Robert W. Pearce, a Florida based securities lawyer with a practice that includes representation of financial advisors answers one of the more frequently asked questions: Can I file a Form U-5 Defamation claim?
My name is Robert Pearce. As I discussed in other videos, some brokers who have been terminated, have had vindictive employers make false statements on their Form U-5 Termination Notice, particularly in connection with the explanation given for the “Discharge with Cause”. The remarks on that U-5, and on your CRD, and your BrokerCheck report are permanent unless they are expunged. They’re visible to the world via the internet forever until they’re expunged.
In some of those cases, the only way that we can get rid of that false and defamatory remark is by filing an arbitration claim against the broker-dealer. Now, the claim is for defamation. What is defamation? It’s when the brokerage makes a false statement; the statement is defamatory, meaning, in this context, that it affects your business reputation; it’s published to the world through the internet; the statement is made either negligently or recklessly; and you are harmed. That’s what constitutes the elements of a defamation claim.
Now, in some states, no matter how malicious the broker-dealer may have acted, no matter how much that statement may have hurt your reputation, you can’t file a defamation claim. That’s because those remarks on the Form U-5 have been held in those states to be “absolutely privileged.” They have been given “absolute immunity.” Two states that come to mind where that absolute immunity defense has been published time and time again in court opinions are New York and California.
On the other hand, there are many states, and it is the majority view, that those statements are not “absolutely privileged.” The broker-dealer does not have “absolute immunity.” Rather those statements on the U-5 are only “qualifiedly privileged,” meaning that if they were made in “good faith” and with “a reasonable basis,” then they could be protected, but if they were not, if they were made “willfully, wantonly, maliciously” by the broker-dealer, they won’t be protected by the “qualified privilege” in those states.
Now, the state courts that have expressly held that the privilege is only “qualified” are courts in the states of Arizona, Connecticut, Florida, Illinois, Michigan, Oklahoma, Tennessee, and Texas. All those state courts have all said that the defense is only a “qualified privilege” and so, you can still sue for Form U-5 defamation.
Eleven (11) other states and another territory have enacted what’s called Section 507 of the Uniform Securities Act and by adopting that statute, it’s codified that the privilege is only “qualified.” Those states and territory are Hawaii, Idaho, Kansas, Maine, Minnesota, Missouri, Oklahoma, South Carolina, South Dakota, US Virgin Islands and Vermont.
In those states where one would only have “qualified immunity,” a “qualified privilege,” a broker can sue his employer for defamation if the firm knew that the statement was false, or should’ve known that this statement was false, or made the statement with reckless disregard as to whether it was false or not!
Once you sue them for defamation, you can get damages, the damages to your business reputation, but you can’t do this on your own. You need to hire a skilled FINRA securities arbitration lawyer that knows how to win these cases for brokers and that’s why I suggest you contact our law firm.