FINRA Arbitrators Hit Commonwealth Financial with Compensatory and Punitive Damages in Defamation Case

March 31, 2022

In a recent FINRA Arbitration Award, it seemed that the Arbitrator meant to award $75,000 but inadvertently wrote out $75. Or not. Frankly, it's still not clear as to whether the Arbitrator meant to award $75 or $75,000. In today's featured blog, we come across a more recent FINRA Arbitration Award in which a former brokerage employee proved his defamation claims against his former employer. The arbitrators awarded the former employee six figures via compensatory and punitive damages. Unfortunately, we're left to make sense of the bill presented to that victorious Claimant for thousands of dollars in hearing session fees.

Case in Point

In a FINRA Arbitration Statement of Claim filed in September 2020 and as amended, associated person Claimant Womack sought the expungement of allegedly defamatory information from his Central Registration Depository record ("CRD"). At the hearing, Claimant sought $1,264,619.40 in compensatory damages plus punitive damages.


Respondent Commonwealth Financial Network generally denied the allegations, asserted affirmative defenses, and counterclaimed for breach of contract. The contracts at issue in the Counterclaim were a 2017 Independent Contractor Agreement and two 2017 Promissory Note and Loan Agreements. The FINRA Arbitration Award characterizes the Counterclaim as seeking "more than $100,000" in furtherance of Respondent's effort to recover likely balance allegedly due on the two Promissory Notes. 

SIDE BAR: Apparently, Commonwealth hoped to persuade the FINRA arbitrators that former employee Womack should be held liable for repayment of what's likely two employee forgivable loans ("EFLs"). As disclosed on FINRA's online BrokerCheck database, Womack was "permitted to resign" by Commonwealth in July 2020; and his "Broker Statement" could not have expressed with any more clarity or force his disagreement with his former employer's allegations about the issues attendant to that termination of his registration. 


The FINRA Panel of Arbitrators found Respondent Commonwealth liable to and ordered it to pay to Claimant Womack $125,000 in compensatory damages and $50,000 in punitive damages. 

The Panel awarded punitive damages after finding that an "aggravated factor" existed in the form of "willful or wanton conduct based upon Respondent's placement of defamatory information on Claimant's U5 records." Further, the Panel recommended the expungement of two occurrences from Claimant's CRD and that the "Reason for Termination" on his Form U5 as filed by Respondent be deleted and that "Voluntary" be the revised explanation.

Bill Singer's Comment

Ultimately, I got a problem with the FINRA Arbitration Award. Let me offer you some context. 

The arbitrators held two pre-hearing sessions in March and June 2021, each of which cost $1,125 for a total fee of $2,250. Additionally, in conducting the evidentiary hearings, the arbitrators held four hearing sessions, also at $1,125 per session for a total fee of $4,500. In total, there were $6,650 in pre- and evidentiary hearing fees accrued in the conduct of Womack v. Commonwealth.''

Now . . . you tell me . . . how should the FINRA Arbitration Panel have apportioned the $6,650 in hearing fees?  As I see it, the arbitrators found in Claimant Womack's favor, and, as such, they awarded to him $125,000 in compensatory damages. That's not the end of it though. Consider this finding in the Award:

2. Respondent is liable for and shall pay to Claimant the sum of $50,000.00 in punitive
damages pursuant to North Carolina General Statutes Chapter 1D, as follows:

§ 1D-15. Standards for recovery of punitive damages. (a) Punitive damages may be
awarded only if the claimant proves that the defendant is liable for compensatory damages and that one of the following aggravating factors was present and was related to the injury for which compensatory damages were awarded: (1) Fraud. (2) Malice. (3) Willful or wanton conduct. 

The Panel finds the aggravating factor to be willful or wanton conduct based upon Respondent's placement of defamatory information on Claimant's U5 records.

So . . . the Panel found that punitive damages were appropriate because of Respondent Commonwealth's "willful or wanton conduct" in placing defamatory information on Claimant Womack's Form U5. All of which gets chalked up by the arbitrators as an "aggravating factor." Despite all of that, the Panel assessed the prevailing Claimant Womack with $6,187.50 out of $6,750 in hearing fees!

I'm lost. 



How the hell do you award a prevailing Claimant $175,000 in compensatory/punitive damages pursuant to a finding of defamation by the Respondent and relieve him of any EFL repayment to the Respondent BUT you then charge Claimant 92% of the cost of the hearing session fees?  

Given the outcome of this FINRA arbitration and the Panel's rationale, the imposition of over $6,000 in hearing fees on Womack is ridiculous to the point of suggesting that a mistake was made -- either by an inadvertent transposition by the Panel of "Claimant" for "Respondent," or by a FINRA Staff error when processing the Panel's draft Award. Regardless, I would argue that Womack should not have to dig into his pocket to pay for the hearing sessions used to successfully present his case and defend against Commonwealth's dismissed counterclaim. Perhaps Claimant will petition the FINRA Panel to reconsider or modify its Award? 

All of which reminds me of the "FINRA Customer Claimant Says Arbitrators Left Out Zeros In Award" ( Blog / February 8, 2022)  

A Matter of Missing Zeros?

Finally, Rifkind raised an intriguing allegation, which the Court notes but ultimately rebuffs:

[H]e contends that Arbitrator Dolina may have intended to award him $75,000.00, and not the $75.00 listed in the award, and therefore the award should be modified because it (1) contains a material miscalculation, and (2) is otherwise imperfect in matter of form requiring modification under § 11(a). (Mot. Modify at 1). Rifkind is incorrect. 

First, under § 11(a), the Court may modify an award where there is an evident material miscalculation. The award will only be altered where mathematical errors appear on the face of the award. Apex Plumbing, 142 F.3d at 194; Rhines II, 2012 WL 3239916, at *10. Here, Rifkind does not identify any mathematical errors. Instead, he speculates that Arbitrator Dolina may have mistakenly omitted three zeroes and awarded Rifkind "$75.00" when he intended to award him "$75,000." (Mot. Modify at 5). Rifkind's bald speculation is insufficient to demonstrate that Arbitrator Dolina made a mathematical error in computing his award. Accordingly, Rifkind has not met his burden under § 11(a).

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