An NASD arbitration panel awarded a former Merrill Lynch broker $1.6 million for wrongful termination and defamation, claims he had filed against his former employer. The award included compensatory damages of $400,000 plus interest and punitive damages of $1.2 million. Awards of that size are a rarity in arbitration cases brought by employees against brokerage firms.
The panel sided with Zojaji’s attorneys, who claim Merrill’s conduct was inappropriate. “The b/ds for the wirehouses tend to have an attitude that they can fire a broker without just cause and do whatever they want without repercussions,” says Michael Arias, one of Zojaji’s attorneys from the law firm Carlson & Lewittes. “And this panel is saying that is not so.”
Merrill disagrees with the ruling, however. "We approached this matter in good faith,” says Merrill spokesman Mark Herr. “We regret the panel did not view the evidence in the same light we did."
According to the award, the panel found that Zojaji’s regional complex manager Brian Sepe filed a false U-5 and ignored advice from compliance counsel, Neil Eisenstadt, to substantiate the allegations. The panel also suggested that Sepe exacted a personal vendetta against Zojaji for being an Iranian immigrant and went out of his way to make sure he did not succeed at Merrill, where he was being groomed for a management position. The panel found that Sepe’s conduct was “without doubt, not merely grossly negligent, it was intentional.”
According to the award, Mark Tendler, resident director at Zojaji’s branch office, and other Merrill employees, failed to follow up with the customers to vet the alleged complaints and did not review the telephone records that would have demonstrated that no discretion was used in trades in the customer’s account. “There was no real investigation done,” Arias says.
Despite a lack of evidence produced during discovery to support his claim, Arias speculates that Zojaji was canned as part of a pre-emptive strike by Sepe, who may have wanted to take Zojaji's book of business after he learned of Zojaji's plans to leave Merrill for UBS. Zojaji, who couldn’t get registered for six months after being fired from Merrill was then unable to hold down a job at A.G. Edwards because his entire book had been pillaged during that time. For Zojaji, it was the second negative mark on his record, ensuring that none of the other wirehouses would touch him. Zojaji now works as a bank broker for SunTrust Investment Services in Atlanta. As for Sepe, he now runs a one of the largest branches in the Merrill network in New York.
Meanwhile, advocates for reforming the filing process for Form U-5 published a paper today condemning current industry practices. “Once an item is reported on a U-5, regardless of merit or accuracy, it is a permanent record, which can greatly impact RR employment in the industry going forward,” writes Drew McCoy, chairman of the Wealth Advisor Institute's Advisor Council in a paper entitled “Recommendations for Reforming and Improving NASD Registered Representative Regulatory Filing Procedures.”
“With legal immunity from defamation claims, there is little to stop an unscrupulous firm from, for example, filing derogatory information on a U-5 form in order to punish [a registered rep.] for leaving for another firm,” McCoy writes.