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Thursday, March 29, 2007

Rosenberg vs. MetLife Decision Affirms Financial Service Firms Have an "Absolute" Privilege to U-5 Comments

The Second Circuit dealt a severe blow today to the rights of anyone employed by a firm under the regulation of the NASD. In the case, Rosenberg vs. MetLife, the three of the five judges (one judge took no part) came to a majority decision that MetLife had an "absolute" privilege to the information they inserted into a departing employees "Form U-5," which is a process mandated by the SEC. The SEC requires this process to ensure that any past infractions are transparent to a new employer or the public at large.

The problem, however, is that many firms are using the Form U-5 to defame their departing employees. Many brokers who were dismissed for the mutual fund marketing timing practices were scapegoated and defamed on their Form U-5 to appease Eliot Spitzer and prevent the bank's upper management from further investigation. In other documented cases, the rationale for U-5 defamation was to prevent a departing broker from taking along his clients.

To better protect employees working in the securities industry, the NASD should revisit a 1998 rule enacting a "qualified" privilege allowing some recourse for those who have been defamed. I wrote this to NASD Chairman and CEO urging her to immediately reconsider the rule.


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