Two rogue brokers made the news this week. One, a former Ameriprise broker in Los Angles, was arrested by the FBI and charged with money laundering and federal fraud. The second, a former New Jersey based Morgan Stanley representative fired 15 months ago for stealing client funds, was sued by Morgan for $6 million.
The U.S. Attorney’s office in the Central District of California announced it had arrested Li Lin Hsu and charged her with pilfering client funds from 11 of her former Ameriprise clients while employed at the firm and after she was fired by Ameriprise in 2015. She allegedly trolled for clients through ads in Chinese language newspapers, stole their funds and used their money to pay credit card bills and personal loans and to buy real estate and luxury items
Hsu is accused of stealing $1 million from one of her victims and using that money to buy a condominium in Diamond Bar, California. She faces three counts of mail fraud, three counts of wire fraud, one count of money laundering and one count of obstruction of justice. She pleaded not guilty and was released on $50,000 bond, according to federal authorities. She will stand trial on June 12 and faces a maximum sentence of 20 years on each fraud count, 10 years on money laundering and five years for obstruction of justice if convicted.
In September 2017, Hsu was ordered by a Finra arbitration panel to pay Ameriprise $675,000 to cover the cost of a settlement it made with one of her clients. An Ameriprise spokeswoman said the firm was not aware of the U.S. Attorney’s Office action and is not facing any regulatory questions related to its supervision of Hsu.
Hsu, who allegedly carried out a Ponzi scheme by using money she wrongfully took from new victims to repay other clients from whom she had pilfered money and sent clients fabricated account statements and investment purchase confirmations, was barred from the securities industry in February 2016. She had spent her nine-year career as a broker with Ameriprise which fired her in March 2015.
And in an unrelated matter, another Finra arbitration panel ruled that former Morgan Stanley broker Barry F. Connell is liable to pay Morgan $6 million in compensatory damages related to his February 2017 arrest for stealing $5 million from clients. Last November, another arbitration panel ordered Connell to pay Morgan the $300,000 balance on promissory notes he owed plus interest on signing bonuses.
Connell, who represented himself in both Finra hearings, was suspended from the securities industry indefinitely by Finra for failing to pay the arbitration award.
Shustak Reynolds & Partners, P.C. regularly represents firms and individuals in SEC, FINRA, securities, investment, and financial services matters, including litigation, arbitration, enforcement and investigation matters. If you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
For those entrepreneurial enough to form, own and operate a successful RIA firm, while there is great satisfaction in being the “captain of your own ship”, most RIA owners really have no idea of the market value of their firms. Typically, RIA owners wait until there is a potential sale or other transaction, either planned or forced, (due, for example, to death, internal disputes between owners or some other, unplanned event) before ever seeking and obtaining a valuation for their firms.
The best practice, however, is to do yearly updates on the value of your firm. Valuations are not difficult nor expensive (at least compared to the actual value of the firm) but are often critical in assessing values when some unplanned event occurs that requires a quick decision on value. The founder/owner may become incapacitated or pass away. His or her heirs may need to know the approximate value of the firm and do not always have the luxury of waiting for a valuation. There are many valuation firms that can do an initial valuation, at least a pretty good “ballpark” valuation, that can then be updated annually fairly quickly and simply. Most busy owners, however, just put the valuation process in the “hold” file and never get around to valuation until some event triggers an immediate need for one.
Often, we are asked “what is the standard multiple” of trailing 12 or some other measure of how RIA firms are actually valued? The simple answer is there is no “one size fits all” valuation method. For example, an RIA firm with $300 million of assets under management with a large number of clients in their 80’s or 90’s, is not as valuable as a $250 million book of AUM with a much younger, and more widely dispersed client base. The failure of owners to discover the “magic” formula is one of the most frustrating experiences for those who do want to value their RIA firms and often is what prevents owners from getting a realistic market value.
Some owners who have partners in their RIA firms also neglect to take into account the reduced value of a minority interest. Assume an RIA firm with 3 partners, each with a one-third interest. If the firm is worth $9 million, a one-third interest is not worth $3 million. There always is a discount for lack of control (i.e. owning less than a majority interest in the firm). Because so few owners have taken the time to obtain a reasonably good value of their firms, there is a substantial disconnect between what sellers think their firm is worth, and the value assigned to the firm by a potential buyer, which only leads to last minute frustrations. There is just a lot of misinformation in the marketplace over exactly how to value an RIA firm.
