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Major bracket Wall Street banks have only recently institutionalized substantial retirement packages for senior advisors to sunset out with very few restrictions. Inheriting advisors who care to take over these books of businesses face an enormous opportunity to convert these books, yield a solid short-term return, and a terrific long-term opportunity to own and grow these books.

However, for these inheriting advisors, the rules associated with the restrictive covenants, the non-solicitation clauses, and the timeframe to yield any return differ substantially at Merrill’s CTP program from those at Morgan Stanley’s FAP program, Wells Fargo Summit Program, and UBS’s Alpha Program.

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The legal nuances behind making a move to a new firm partner intimidate many an advisor, but it’s time to move past that block. In this first episode in Advisor Talk’s Legal Perspective Series, Elite Consulting Partners CEO Frank LaRosa is joined by Brian Neville, Founding Partner of Lax & Neville, to provide insight and context to listeners as to best legal practices when making a transition.

In particular, this episode focuses on client solicitations when making a move. Topics covered by Frank and Brian include:

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Need legal tips for your financial advisor practice? Recent media coverage of an advisor’s transition from RBC to UBS and then back to RBC has shone a light on the legal missteps an advisor can make when moving their book of business to a new firm partner. In this episode, Elite Consulting Partners CEO Frank LaRosa is joined by Brian Neville, Founding Partner of Lax & Neville LLP, for a discussion that puts their substantial combined industry expertise to work and tackles the broad topic of the legal side of transitions, providing advisors with insights that prove practical and actionable.

Topics covered in the conversation include:

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Lax & Neville LLP has successfully brought claims on behalf of former Credit Suisse investment advisers for their portion of the over $200 million of deferred compensation that Credit Suisse refused to pay its advisors when it closed its US private bank in 2015, violating the advisers’ employment agreements and the firm’s own deferred compensation plans. Nine have gone to award thus far, including seven brought by Lax & Neville LLP totaling 172 hearing days and resulting in awards of more than $30 million to 25 former Credit Suisse advisers. See Prezzano et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 19-02974, Hutchinson et al. vs. Credit Suisse Securities (USA) LLCFINRA No. 16-02825Galli, et al. v. Credit Suisse Securities (USA) LLCFINRA No. 17-01489DellaRusso and Sullivan v. Credit Suisse Securities (USA) LLCFINRA No. 17-01406Lerner and Winderbaum v. Credit Suisse Securities (USA) LLC, FINRA No. 17-00057Finn v. Credit Suisse Securities (USA) LLCFINRA No. 17-01277; and Chilton v. Credit Suisse Securities (USA) LLCFINRA No. 16-03065. All nine FINRA arbitration panels, three New York Supreme Court Commercial Division Judges (Credit Suisse Securities (USA) LLC v. Finn, Index No. 655870/2018 (N.Y. Sup. Ct. 2019); Lerner and Winderbaum v. Credit Suisse Securities (USA) LLC, Index No. 652771/2019 (N.Y. Sup. Ct.), Credit Suisse Securities (USA) LLC v. DellaRusso and Sullivan, Index No. 657268/2019 (N.Y. Sup. Ct.)), and a unanimous panel of the New York Appellate Division have found for the advisers and ordered Credit Suisse to pay the deferred compensation it owes them.

Lax & Neville LLP has won more than $30 million in compensatory damages, interest, costs, and attorneys’ fees on behalf of former Credit Suisse investment advisers. To discuss these FINRA arbitration Awards, please contact Barry R. Lax, Brian J. Neville, Sandra P. Lahens or Robert R. Miller at (212) 696-1999.

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On December 23, 2021, a team of seven former Credit Suisse investment advisers represented by Lax & Neville LLP won a $9.5 million FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation. See Prezzano et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 19-02974. This comes just weeks after another FINRA Panel awarded $9 million to a team of eight former Credit Suisse investment advisers represented by Lax & Neville. See Hutchinson et al. vs. Credit Suisse Securities (USA) LLCFINRA No. 16-02825.

These teams are now among the numerous former Credit Suisse advisors who have successfully brought claims for their portion of the over $200 million of deferred compensation that Credit Suisse refused to pay its advisors when it closed its US private bank in 2015, violating the advisers’ employment agreements and the firm’s own deferred compensation plans. The advisors were terminated without cause when the firm closed its US private bank. As it did with respect to almost every one of more than 300 advisers, and in each and every one of the deferred compensation cases filed against it, Credit Suisse took the position that the advisors voluntarily resigned and forfeited their earned deferred compensation when Credit Suisse closed their branches and eliminated their positions. The FINRA Panels unanimously found that Credit Suisse terminated each of the advisors without cause, breached their employment agreements, and violated their respective states’ labor laws.

