Merrill Lynch Ordered to Pay $1.6M to Former Broker for Ethnic Bias – But Will This Survive Appeal?

A NASD arbitration panel ordered Merrill Lynch & Co. Inc. to pay an Iranian former employee $1.6 million, for claims that his boss set him up to be fired after discovering his ethnicity. Merrill is currently defending a suit filed in court by another Iranian who has also accused the firm of discrimination.

In an unusually lengthy decision, the securities arbitration panel awarded Fariborz Todd Zojaji $400,000 in compensatory damages and $1.2 million in punitive damages. The arbitrators explained that Merrill Lynch defamed Mr. Zojaji in a required exit disclosure form (Form U-5), which “destroyed claimant’s ability to become employed in the securities industry.”

This language may cause the award to be undone, since it was recently determined that brokerage firms have total immunity for statements made in such disclosures. Yet, the standard for vacating arbitration awards is quite high and a court could let the decision stand if it determines the arbitrators could have decided the case for any other reason. It is also possible the arbitrators heard evidence that the derogatory statements made in the U-5 were stated orally or in writing elsewhere, thus not be protected by the privilege.

The panel said an internal investigation of Zojaji was “so reckless and wanting in care that it constituted a conscious disregard and indifference to the rights of claimant.” It also described that Mr. Zojaji, a broker in suburban Miami had been on a management track before his former manager relegated him to a reduced role after the terrorist attacks on September 11, 2001. In November 2004, Mr. Zojaji was fired on his manager’s charges he made unauthorized trades in two clients’ accounts and broke the firm’s privacy policy by allowing his wife to act as a translator during a phone call with a client who spoke Spanish.

Such determinations may keep the award viable even if the defamation claims are determined to be “manifest disregard for the law” by the arbitrators. While “manifest disregard” is not one of the statutory routes of overturning an arbitration award, it can be used in most jurisdictions as a “common law” reason to vacate an award. If the award is vacated, Mr. Zojaji would need to then file a new claim in arbitration to be determined by different arbitrators.

NASD securities arbitrators are not required to give reasons for their awards, which many lawyers would like to see changed. However, Mr. Zojaji’s and his lawyer are likely wishing the three arbitrators had simply awarded him the money without any discussion. It is likely that the parties will resolve the issue for a lesser amount rather than face lengthy litigation, and possibly additional arbitration to arrive at a final result.

Shepherd Smith and Edwards represents investors nationwide in claims against members of the securities industry. We do not represent brokerage firms but we often represent brokers who are victims of the conduct of brokerage firms. Whether client or broker, if you have a claim against a financial firm contact us to arrange a free consultation with one of our attorneys.