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Only a small victory for securities firms 'U-5' seal dismissal in fired-broker case


NEW YORK -- Securities firms won only a small victory with last week's dismissal of a state court order sealing details of a former trader's termination, legal experts said.

Brokers, they said, are still free to sue their former employers in federal court or in arbitration over the firm's "U-5" report describing why they left.

Manhattan's influential state appellate panel ruled Tuesday that a state judge didn't have the power to prevent Nomura Securities International Inc. from filing a federally mandated U-5 disclosure form on Andrew Brenner, a broker who claimed he was wrongfully fired. "This ruling seems more like a decision on federalism than a decision on the right to sue securities firms for defamation on U-5s," said Richard Ryder, publisher of Securities Arbitration Commentator, an industry newsletter based in Maplewood, N.J.

"The court is really just pointing litigants toward federal authorities to solve the defamation question," he said.

To protect investors from rogue brokers, securities firms are required to file a U-5 form with the National Association of Securities Dealers, the New York Stock Exchange and New York state within 30 days after a broker leaves.

For years, securities firms have said immunity from defamation lawsuits involving U-5 forms would help them fill out the forms more candidly. Brokers, in turn, have complained that securities firms can use U-5 forms to damage brokers' reputations and hide their own wrongdoing.

In May, the U.S. 6th Circuit Court of Appeals court held Dean Witter Reynolds Inc. liable for statements made in a branch manager's termination notice, calling into question earlier rulings that shielded securities firms from such liability.

Dean Witter was ordered to pay $1.7 million in damages for statements it made when it fired branch manager John Glennon and filed a U-5 termination notice with regulators stating wrongly that he was being investigated for theft.

Nomura, the U.S. unit of Japan's largest brokerage, last May fired Brenner on allegations he overstated the value of U.S. government and agency securities by about $4 million.

Later that month, Brenner filed an arbitration complaint against Nomura claiming he was fired unfairly and that the company owed him salary payments. He also filed a suit in New York State Supreme Court to halt the U-5 filing on his termination. Judge Stephen Crane in June granted Brenner's request to seal the U-5 documents until his arbitration against Nomura was resolved. He said the seal wouldn't interfere with securities regulations and would prevent unjust damage to Brenner's career.

The state court was blocked from sealing the documents by the appellate panel's ruling last week.

Crane's ruling "directly conflicts with one of the Exchange Act's principal objectives, investor protection, by depriving other security firms of information concerning a potentially corrupt trader," the appellate panel said, referring to Securities Exchange Act of 1934.

"The ruling establishes that you can't stop this form from being published, period," said Constantine Katsoris, a professor at Fordham Law School who specializes in securities arbitration.

"Other courts are still going to have to decide whether firms can say anything they want on a U-5 and get away with it," he said.

Michael Dell, attorney for Nomura Securities, said the appellate ruling is "a step toward uniformity in securities regulation, which helps the securities industry and investors."

The Securities and Exchange Commission or Congress will have to decide whether firms can be sued for defamation based on comments made on a U-5 form.

Securities regulators need to decide this issue because now there's no way to ensure the information in a U-5 is true, said Peter Cella, a member of the Securities Industry Conference on Arbitration for 19 years.

Leslie Corwin, Andrew Brenner's attorney, said he disagrees with the ruling and may appeal.

Pub Date: 12/29/96

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