Nine arbitrations have gone to award thus far, including seven brought by Lax & Neville LLP. See Prezzano et al. vs. Credit Suisse Securities (USA) LLC, FINRA No. 19-02974, Hutchinson et al. vs. Credit Suisse Securities (USA) LLCFINRA No. 16-02825Galli, et al. v. Credit Suisse Securities (USA) LLCFINRA No. 17-01489DellaRusso and Sullivan v. Credit Suisse Securities (USA) LLCFINRA No. 17-01406Lerner and Winderbaum v. Credit Suisse Securities (USA) LLCFINRA No. 17-00057Finn v. Credit Suisse Securities (USA) LLCFINRA No. 17-01277; and Chilton v. Credit Suisse Securities (USA) LLCFINRA No. 16-03065. All nine FINRA arbitration panels, three New York Supreme Court Commercial Division Judges (Credit Suisse Securities (USA) LLC v. Finn, Index No. 655870/2018 (N.Y. Sup. Ct. 2019); Lerner and Winderbaum v. Credit Suisse Securities (USA) LLC, Index No. 652771/2019 (N.Y. Sup. Ct.), Credit Suisse Securities (USA) LLC v. DellaRusso and Sullivan, Index No. 657268/2019 (N.Y. Sup. Ct.)), and a unanimous panel of the New York Appellate Division have found for the advisers and ordered Credit Suisse to pay the deferred compensation it owes them.

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On March 11, 2021, a FINRA arbitrator awarded expungement relief to George D. Ewins Jr. and Richard J. Kowalski, former Merrill Lynch financial advisors.  Ewins and Kowalski were represented by Robert J. Moses of Lax & Neville LLP.  Ewins and Kowalski sought expungement of a customer complaint from their registration records maintained by the Central Registration Depository (“CRD”).  CRD is the central licensing and registration system for the securities industry and its regulators, which contains information made available to the public via FINRA’s BrokerCheck. Pursuant to FINRA Rules 2080 and 13805, an arbitrator may grant an expungement of customer dispute information from a registered representative’s CRD record.  In the underlying arbitration filed by the customers, the customers alleged that Ewins, Kowalski, Merrill Lynch and Bank of America (“BOA”) sold Merrill Lynch proprietary volatility indices linked to structured notes known as Strategic Return Notes which were unsuitable in light of their investment objectives.  Merrill Lynch and Bank of America settled with the customers which resulted in the customers’ not having any out-of-pocket losses.  Ewins and Kowalski did not contribute to the settlement.

Pursuant to FINRA Rule 13805 of the FINRA Code of Arbitration Procedure (“Code”), the FINRA arbitrator in the expungement proceeding made the following FINRA Rule 2080 affirmative finding of fact: “[t]he claim, allegation, or information is false.”  According to the Award, the arbitrator reached this conclusion “based upon the fact that neither Ewins nor Kowalski was responsible for the failure of Merrill Lynch and BOA to make the requisite disclosures concerning the fixed costs associated with the Strategic Return Notes. Both Ewins and Kowalski testified credibly that they performed necessary due diligence before they recommended the Strategic Return Notes for the customers. There is no reason to conclude that either Ewins or Kowalski could have reasonably questioned the validity, accuracy and completeness of the Strategic Return Notes offering materials prior to the SEC and FINRA actions. One of the customers who filed the underlying arbitration submitted a detailed written response to Ewins and Kowalski’s request for expungement and testified at the expungement hearing that he “personally do[es] not have a problem with a potential expungement of the petitioner[s’] record[s] if they have met the burden for their record to be cleared,” and that he did not want Ewins and Kowalski to have adverse consequences from having the disclosures on their CRDs.

As noted by the arbitrator in the Award, Merrill Lynch agreed to pay a $10 million penalty to settle charges by the SEC that Merrill Lynch violated securities laws and was responsible for misleading statements in offering materials provided to retail investors for structured notes linked to a proprietary volatility index.  Merrill Lynch also agreed to a Letter of Acceptance, Waiver and Consent (“AWC”) with FINRA in connection with the same disclosure violations.

