Firms Can List Reasons for Firing Brokers

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Financial firms can say what they want on forms documenting why they've dismissed a broker, without being subject to defamation claims.

The New York Court of Appeals ruled that U-5 forms, which firms are required to fill out on the departure of some employees, serve the public interest by informing regulators, investors and other employers of brokers' past behavior, and are an important part of the self-regulatory process.

The ruling came after former MetLife insurance agent Chaskie Rosenberg sued the insurer for writing he was "a possible accessory to money-laundering violations" on a U-5 form. The court's 4-2 decision said a "U-5's compulsory nature and its role in the NASD's quasi-judicial process, together with the protection of public interests, lead us to conclude that (they) should be subject to an absolute privilege."

MarketWatch notes that brokers accuse firms of often making untrue statements on U-5s.

Although recourse is available - an ex-employee can still try to get a defamatory comment expunged via arbitration or the courts - few have the time and financial wherewithal to do so, said lawyer David Wechsler, who represents brokers in employment claims. Heller said his client wasn't sure he wanted to endure the expungement process.

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