Stockbroker Wins Defamation Arbitration Against Former Employer

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2010, Claimant Phinizy sought unspecified damages as a result of alleged libel and slander on her Uniform Termination Notice for Securities Industry Registration (the "Form U5″) and for attendant acts of defamation.  Claimant Phinizy alleged that a wrongful Form U5 was filed against her by officers of Respondent Moody Securities, LLC  - who are also officers of MGL Consulting Corporation ("MGL").  Claimant asserted that the defamatory acts were undertaken in retaliation for a commercial dispute MGL had with one of its vendors, Intellibind Technologies, LLC. In the Matter of the FINRA Arbitration Between Judy Christina Phinizy, Claimant, v. Moody Securities, LLC, Respondent (FINRA Arbitration 10-04203, October 6, 2011).

Respondent generally denied the allegations, asserted affirmative defenses, and counterclaimed for $99,999.00 in compensatory damages that allegedly arose when Claimant willfully removed confidential Moody customer information without notice.

At the FINRA Arbitration hearing, Respondent withdrew its Counterclaim.

SIDE BAR:  According to online FINRA documents, it appears that Claimant Phinizy was a non-registered employee of Intellibind (not a FINRA member firm) as of March 2009, and this employment was concurrent with her registered role at Respondent Moody's.

Based upon online FINRA documents as of October 12, 2011, it appears that Respondent Moody "Discharged" Claimant Phinizy on July 30, 2010, and submitted the following explanation to FINRA:

ON JULY 18, 2010, COMPUTER EQUIPMENT WAS REMOVED FROM THE PREMISES OF A FIRM THAT MOODY SECURITIES' HAS AN OUTSOURCING RELATIONSHIP WITH. THE FACTS SURROUNDING THE REMOVAL OF THE COMPUTER EQUIPMENT ARE IN DISPUTE. AS WELL AS WHETHER THE DATA ON THE COMPUTER EQUIPMENT IS SUBJECT TO PRIVACY REQUIREMENTS OF REGULATION S-P. PHINIZY IS ASSOCIATED WITH THE COMPANY AND PARTICIPATED IN THE REMOVAL OF THE COMPUTER EQUIPMENT. SHE DENIES THAT ANY CONFIDENTIAL INFORMATION WAS REMOVED. AN INVESTIGATION IS ONGOING.

DECISION

The FINRA Arbitration Panel found Respondent Moody Securities liable and ordered it to pay to Claimant Phinizy $19,995.00 in attorneys' fees at the rate of 6% interest until paid in full, and to reimburse her $1,000 non-refundable FINRA filing fee. Moreover, having  found the U5 to contain disclosures of a defamatory nature, the Panel recommended that Phinizy's U5 be amended pursuant to its instructions.

The Panel recommended that the "Yes" answers on the U5 for Items 7(B); (F)(1); and (F)(2) are to be amended to "No." Although the Panel left in place "Discharged" as the stated reason for Claimant's termination, the Termination Comment was to be amended to state:

Service no longer required.

SIDE BAR: Here are the specifics for the cited U5 items:

Internal Review Disclosure
7(B): Currently is, or at termination was, the individual under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct?

Termination Disclosure

7F. Did the individual voluntarily resign from your firm, or was the individual discharged or permitted to resign from your firm, after allegations were made that accused the individual of:

(1) violating investment-related statutes, regulations, rules or industry standards of conduct?

(2) fraud or the wrongful taking of property?

Bill Singer's Comment

Phinizy is quite the oddball FINRA arbitration.  For starters, FINRA arbitrators don't frequently rule that U5 comments are defamatory - it's not an unheard of outcome but it's not particularly common.

Having found in favor of the defamed employee, the awarded damages in this case are limited to attorneys' fees, interest thereon, and a pittance of a reimbursement.  I actually re-read the Decision to make sure that I hadn't missed an award of some compensatory damages, but no such finding was made.

Why would a Panel award attorneys' fees but not any compensatory damages?  I wish there was some explanation in the Decision but there is none and, as such, I'm left to uncomfortably speculate.  I don't like to speculate about FINRA arbitrations and I don't think it's appropriate that any FINRA Decision imposes that task upon a reader.  There should be sufficient explanation within the four corners of a FINRA Arbitration Decision that such questions are answered.

One possibility for the Panel's non-award of compensatory damages is that Claimant did not ask for any damages beyond reimbursement for her attorney's fee and the amendement of her U5.  Quite often, a lawyer will counsel a client in Claimant Phinizy's position that the most important goal in these cases is to clear your U5 and not divert the Panel with issues pertaining to monetary damages.  Why?  Typically, the dollars at issue may be relatively minimal or not amenable to a compelling test of proof.  To that extent, a Claimant may dilute the Panel's belief that this is truly a case about "principle" and could jeopardize a favorable (or more favorable) outcome. 

Another equally valid guess as to why there were no compensatory damages awarded here is that the Claimant didn't specify an actual dollar amount and left it to the Panel's discretion as to what would be proper.  In such a case, maybe, perhaps, possibly, this Panel felt that Phinizy didn't really sustain any proven monetary damages as a result of the defamation.  However, notwithstanding the lack of compensatory financial damage, the Panel may also have decided that Claimant should not be punished by having to incur the cost of retaining a lawyer in order to secure the recommended U5 revision, and, thus, the arbitrators may have opted to award legal fees.

• Phinizy
• Moody
• Defamation
• U5
• FINRA
• Arbitration
• Bill Singer
• BrokeAndBroker