to scapegoat employees who participated in mutual fund "market timing," a common trading service offered to hedge fund managers now deemed to be illegal. Many brokerages have chosen to fire and defame employees who participated in market timing to protect the firm and its senior management from prosecution and exorbitant fines.

On the other hand, if the Court decides that there is an "absolute" privilege from defamation on Form U-5, then securities industry employees will no longer be able to sue their employers for U-5 defamation or seek expungement of defamatory language.

My law firm has submitted a legal brief on behalf of the National Employment Lawyers Association (NELA) to the Court of Appeals arguing in favor of the qualified privilege standard and right to obtain expungement. To view our brief on behalf of NELA, click here.

You may also wish to review my op-ed in the November 2006 issue of Registered Rep magazine entitled "Fighting the U-5." You can access my op-ed by clicking here.

Securities industry employees and securities employment attorneys should carefully follow this case which will have wide ranging effects on all securities industry employees and the right to obtain expungement in a U-5 defamation action.


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