In late February 2019, former music industry executive Robert Jamieson and his family sued their former broker, Hector A. May, and the FINRA firm with which he was registered, Securities America Inc., seeking $18 million in damages arising out of May’s alleged fraud and misappropriation of their funds. The suit follows May’s December 2018 plea of guilty to operating a multi-million dollar Ponzi scheme for nearly two decades. May previously was the president of Executive Compensation Planners Inc., an SEC-regulated Registered Investment Adviser (RIA) firm (now defunct) that was affiliated with Securities America. Executive Compensation Planners and May’s daughter, Vania Bell, who served as the firm’s comptroller, also were named as defendants in the case.
According to the complaint, for nearly two decades, Securities America failed to detect numerous “stark red flags” of suspicious activity within May’s office and the Securities America client accounts he handled. Had Securities America detected May’s suspicious activity earlier, the Plaintiffs allege, their losses would have been substantially reduced. Plaintiffs claim May bilked them and other investors out of millions by, among other things, generating phony account statements and offering fake, “tax-free” corporate bonds.
Securities America has predictably moved to compel the case to FINRA’s Arbitration Division and will likely succeed on that motion. Virtually all brokerage firm customer agreements contain a broad, mandatory arbitration clause requiring any claims arising out of or relating to the firm’s services to be brought before FINRA’s Arbitration Division.
Partner George C. Miller can be reached in the firm’s San Diego office at (619) 696-9500.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses.
Recently, Waddell & Reed, Inc. announced it would be closing all of its offices by the end of 2020, forcing all of its representatives to find- and pay for- their own office space, assistants and other expenses that Waddell & Reed may be contractually obligated to pay for. Those affected advisors may have substantial legal claims against the firm for breach of contract and other claims.
Many Waddell & Reed advisors, who joined the firm under the Choice Financial Advisor or Professional Career agreements, were assured, many in writing, that the firm would pay for branch office space, OSJ and Compliance fees, pre- and post-sale support and other expenses. Many advisors were given letters by management assuring them the firm would pay for these expenses despite the actual contract language that required the advisor to bear these expenses. Many of the affected advisors appear to have joined the firm prior to 2017 when Waddell & Reed was using form contracts it then modified by letters that contradicted portions of the contracts that discuss the payment of office space and these other expenses.
Now that Waddell & Reed has announce it will be closing its offices, and shifting the expense for office space and other overhead to the advisors, it is asking many advisors to sign a new form of agreement that “supersedes and replaces” the prior agreements. Those unwitting advisors who actually sign the new agreement may be jeopardizing their legal claims against the firm for shifting to the advisors various expenses the firm had committed to paying.
We are happy to speak to and Waddell & Reed employees affected by the new policy of closing offices and shifting expenses to the advisor to discuss their rights and determine whether they have viable, and in many cases, substantial claims against the firm that could be used to reduce any loan balances owed by the advisor to the firm and recover monies from the firm based on this change of business plan.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner at [email protected], or call 800.496.5900 ext. 109.
In the seminal, 1987 decision of Shearson v. McMahon, the U.S. Supreme Court decided that pre-dispute agreements to arbitrate securities disagreements were binding on investors. Since then, financial service firms have uniformly required that their customers sign these agreements and agree to waive a jury or court trial and, instead, head to the FINRA (formerly the NASD) arbitration panels to resolve their disputes with their firms. Before the 1987 decision in Shearson v. McMahon, arbitration was voluntary because, under federal law, arbitration agreements were considered unenforceable against investors.
At the time, securities firms had long been using arbitration to settle intra-industry disputes–those that arose between firms, or between firms and their employees. But until 1987, those firms could not compel customers to arbitrate; customers could go to court if they so choose.
Back then, the customer also had the option of going to arbitration. The by-laws of both the New York Stock Exchange and the NASD (and the other exchanges) required members (i.e., the brokerage firms) to arbitrate disputes with customers if the customer (but not the firm) elected arbitration. It was a one-way choice that clearly favored investors. They could choose their preferred forum. In the McMahon case, however, the securities industry challenged the then-existing interpretation of federal law- and won in the Supreme Court. Thereafter, mandatory agreements to arbitrate securities disputes would be enforceable against all investors.
The McMahon case effectively ended one-way choice. With the securities firms uniformly requiring that customers sign arbitration agreements, and with the courts enforcing them, there was no choice at all. Since then, virtually all consumer securities cases have gone to arbitration, and the system that has been created, now run by FINRA, has been termed “mandatory arbitration.”
Over the years there have been numerous studies and arguments that mandatory arbitration of securities disputes between customers and their firms was unfair and many writers argued in favor of eliminating the mandatory arbitration of securities disputes. During the Obama administration a bill was proposed eliminating mandatory arbitration, but it never got out of committee and died on the vine.