Our advice to our RIA clients is to obtain a competent valuation which typically is based on historical cash flows; AUM and return on AUM. That value can be updated annually for not much additional cost. Many owners will be surprised to learn the market value of their RIA firms and if an event presents itself for a merger, sale or other transaction for the firm, the owner(s) will have a good idea at the outset of what their firms are worth.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
Under a FINRA proposal released this week, broker-dealers may no longer be required to supervise the activities of their registered representatives performed at unaffiliated RIA firms. The rule, if adopted, will substantially reduce the burden of B-D’s monitoring the outside business activity of the firm’s brokers performed at unrelated RIA firms. The B-D still would have to approve the representative performing outside business activities at the RIA firm, but, once approved, the B-D would not have any obligation to supervise the work its representative does at that RIA.
FINRA explained the reason for the proposed rule as reducing the supervisory obligations of B-D’s which had been causing “headaches” for FINRA members. The proposal was advanced by FINRA at its December meeting. Some B-D’s praise the proposal; others are concerned about the potential loss of income they have been receiving for supervising outside RIA work by their reps.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
The facts speak for themselves. There is a steady and growing trend for brokers to leave one of the remaining four wirehouse firms (Merrill, Morgan, Wells Fargo, UBS) and move to one of the independent broker-dealers (IBD’s), RIA firms or smaller, regional firms. In 2016, the four wirehouses had a net exit of approximately $40 billion of assets leave them for one of the IBD’s and other advisor channels. In 2017, the movement of assets from the wirehouses to the IBD network accelerated dramatically. Approximately $75 billion moved from one of the four wirehouses to one of the IBD’s, a regional broker or an RIA firm.
According to a 2017 survey by Cerull Associates, 69% of breakaway advisers who left a major wirehouse, said “a desire for greater independence” was a “major factor” in their decision to change firms. The same survey indicates that 56% of those breakaway brokers said, “concerns about quality of broker-dealer’s culture” was a “major factor” in deciding to move.
From a purely financial point of view, a broker stands to keep a much higher percentage of their gross revenues from clients at an IBD, RIA or smaller regional firm. The major wirehouses, generally, give the producing broker approximately 40% of their gross revenues, compared with close to 80% of the gross that IBD’s and many RIA firms pay. While IBD’s do have some additional charges, and many do not provide office space and cover other overhead, the bottom line at an IBD usually is better than at a wirehouse.
Since this trend has been continuing for several years, we address the typical reasons that brokers have stayed with the wirehouses; how those reasons have changed in the past years and recent developments that are hastening brokers to break away from the wirehouses in increasingly larger numbers.
No different than most service businesses, the practice of law included, in the past there was a noticeable gap in the technology and computer support available at an IBD and a wirehouse. That no longer is the case. The larger IBD’s, including LPL, Raymond James, Ameriprise, Commonwealth and a host of others have invested substantially in their technology platforms to the point where the technology available to a broker at a wirehouse and an IBD or RIA firm is about the same. Cost of technology continues to fall allowing the smaller firms to provide the same quality and sophisticated tech support to their brokers as at the wirehouses.
For many years, clients, and their advisors, were drawn to the “brand recognition” of the big players, Merrill, Morgan, UBS, etc. That no longer is the case. The larger IBD firms such as LPL, Ameriprise, Raymond James and others have done an excellent job of creating their own “brands” and making those brands household names. At the same time, since the economic collapse of 2009, many investors who blame the crash and their financial damage from the crash on some of the “big names” in the financial world. To many investors, bigger no longer equates with better. Many clients are fine knowing their finances are being handled by a smaller, leaner, more cost efficient IBD.
These two factors- growing brand awareness of the IBDs, and the negative association many investors have with the “big name” wirehouses, has made a switch from wirehouse to IBD or RIA much easier to explain to clients.
For many years one of the biggest reasons to stay at, or laterally move from one wirehouse to the other were the extremely tempting and large up-front, forgivable loans the wirehouses were lavishing on their recruits. Some large producers were asking for, and receiving, multiples of 2X or more of their trailing 12. Very tempting to get money for making a switch from one firm to the other or to a wirehouse. But since the Department of Labor rules, and mandated public disclosure about these upfront deals, many of the firms have stopped paying recruiting bonuses at all or have substantially reduced the size of what they offer.
