(Dow Jones) Charles Schwab & Co. Inc. (SCHW) must pay nearly $1.8 million-including $1.5 million in punitive damages--to a former employee, according to a securities arbitration award.

A Financial Industry Regulatory Authority, or Finra, arbitration panel also recommended expungement of a comment it says was made by Schwab on the employee's Form U5, which brokerages typically file with regulators when an employee leaves a firm. The Finra panel found that Schwab had "specific intent" to harm the claimant, Timothy Leahy, former cashiering director of a Schwab office in Orlando, Fla.

Leahy wasn't a broker for Schwab but was a registered representative, whose termination required disclosure on a Form U5. Brokerages typically file Form U5 with regulators when a registered employee leaves the firm.

The Finra panel's award included $279,184 plus interest for lost wages and $1.5 million in punitive damages under a Florida statute. The punitive-damages award was intended to compensate Leahy for conduct by Schwab's human-resources department that the panel said constituted "gross negligence." Leahy was also awarded $6,100 in costs.

Paulino Nunez, a securities arbitration lawyer in Coral Gables, Fla., said the $1.5 million punitive-damages award "sounds like it's certainly on the high end." Florida law specifically requires a finding of egregious conduct by management, he said. "This arbitration panel must have been really, really convinced that the management was out to get this guy," he said. Punitive damages are typically awarded to punish parties in a legal action for allegedly improper conduct.

Schwab allegedly terminated Leahy during a human-resources investigation of a group of employees who worked in the operations division of the office, according to his lawyer, Barry Blum of Miami. The group reported to a supervisor who, in turn, reported to Leahy. Certain employees had accused the supervisor of allegedly not intervening after learning that a staff member had yelled during several occasions, said Blum.

Leahy, who processed ingoing and outgoing checks, wasn't a subject of the investigation but was terminated as a result in 2008, said his lawyer. Blum said that Schwab never notified Leahy of being under investigation. The Finra panel found that Schwab conducted an "inefficient human resources investigation," according to the award.

Leahy asked the panel to expunge Schwab's comment on Leahy's Form U5 that said he was allegedly terminated for "failure to adhere to HR related policies...," according to the award, dated Feb. 26. The panel, in agreeing to recommend an expungement, described the comment as "defamatory," according to the award. It wrote that Schwab "falsely stated human resources violations as the reason for [Leahy's] termination" and then "included those false violations" on his Form U5.

A Schwab spokesman said the company disagrees with the findings and is evaluating opportunities for challenging the award.

Copyright (c) 2010, Dow Jones. For more information about Dow Jones' services for advisors, please click here.