Recently, however, new legislation was proposed by Sen. Sherrod Brown, D-Ohio, a ranking member of the Senate Banking Committee, known as the Arbitration Fairness for Consumers Act, which would put an end to pre-dispute, mandatory arbitration agreements that are and have for many years been ubiquitous and a part of almost every brokerage/financial services agreement between an investor and his or her firm.
Earlier this year, another bill was introduced in the House and Senate, the Forced Arbitration Injustice Repeal Act, that was broader in scope than Senator Brown’s bill and would further amend the Federal Arbitration Act. Both proposed bills were welcomed by PIABA, the Public Investor Arbitration Bar Association, a pro-investor legal group that has been anti-mandatory arbitration since its founding around the time of the McMahon decision. PIABA has conducted numerous studies showing how poorly investors fair in mandatory arbitrations and asserts that customers should have the option of choosing arbitration or the courts when filing claims against investment professionals.
The proposed legislation, however, may face serious challenges on Capital Hill, where the House is controlled by Democrats, who tend to favor the end of mandatory arbitration and Republicans, who tend to favor mandatory arbitration and side with the securities industry, control the Senate.
The Dodd-Frank financial reform law gave the Securities and Exchange Commission the authority to end mandatory arbitration, but the agency has yet to take up and consider the issue.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner [email protected], or call 800.496.5900 ext. 109.
Justice Brett M. Kavanaugh, in his inaugural opinion as a U.S. Supreme Court member, vacated and remanded the federal court’s decision in Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) 139 Sup. Ct. 524. Archer & White Sales had sued Henry Schein over violations of antitrust law. The contract between the parties provided for arbitration of any dispute related to the agreement, except for, inter alia, actions seeking injunctive relief. Invoking the Federal Arbitration Act, Schein asked the District Court to send the case to arbitration, but Archer & White argued that the dispute was not subject to arbitration because its complaint sought, in part, injunctive relief. Schein argued the American Arbitration Association rules, applicable to the contract provide that arbitrators have the power to resolve arbitrability questions, thus an arbitrator – not the court – should decide whether the arbitration agreement applied. Archer & White responded that Schein’s demand for arbitration was groundless and the District Court could resolve the threshold arbitrability question. The District Court ruled for Archer & White and denied Schein’s motion to compel arbitration and the Fifth Circuit affirmed.
Justice Kavanaugh vacated and remanded —- a “wholly groundless” exception to arbitrability is inconsistent with the Federal Arbitration Act as well as Supreme Court precedent. Under the Federal Arbitration Act, arbitration is a matter of contract which must be enforced according to the contractual terms. Parties are free to agree an arbitrator decide both the merits of a particular dispute as well as the preliminary question of arbitrability. Kavanaugh determined when the contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitration is wholly groundless.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Contact us at 619.696.9500
As the latest in the seemingly endless flow of regulatory problems at Wells Fargo, the firm is reportedly engaged in preliminary settlement talks with the U.S. Department of Justice and Securities and Exchange Commission concerning alleged improper sales practices, potentially within the company’s wealth management units.
According to recent Wells Fargo regulatory filings, regulators are reviewing the same type of sales conduct previously at issue in the firm’s record-breaking, $185 million settlement with the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and the Office of the Los Angeles City Attorney. That settlement involved Wells Fargo’s aggressive “cross-selling” tactics which resulted in the firm’s opening of millions of unauthorized bank and credit card accounts. Specifically, Wells Fargo disclosed that it “has [] engaged in preliminary and/or exploratory resolution discussions with the Department of Justice and the SEC, although there can be no assurance as to the outcome of those discussions.” The Wall Street Journal previously reported that the DOJ and SEC had been investigating Wells Fargo’s wealth management division since at least March 2018.
Shustak Reynolds & Partners, P.C.’s San Diego securities and FINRA lawyers, Irvine FINRA lawyers, Los Angeles FINRA lawyers, San Francisco FINRA lawyers and New York FINRA lawyers represent registered representatives, financial advisors, investment advisors, financial institutions and others in a wide variety of securities-related disputes, including broker protocol disputes and non-compete, restrictive covenant and trade secret litigation. The firm’s financial services attorneys, FINRA attorneys and broker protocol lawyers have extensive experience handling intra-industry employment, recruitment and broker transition disputes, including golden handcuff and forgivable promissory note disputes. The firm’s FINRA attorneys are uniquely experienced in handling FINRA employment disputes involving promissory notes, allegations of misappropriation of trade secrets or broker protocol violations. Partner George C. Miller is based in the firm’s San Diego offices and can be reached at 619.696.9500.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses.