At the same time, many seasoned brokers have realized that what seem like manna from heaven, are nothing more than golden handcuffs intended to keep the broker at his or her firm for many years. The notes almost always are repayable when a broker leaves the firm- whether by termination of choice- and the money is legally owed no matter what complaints the broker may have against his or her firm. And those brokers that have arbitrated these note/broken promise cases, have had dismal results at hearings. In almost 95% of the cases, the broker has been ordered to repay his or her firm the unpaid balance of the note, with interest and legal fees, even if some lesser amount is awarded on their direct claims. The fear of expensive, unsuccessful litigation and arbitration has kept may brokers at their firms, feeling no option to leave.
Recent Changes in the Broker Protocol Membership-
One of the most compelling, most recent reason for breakaways to leave wirehouses and move to an IBD or RIA is very recent upheavals in the Broker Protocol. The Protocol was adopted in 2004 by three major wirehouses to allow brokers to move from one-member firm to another and take the key pieces of information needed to move accounts, including client name, contact information and account titles. Since it was first adopted in 2004, over 1,500 RIA’s, IBD’s, regional firms and other distribution channels have signed on.
It obviously was causing a sufficient enough drain of brokers, clients and assets, that Morgan Stanley and UBS left the Protocol toward the end of 2017. Morgan then undertook an aggressive campaign of seeking, and obtaining, temporary restraining orders from several state and federal courts across the country effectively preventing the breakaway brokers from contacting or servicing the clients they had serviced at Morgan.
Morgan’s position is ironic but has been accepted by several courts. Brokers joined Morgan when it was a party to the Broker Protocol, bringing with them client information and contacts from their prior firms who most likely also were members of the Protocol. By then quickly pulling up the drawbridge, however, Morgan and the other firms who recently left the Protocol have trapped their brokers in-house, threatening to sue and enjoin them from servicing or even contacting their former clients. Those brokers then become captive brokers and Morgan, and the other firms no longer must pay them large retention deals to keep them in the firm. The threat of litigation and financial ruin is all it takes to keep them in line.
We expect the trend of brokers departing from wirehouses to IBD’s, RIA’s and alternative distribution networks will only continue. We have extensive experience and expertise in the financial services area. If you have any questions, please contact us.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
At the end of October, Morgan Stanley, with a mere several weeks’ notice to all its thousands of brokers- many of whom joined Morgan when Morgan was a long-time member of the Protocol for Broker Recruiting (“Protocol”) and who entered Morgan themselves following the Protocol and bringing with them, from their prior firms, client information- exited the Protocol which it had signed back in 2006. Smith Barney, with whom Morgan merged many years ago, had been one of the original three signatories to the Protocol back in 2004.
The ostensible reason Morgan gave for exiting the Protocol was to provide better focus on its existing brokers and avoid the recruiting efforts of smaller, independent firms that Morgan alleges abused the Protocol solely to poach producers from Morgan and other wire houses. What many believe to be the real reason, however, is to “pull up the drawbridge” and essentially trap its brokers as captives. Morgan’s recent legal skirmishes since its “Prexit” on November 3rd, however, has shown it intends to vigorously and aggressively pursue defectors who either take client information or attempt to solicit those clients.
Since the November 3, Prexit, Morgan has initiated at least two court actions seeking Temporary Restraining Orders and Preliminary Injunctions against brokers who left Morgan after its Prexit and who, Morgan alleges, took client information and solicited clients to move with them to their new firms. Morgan obviously wants to send a loud and clear message to its now captive brokers- if you leave, you cannot take anything with you nor solicit your former clients or we will bring the heavy hand of the law down on you like a ton of bricks.
John Fitzgerald, a New Jersey former Morgan broker, left Morgan in early December, one month after Prexit, to start his own firm. Morgan immediately sought- and obtained- a temporary restraining order from a New Jersey Federal Court judge ordering him to return client information and relevant emails to Morgan; and restraining him from contacting Morgan clients- even those clients he obtained and serviced while at Morgan. The court order does allow him to respond to Morgan clients who initiate contact with him and directs him to keep a log of such calls.