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On February 4, 2021, the Securities and Exchange Commission (“SEC”) charged three individuals and affiliated entities with running “a Ponzi-like scheme” that raised over $1.7 billion by selling unregistered, high commission private placements issued by GPB Capital Holdings, an alternative asset management firm.  The SEC alleges that David Gentile, the owner and CEO of GPB Capital, and Jeffry Schneider, the owner of GPB Capital’s placement agent Ascendant Capital, lied to investors about the source of money used to make the annual distribution payments to investors.  According to the Complaint filed by the SEC in the U.S. District Court, Eastern District of New York, GPB Capital actually used money raised from investors to pay portions of the annualized 8% distribution payments due on private placements sold to earlier investors.  The SEC complaint alleges that GPB Capital, Mr. Gentile, and former GPB Capital managing partner, Jeffrey Lash, manipulated the financial statements of certain funds managed by GPB Capital to give the false appearance that the funds’ income was sufficient to cover the distribution payments – when in fact it was not.

In addition, the SEC complaint alleges that GPB Capital allegedly violated whistleblower protection laws by including language in separation agreements that forbade individuals from coming forward to the SEC, and by retaliating against whistleblowers.

Financial advisors sold GPB Capital private placement investments to their customers, including retirees and unsophisticated investors.  The 8% annual distribution payment appealed to investors.  Those payments, however, stopped in 2018.  In 2019, GPB’s chief financial officer was indicted and GPB Capital reported sharp losses across its funds.  Following the announcement, some broker-dealers allegedly instructed their broker-dealer clients to remove GPB issued private placements from their platforms within 90 days.  Investors of the GPB private placement investments paid as much as 12% of the money they invested to broker-dealers in the form of fees and commissions.   Brokers and financial advisors allegedly touted and pushed these investments onto their clients, thousands of which are retirees and unsophisticated, and in some instances over concentrated their portfolios in GPB Capital.  Private placement investments are risky investments only suitable for sophisticated, accredited investors who understand the risks and can afford to lose their investment.  Financial advisors and brokers have duties to recommend investments that are suitable to their clients and perform due diligence on the investment products they recommend and sell to investors.  If your financial advisor sold GPB Capital investments to you, you may have a claim to recover your investment losses.

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Lax & Neville LLP is investigating claims involving Amarin, a speculative biotech stock recommended and sold to investors by financial advisors. Amarin is a biopharmaceutical company with one significant commercial product, Vascepa, a fish oil drug designed to reduce cardiovascular risk among patients with elevated risks of cardiovascular events and elevated triglyceride levels.  Amarin’s stock skyrocketed from $3 a share to $18 a share in a single day following the release of positive clinical data in September 2018, (and traded in that range, including in the mid to low $20s during the next 18 months), but declined to low single digits in March 2020 after losing a key patent litigation decision.  See Amarin Pharma v. Hikma Pharmaceuticals USA Inc., Case No. 2:16-cv-02525-MMD-NJK (D. Nev. 2016).  The patent litigation was a known risk to the stock, and eventually caused a collapse in Amarin’s share price.

Upon information and belief, financial advisors at Morgan Stanley and other brokerage firms solicited and concentrated customer accounts in Amarin, even while the company was defending its patent on Vascepa in litigation.  This litigation was a material risk in any Amarin investment.  If generic versions of Vascepa could enter the market, Amarin’s sales would be substantially reduced, and even if the introduction of generic versions did not start right away, the perception that their development would create could also materially impact Amarin’s value and stock price.

Upon information and belief, financial advisors failed to adequately disclose the risks of investing in Amarin and in having concentrated positions in one stock.  Financial advisors have duties, including a fiduciary duty, to provide customers with full and fair disclosure of all material facts, such as the risks of litigation, the ongoing risks of overconcentration; and to diversify an investor’s portfolio.  Financial advisors also have a duty to continually update “buy,” “hold,” and “sell” recommendations for any security.  Financial advisors must develop a suitable plan for customers’ investments, and to recommend transactions and investment strategies only where they have a reasonable basis to believe that their recommendations are suitable for the customer based on the customer’s financial needs, investment objectives, investment experience, risk tolerance, and other information that they know and have obtained about the customer.  An investment in Amarin, particularly in concentrated positions is risky and not suitable for all investors.  The failure by a financial advisor to provide suitable investment advice with fair and balanced risk disclosures is a violation of his or her fiduciary duties and other duties.

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