A former Financial Industry Regulatory Authority employee filed a whistle-blower suit in federal court, claiming he was fired after detecting a flaw in a Finra’s risk-rating system that allowed large broker-dealers to be over-leveraged.

Joseph Sciddurlo, 58, claimed in the suit filed today that he worked as a principal examiner for Finra in 2010 when he discovered that the regulator’s system allowed large firms to circumvent a Securities and Exchange Commission rule limiting leverage to 15 times net capital.

Sciddurlo was initially “commended for his financial expertise and asked to design a better risk-rating methodology with respect to broker-dealers,” he claimed in a complaint filed in federal court in Manhattan. Later, he was downgraded, placed on probation and fired in May 2011, without a legitimate reason, Sciddurlo said.

In the suit, Sciddurlo claimed Finra illegally discriminated against him on the basis of age and fired him for threatening to disclose the risk-rating flaw to other regulators and to the public. He’s seeking at least $25 million in damages.

Michelle Ong, a spokeswoman for Washington-based Finra, had no immediate comment on the suit.

The case is Sciddurlo v. Financial Industry Regulatory Authority, 13-cv-02272, U.S. District Court, Southern District of New York (Manhattan).

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