Morgan, like virtually all wire houses and other broker-dealers, routinely performs computer forensics on the computers used by departing brokers. They can quickly determine, through forensic analysis, if and what the broker may have emailed to his personal email account; what was printed out, copied or downloaded to a thumb drive or other memory device. Morgan obviously determined that Fitzgerald had taken the bare-bones client information allowed by the Protocol- client name; address; contact information; title of account- and was actively soliciting his former Morgan clients.
Fitzgerald’s defense- which had some appeal- was that Morgan gave him no clients and no leads when he joined the firm 9 years before, and he had obtained all his clients on his own following his own leads, introductions and sources. But the Court rejected his defense on the grounds that he took prohibited information; Morgan no longer was a Protocol firm and departing Morgan brokers could not take Protocol information with them when leaving and ultimately decided to enforce the typical Morgan agreement Fitzgerald had signed containing a one-year prohibition on soliciting Morgan clients after leaving the firm.
This was the second TRO Morgan sought, and obtained, since Prexit on November 3rd. We expect Morgan to continue to aggressively pursue claims and seek TRO’s against departing brokers who either take any information with them or violate the non-solicitation agreement.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
FINRA recently submitted a new proposal to the Securities and Exchange Commission which will greatly narrow, and substantially complicate, the ability of brokers to expunge- or remove- from public records including their FINRA CRD (Central Registration Depository) records and FINRA’s Broker Check, prior customer complaints. The proposal, which the SEC is anticipated to approve quickly following the February 5 deadline for comments, will make it impossible for many brokers to remove customer complaints from their records. We therefore urge anyone with a customer complaint on their record which they are considering expunging, to act quickly before it is too late.
The biggest change is the proposed, extremely short time limitation on when an expungement action can be brought to remove a customer complaint. Under current rules, there is no time limit on when a proceeding can be filed to expunge a customer complaint, regardless of when the customer complaint was filed. Often customer complaints result in the firm denying a written or oral complaint and the customer never pursues a formal complaint through a FINRA arbitration. Or the customer does proceed to arbitration and the case either is settled, with the firm paying all the settlement, or the claim is denied by the panel. Under current rules, there is no time limit on when an expungement proceeding can be initiated. We have brought expungement proceedings for customer complaints filed long as a decade or more ago. That time limit is about to shrink dramatically.
Often brokers, who may have had the complaints when they were starting out in the industry and, only after they build a substantial book, do they think about cleaning up and expunging older customer complaints.
The new rules, which may go into effect as early as February or March of 2018, contain significant restrictions on expungement actions including:
1. Under the new proposal, an expungement action for a customer complaint-regardless of whether the complaint is not pursued in arbitration or is pursued in a FINRA arbitration but the case either is withdrawn or settled- must be brought, if at all, within one year of the time the complaint is reported to FINRA’s CRD department by the broker’s firm.
2. If the customer initiated an arbitration, and if the arbitration is not withdrawn or settled and the FINRA arbitration panel issues an award, the affected broker must submit a request for expungement of the complaint during the underlying case, not after the award is issued;
3. Under the current rules, arbitrators can conduct an expungement hearing by telephone. Under the proposed ruled, the arbitrators must hold an actual hearing, which involved additional time and expense over a telephone hearing; and
4. FINRA proposes having only experienced, expungement qualified arbitrators sit on expungement and all three panelists must agree, unanimously, to order expungement.
It is highly likely the FINRA proposals will be adopted and the entire expungement process will be drastically changed, leaving brokers without the ability to expunge older customer complaints, regardless of how baseless they may be. We encourage anyone with a customer complaint disclosure on their CRD which they have been considering seeking to expunge to contact us immediately as the window on the ability to expunge older customer complaints is about to shut as early as February 2018.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
As we wind down 2017, there has been a flurry of news over the Broker Protocol which began with Morgan Stanley’s announced departure from the group of over 1,500 financial institutions that have signed onto the Protocol since it was first adopted in 2004 by Smith Barney, UBS and Merrill Lynch. Those firms, which had been fighting for many years over which firm lured which brokers from which competitor, decided to put behind them the days of TRO’s and injunctions and allow departing brokers, leaving a Protocol firm for another Protocol firm, to take five categories of specified information when they left- including name of customer; title of account; phone, email and other contact information.
