The self regulatory organization ruled that Schwab's human resources group committed “gross negligence, and contributed to the damages suffered” by a former employee who claimed the brokerage had made defamatory comments on his termination notice.
Charles Schwab & Co. Inc. last month was tattooed by a Finra arbitration panel that awarded a former employee back pay and damages of $1.8 million.
According to the three person Financial Industry Regulatory Authority panel, Schwab “had a specific intent to harm” its former employee, Timothy Leahy.
Dow Jones Newswires first reported the award last night. According to the report, Mr. Leahy was a former cashiering director at a Schwab office near Orlando, Fla., and processed ingoing and outgoing checks.
In his suit, Mr. Leahy claimed that Schwab had made defamatory comments on his U5, or termination notice, and that he was wrongfully terminated. According to Finra records, Mr. Leahy was employed by Schwab from 1991 until 2008.
According to the Finra award, Schwab’s “intent” to harm Mr. Leahy was illustrated by the following: it conducted an inefficient human resources investigation; it falsely stated human resources violations as the reason for Mr. Leahy’s termination; and it included those “false violations” on Mr. Leahy’s termination notice.
The Finra panel awarded Mr. Leahy $279,000 plus interest for lost wages. It then awarded Mr. Leahy $1.5 million in punitive damages. Such hefty damages are extremely rare in Finra arbitration cases.
At the heart of the arbitrators’ decision was the role of Schwab’s human resources personnel and procedures in firing Mr. Leahy. The award, however, did not make clear the initial conflict between Schwab and its former employee.
Schwab’s human resources “rules stated that the investigator should not be involved in the allegations and should not make the recommendation of whether or not to terminate the employee,” the arbitrators’ award stated. “However, the investigator in this case was involved in the allegations at issue and did make the recommendation to terminate” Mr. Leahy.
Schwab’s human resources group committed “gross negligence, and contributed to the damages suffered” by Mr. Leahy, the award stated.
The Finra panel also recommended a change to Mr. Leahy’s U5. The reason for termination, the panel said, should be changed from “discharged” to “other,” and the commentary should be changed from a failure to adhere to human resources policies to “termination without cause.”
Schwab "disagrees with the findings and is evaluating the opportunities for challenging the award," spokeswoman Alison Wertheim said.
