On July 6, 2011, after an 11-day hearing, an arbitration panel of the Financial Industry Regulatory Authority, Inc. (“FINRA”), sitting in Philadelphia, Pennsylvania, awarded compensatory damages of $4,300,000 to broker Gregory P. Kipple (“the claimant broker,” “the broker,” or “Mr. Kipple”), who allegedly was fired by respondents Wells Fargo Advisors, LLC (“Wells Fargo”) and Wachovia Securities, LLC (“Wachovia Securities”) for writing a letter to FINRA responding to its inquiry about a customer who complained that the claimant broker and his branch manager failed to supervise an associate’s handling of the customer’s account. Kipple v. Wells Fargo Advisors, LLC, FINRA Case No. 10-02871. The broker had sought relief for, among other things, violation of the New Jersey Conscientious Employee Protection Act, N.J.S.A. §§ 34:19-1 – 34:19-8 (“NJ CEPA”).
The Kipple arbitration panel further awarded to the claimant broker, under NJ CEPA, punitive damages of $1,000,000 and attorneys’ fees and costs of $530,000.
In addition, based on the “defamatory” nature of the information, the Kipple arbitration panel recommended the expungement of Wells Fargo’s and Wachovia Securities’ statement, on the claimant broker’s Form U-5, that the broker was “Discharged.” The Kipple panel recommended that Wells Fargo and Wachovia Securities instead be directed to admit, on the broker’s Uniform Termination Notice for Securities Industry Registration, that they fired the broker without cause.
From October 2003 until his August 2009 termination, the claimant broker was a broker in Marlton, New Jersey for Wachovia Securities. Wachovia Securities became part of Wells Fargo after Wells Fargo & Co. purchased Wachovia Corp. in 2008.
In April 2009, a Wachovia Securities customer, Patricia Sharkey, filed with FINRA a complaint (“the Sharkey complaint”) alleging that the claimant broker and his branch manager failed adequately to supervise an associate’s handling of her account. In June 2009, Wachovia Securities settled the Sharkey complaint for $160,000.
Wells Fargo told FINRA that it fired the claimant broker in August 2009 for “failure to follow firm policies relating to ‘know your customers.'”
In a response included in his BrokerCheck report, the claimant broker alleged as follows. In July 2009, FINRA asked the broker to provide, within two weeks, an explanation of the facts surrounding the Sharkey complaint. The claimant broker wrote and sent to Wells Fargo’s legal counsel a proposed letter responding to FINRA’s inquiry. According to the broker, Wells Fargo’s counsel did not get back to him. As a result, the day before the claimant broker’s factual explanation about the Sharkey complaint was due, the broker signed and sent his response letter to FINRA. The claimant broker then informed Wells Fargo’s counsel that he had responded to FINRA about the Sharkey complaint. Wells Fargo’s counsel was “clearly unhappy” that the broker had answered FINRA’s inquiry. Two weeks later, Wells Fargo fired the claimant broker.
The Kipple arbitration award illustrates at least two important points. First, the New Jersey Conscientious Employee Protection Act, under which Mr. Kipple recovered, is one of the broadest whistleblower statutes in the nation. NJ CEPA prohibits all employers from retaliating against employees who disclose to a supervisor or a public body, object to, or refuse to participate in actions of the employer that the employees reasonably believe are either unlawful or in violation of public policy.
Second, in New Jersey, a broker or other registered employee, by proving the usual elements of defamation plus that the former employer acted with malice, may successfully sue a brokerage firm or other former employer in the securities industry for defaming him or her on a Form U-5. For a more detailed discussion of how, in New Jersey, a broker can win a claim against his brokerage firm or other former employer for defaming him on a Uniform Termination Notice for Securities Industry Registration, see this author’s April 11, 2011 post.
By contrast, in New York State, statements made by an employer on a Form U-5 are subject to an absolute privilege in a suit by the employee for defamation. Rosenberg v. MetLife, Inc., 8 N.Y.3d 359, 362, 371, 866 N.E.2d 439, 834 N.Y.S.2d 494 (N.Y. 2007).
If you are a securities industry professional who is considering bringing an employment-related arbitration against the brokerage firm which employed or employs you, and you reside in the New York City area, call Attorney David S. Rich at (212) 209-3972.