In October, after deciding it no longer wanted the smaller, independent firms that had joined the Protocol to acquire immunity to poach and lure brokers from Morgan and other wire houses, Morgan Stanley announced it would be leaving the Protocol and gave its soon to be captive brokers a one-week window to either jump ship or get locked into the castle. As soon as it departed the Protocol, Morgan moved quickly to let it be known it would have a zero tolerance for brokers who leave the firm and take with them “confidential client information”- exactly the same information the Protocol allowed those same brokers to take when leaving a Protocol firm. Within the first week after leaving the Protocol, Morgan brought two actions against brokers who left and took with them any client information. The courts agreed and issued TRO’s restraining those unfortunate, departed brokers from soliciting or servicing their former clients.
Then, in November, UBS, one of the original three signers back in 2004, announced it also would be leaving the Protocol at the end of November, also making all of its almost 7,000 advisors somewhat captive employees.
That left only Merrill, the last of the original three signers, still in the Protocol. Merrill announced, however, that it intends, at least for now, to remain part of the Broker Protocol, representing a parting of the ways with its original co-signers. According to Andy Seig, Merrill’s head of wealth management, while Merrill is continuously evaluating the competition, it has no current plans to leave the Protocol. According to Seig, Merrill is focused more on ensuring that its “thundering herd” of brokers are happy and have what they need to be successful, rather than exiting the Protocol and using it as a way of retaining advisors.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
In a growing number of high profile cases, often involving major producers and star brokers at major wire houses, the firms and FINRA have adopted a zero-tolerance policy for violations of expense account reporting. These crackdowns involve both firm funds and personal business development accounts (“BDA Accounts”), which are available at most wire houses and are funded with brokers’ pre-tax earnings. What is unusual is both the recent frequency of the crackdowns and the severity of the sanctions involved.
Most recently, Sandy Galuppo, a 21-year veteran Merrill Lynch broker managing director who oversaw a large stock-management practice for corporate executives, accepted a one-year suspension from the securities industry and a $10,000 fine for “violating high standards of commercial honor by improperly using Merrill funds in connection with expense reports. Merrill fired Galuppo- who briefly played in the National Hockey League as a goalie in 1994- last November for “conduct including improper submission of personal expenses for reimbursement, resulting in management’s loss of confidence. The FINRA investigation and ultimate sanction followed when Merrill filed Galuppo’s U-5 which listed an involuntary termination and the reasons for it.
According to the consent decree (called an AWC) with FINRA, Galuppo traveled extensively between 2012 and 2015 on business, submitting through subordinates more than 600 reimbursement requests to cover his “substantial” travel and entertainment expenses. The AWC consent decree referred to “about 82” instances of inaccurate expense account reporting, mostly for meals. According to the FINRA order, Galuppo “on some occasions” provided information about meals and entertainment that he knew or was reckless in not knowing was inaccurate. Some involved his inaccurate description of meals with colleagues as having been attended by clients.
In October, a former Morgan Stanley corporate stock plan manager also accepted an industry bar. Barbara Waters, who managed 35 administrators at Morgan Stanley Wealth Management’s equity compensation outsourcing group in New York, declined to participate in a FINRA investigation following Morgan’s filing of a U5 which also disclosed an involuntary dismissal and the expense account improprieties. Morgan reported Waters was fired over an allegation that “event attendees on employee’s expense report incorrectly included one person who did not attend the event”.
Waters, who worked at Morgan and its predecessor firm, Smith Barney, for 11 years, said that Morgan never elaborated on what she did wrong in relation to the approximately $250 expense involving four people. The only disclosures on her FINRA Broker-Check relate to the incident and her failure to cooperate with FINRA in its investigation. Her industry bar arises out of FINRA rule 8210, which requires all licensed persons to cooperate with investigators and Rule 2010 which requires representatives to observe “high standards of commercial honor and just and equitable principles of trade”.
The list of terminated brokers who have violated their firm’s expense reimbursement policy is growing and lately has involved big producers- a category of brokers who most firms were more than willing to turn a blind eye to on expense infractions.
