FINRA Arbitrators Award $575,000 Punitive Damages to Defamed Broker

June 15, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2010, Claimant Olson asserted causes of action including defamation, breach of contract, and tortious interference against his former employer Respondent World Equity Group ("WEG"). Claimant Olson alleged that Respondent WEG had breached its employment contract with him, wrongfully terminated him, and maliciously defamed him on his Form U5. Claimant sought at least $285,000 in damages, $259,000 in attorneys' fees, unspecified punitive damages, a regulatory referral of the matter, and an expungement.

In the Matter of the Arbitration Between Scott L. Olson, Claimant/Counter-Respondent, vs. World Equity Group, Inc., Respondent/Counter-Claimant (FINRA Arbitration 10-01803, June 8, 2011).

Respondent WEG asserted various affirmative defenses and filed a Counterclaim asserting breach of contract and indemnification based upon its contention that Olson was contractually obligated to indemnify WEG for any liability incurred by WEG as a result of a FINRA examination and the firm's concurrent internal investigation of Claimant.


The FINRA Arbitration Panel found Respondent WEG liable for and ordered the member firm to pay to Claimant Olson:

  • $285,000.00 in compensatory damages;
  • $575,000.00 in punitive damages;
  • $282,822.13 in attorneys' fees; and
  • $250.00 in costs as reimbursement for the non-refundable portion of the filing fee.

The FINRA Arbitration Panel dismissed with prejudice WEG's Counterclaim.

Based upon a finding of defamation, the FINRA Panel recommended the expungement of the Termination Comment from Section 3 of Claimant Olson's June 9, 2010, Form U5 as filed by World Equity Group, LLC.  The current Termination Comment stated:

Disagreement over advertising policy, rules, and advertising protocol.

The Panel recommend that the above language be deleted and replaced with

FINRA Arbitration Panel ruled discharge was wrongfully administered. FINRA Arbitration Panel questions the appearance of the stated internal review and/or its effectiveness. FINRA Arbitration Panel found no violations of investment-related statutes, regulations, rules or industry standards of conduct.

The FINRA Panel left undisturbed the current Reason for Termination: "Discharged." However, the Panel further recommended the expungement of Question 7B from the Internal Review Disclosure Section, and Question 7F from the Termination Disclosure Section; and the alteration of the the current "Yes" answers to Question 7B and Question 7F to that of "No," with the deletion of the attendant Disclosure Reporting Pages.

Bill Singer's Comment

As with most FINRA Arbitration Decisions, unfortunately, we are left to largely fend for ourselves when it comes to figuring out what the hell went on here?  In the absence of a meaningful statement of facts and a more robust explanation of the Panel's rationale, I'm simply going to have to speculate that the arbitrators in this case were really, really, really unhappy with Respondent WEG's termination of Claimant Olson, and perhaps even more unhappy with what the Panel may have perceived as efforts by the former employer to trash Claimant's reputation.

 On the surface, I gotta tell ya, the U5 explanation doesn't exactly jump off the paper at me, screaming all sorts of nastiness about Olson.  Given that I am frequently contacted by former employees/employers for legal counsel on termination issues, the language in contention just doesn't present itself to me as particularly horrendous.

 However, that's what often makes these defamation cases so ticklish - it's all the stuff that the employee claims went on before the termination, that went on leading up to the termination, that went on during the termination, and then all the threats and dirty dealing that went on after the termination.  All of which is why some of these cases don't look so bad on the Form U5 but when you hear the testimony, you too may be outraged at the ordeal that the Claimant was put through.

While the proposed U5 revision isn't the most articulate rendering of what the Panel may have intended, the commentary does suggest that the Panel didn't believe much, if anything, from the Respondent.  Moreover, it seems clear that the Panel wasn't buying any suggestion that Olson had engaged in any violations of industry laws, rules, or regulations.  Worse, the Panel implies that Respondent WEG's internal investigation may have been a bogus inquiry designed to give some legitimacy to the firm's termination of Olson.

 Again, it's truly unfortunate for folks in the industry and investing public that we're left to ruminate about such critical aspects of this (and other) cases.  Fortunately for Claimant Olson, the Panel's award of over half a million dollars in punitive damages - nearly double his requested compensatory damages - underscores and highlights the inference that the defamation and misconduct cited in this case was outrageous, even if content of the FINRA Decision doesn't make as strong a case.