The Iavarone Law Firm has filed a FINRA arbitration on behalf of three former Merrill Lynch brokers who were subject to a campaign of false statements to discourage their customers from continuing to do business with the brokers at the new firm. The campaign included the filing of inaccurate U-5 information.

The Iavarone has prosecuted similar cases, most of which have been settled. But, in a recent case that went to hearing, The Iavarone Law Firm represented a three-broker team were terminated by their brokerage firm.  The firm then filed U-5s accusing the brokers of violating firm policies and industry standards.  The firm alleged that the brokers had been engaging in prohibited mutual fund timing practices, and for one of the brokers filed documents with the State of Illinois that held up the broker’s registration for six months.  After a two week hearing, an arbitration panel found the U-5s to be defamatory and awarded the three brokers a total of $627,700 in compensatory damages, $1,307,697 in punitive damages, and recommended that the reason for brokers’ termination on their U-5s be changed from “terminated for failure to follow firm policy and industry standards” to terminated because office was closed.

While most firms concentrate on slander as a cause of action for an inaccurate or false U-5, other causes of action are frequently more suited to the individual broker’s situation. Slander has a short statute of limitations period and is not available in either New York or California. Other claims, such as disparagement and intentional interference with contractual relationships can circumvent the jurisdictional and statute of limitations problems faced in a slander claim. Also, since all of these cases must be submitted to FINRA arbitration, a viable but frequently overlooked cause of action is the violation of FINRA’s fair dealing requirements.

Also, the filing of an inaccurate or false U-5 is generally just a symptom of attempts by management to cover their own misdeeds (as occured in FINRA Arb. No. 04-00256 in which The Iavarone Law Firm recovered $830,000 in compensatory damages and $1.3 million in punitive damages), to discriminate or force a broker to leave so that his or her book can be distributed throughout the office or as justification for the refusal to pay a bonus (as occurred in FINRA Arb. No. 06-01261 in which The Iavarone Law Firm recovered the entire $260,000 in back-end compensation plus $200,000 for sexual harassment, and $80,000 in attorney’s fees) that is almost vested or as a means to avoid paying the broker fees on a recently closed (or more frequently, about to be closed) piece of business.

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The Iavarone Law Firm
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Suite 1400
Chicago, Illinois 60602
Phone: 312.637.9466
Fax: 800.417.0580

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