For example, Merrill terminated a million-dollar producer over allegations of inaccurate expense reports. Charles Pouliot, a Manhattan based Merrill broker, who spent nine years at the firm, was fired in October for “conduct involving submission of inaccurate business expense reimbursement forms”, according to his BrokerCheck. And Morgan fired one of its top-producing brokers for expense account violations. Charles May, an executive director of Morgan and one of its top producers in its Augusta, Georgia branch, resigned “voluntarily”, also in October, while under review for inaccurate expense account submissions.
And it not only is firms that are cracking down on expense account violations; FINRA also is taking a very hard look at allegations of expense account violations. Tracy Chen was fired by Morgan in 2013 and was “permitted to resign” from Oppenheimer in February 2017. According to FINRA’s Broker-Check, Ms. Chen converted Morgan funds “for her own use, causing Morgan Stanley’s books and records to be inaccurate”. According to FINRA, Chen produced app. $900,000.00 in revenue and earned app. $440,000.00 as she exploited Morgan’s Automated Flexible Grid (AFG) program. The program allows brokers to deduct money annually from their pre-tax earnings if used within the upcoming year for client expenses and other, legitimate, business expenses.
Chen allocated 10% of her 2013 salary to the program, the largest amount put aside by any other broker in Morgan’s La Brea, California branch and five times the average. According to news articles, over a 17-month period, Chen falsely expensed hundreds of bracelets, serving platters, decorative candles and other client gifts that she ordered online from Nordstrom’s and other stores before she cancelled the orders. According to FINRA’s enforcement ruling which permanently barred Chen from the securities industry, she received almost $29,000 of the $38,000 of merchandise ordered, and then cancelled, before her scheme was discovered by the firm.
The message to brokers is both clear and compelling. Neither firms, nor FINRA will tolerate expense account abuse. Brokers who play fast and loose with firm expense accounting, face termination from their firms and possible sanctions or expulsion from the industry at the hands of FINRA. And this risk apparently is the same for smaller, as well as “power” brokers.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
Several weeks ago, Morgan Stanley became the first major wire house to exit the Broker Protocol that Morgan signed back in 2006. Since exiting the Protocol, Morgan already has sought, and obtained, a Temporary Restraining Order from a state court judge preventing that departed broker- who joined Morgan when Morgan still was an active member of the Broker Protocol. Following Morgan’s lead, UBS, one of the initial three signers of the Broker Protocol back in 2004, has announced it also will leave the Broker Protocol by the first of December.
In the first Morgan post-Protocol case, Morgan obviously wanted to send a very strong message to its remaining brokers that it will not tolerate- and will actively and aggressively move to protect- the taking of what is now non-Protocol information from the firm.
The restrained former Morgan broker- Doron Rachman- joined a firm that is not a member of the Broker Protocol for Broker Recruiting just two weeks after Morgan exited the Broker Protocol after eleven years. Rachman had been with one of Morgan’s Miami-Dade offices. The case appears to be the first effort by Morgan Stanley to put teeth behind its warning to brokers earlier this month that it would enforce the standard, one-year non-solicitation clause contained in most Morgan employment and other agreements.
According to a court affidavit submitted by Rachman’s former complex manager, Rachman allegedly printed out a 14-page list of names, cellphone numbers and e-mail addresses of clients five calendar days before he “abruptly” resigned and sent another list of 200 clients and prospects to his personal e-mail a day before leaving. Those efforts and phone conversations with customers about his alleged plans violated firm policies and procedures because the data was confidential and owned by Morgan Stanley, according to the affidavit.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
While FINRA arbitrations were intended to provide investors and industry members a quick and relatively inexpensive procedure by which to settle their disputes with member firms, the fact is that a significant portion of FINRA arbitration awards remain unpaid and there is not much that FINRA is able to do about that.
The issue of millions and millions of dollars of unpaid FINRA arbitration awards has been an embarrassment for FINRA for many years. In 2013, for example, 75 arbitration awards, approximately one-third of the total number of arbitration awards handed down for that entire year, were unpaid, according to a study released in 2016 by PIABA, the Public Investor Arbitration Bar Association. That total of unpaid awards, for that year alone, amounted to $62 million of award money that simply was not paid, either by firms that ceased operations and shut down, or brokers who left the industry and simply refused to pay their awards.
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, or if you or your company require counsel in these areas, contact us today for a confidential, complimentary consultation.
