Articles Posted in Breaking Cases

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On April 30, 2024, a class action was filed against Merrill Lynch in the Western District Court of North Carolina to recover the deferred compensation that Merrill Lynch cancelled upon Plaintiffs’ voluntary resignation.  While we believe there are strong claims against Merrill Lynch for violation of ERISA, we believe that they must be arbitrated at FINRA.  See Regulatory Notice 16-25 here.  Lax & Neville is pursuing arbitration claims on behalf of former Merrill Lynch advisors for their cancelled deferred compensation comprised of both Long-Term Incentive (LTI) Cash Plans/WealthChoice and Restricted Stock Units (RSUs).

In a similarly situated class action, Shafer, et. al. v. Morgan Stanley, et. al., the Plaintiffs, former Morgan Stanley financial advisors, sued Morgan Stanley in December 2020 to recover their deferred compensation, which was cancelled by Morgan Stanley when those advisors voluntarily resigned.  Morgan Stanley moved to compel those advisors’ claims to FINRA arbitration.  On November 21, 2023, almost three years after the filing of the Complaint, the Federal Court granted Morgan Stanley’s motion requiring any Morgan Stanley advisor who wants to recover their deferred compensation to file FINRA arbitration claims against Morgan Stanley.  See the Court’s Order and Opinion here.  For more information on the Morgan Stanley decision, see here.

Our firm has extensive experience successfully pursuing deferred compensation claims in FINRA arbitration.  Most recently, we have won more than $35 million in unpaid deferred compensation, interest, costs, and attorneys’ fees for more than two dozen former Credit Suisse investment advisers, and we represent dozens of Morgan Stanley financial advisors seeking to recover their deferred compensation.

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Lax & Neville LLP has filed a federal lawsuit in the Western District of North Carolina against Bank of America Corporation and Bank of America N.A. (“BOA”) on behalf of loan or mortgage officers who worked in locations across the country.   The action for unpaid overtime and minimum wage is brought under the Fair Labor Standards Act (“FLSA”) and state labor statutes and seeks certification of an FLSA collective and class action.  The Complaint can be viewed here.

If you are a current or former BOA loan or mortgage officer who would like to speak to Lax & Neville about this matter, please click here.

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Today, the Southern District of New York granted Morgan Stanley’s motion to compel arbitration in the class action Shafer, et. al. v. Morgan Stanley, et. al. (Case 1:20-cv-11047-PGG).

Plaintiffs, former Morgan Stanley financial advisors, sued Morgan Stanley asserting that Morgan Stanley violated the Employee Retirement Income Security Act of 1974 (“ERISA”) by not paying Plaintiffs all of their deferred compensation when they resigned from Morgan Stanley, and Morgan Stanley moved to compel arbitration on June 29, 2022.  The Court’s decision forces Plaintiffs and any similarly situated former Morgan Stanley financial advisor to file their claims for unpaid deferred compensation in FINRA Arbitration.

In its opinion, the Court held that Morgan Stanley’s Compensation Incentive Plan and Equity Incentive Plan are ERISA plans and “‘individual account plans,’” which under ERISA “means a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant’s account….” (Order, p. 44).  The Court’s holding may significantly strengthen FINRA arbitration claims against Morgan Stanley, which primarily depend on the applicability, and Morgan Stanley’s violation, of ERISA.

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Recently, the Financial Industry Regulatory Authority (“FINRA”) Department of Enforcement fined and suspended an ex-Merrill registered financial advisor, who had been in the industry for nearly 35 years, for breaching FINRA Rule 2010 and firm policy by violating his duty to maintain the confidentiality of a customer’s nonpublic information.  Merrill Lynch’s Employment Agreement also requires a financial advisor to preserve the confidentiality of nonpublic customer information and refrain from taking and disclosing such information upon termination of their employment.  Customers’ nonpublic information, including dates of birth, social security and driver’s license numbers, account numbers, and tax information, is also protected under Regulation S-P.  FINRA Letter of Acceptance, Waiver, and Consent No. 2021071850601, 2 (2021).

The financial advisor’s violative conduct consisted of taking pictures of confidential client information from the Merrill Lynch electronic systems.  According to FINRA, the advisor took photographs, which contained customers’ names, dates of birth, social security numbers, and account numbers, for approximately 35 clients and advised the junior members of his team to take similar photos for at least 100 other customers.  These photos were taken in anticipation of transitioning to another brokerage firm. When the advisor and his team resigned from Merrill Lynch, they retained the nonpublic personal information of customers.  The information “was secured by the firm through which [the advisor] had become registered, and the firm returned the customers’ nonpublic personal information to Merrill Lynch prior to its use.”  Id.

The advisor executed a letter of Acceptance, Waiver, and Consent (“AWC”) wherein he accepted the finding of a violation, consented to the imposition of sanction, and agreed to waive the right to a hearing before any panel, court, or administrative body.  The FINRA AWC states that the Merrill Lynch advisor “improperly retained the customers’ nonpublic personal information” when transitioning to a new firm in violation of FINRA Rule 2010.  Id.  FINRA suspended the financial advisor for 10 workdays and fined him $5,000.

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On September 9, 2022, the Superior Court of the State of California entered judgment on a FINRA Arbitration Award against Credit Suisse Securities (USA) LLC, ordering it to pay more than $10 million to seven investment advisors formerly employed in the Los Angeles and San Francisco branches of its now-closed US private bank. This follows the July 8, 2022 decision of the Circuit Court of Cook County, Illinois confirming an award against Credit Suisse and entering a $9.5 million judgment for eight advisors in Chicago.

These fifteen advisors are among the more than three hundred Credit Suisse laid off when it closed its US private bank in 2015.  Credit Suisse purported to “cancel” the more than $200 million in earned and vested deferred compensation it owed its three hundred advisors by claiming each of them voluntarily resigned at the same time Credit Suisse was closing their branches and eliminating their positions.  The FINRA Panels in Los Angeles and Chicago, like eight other FINRA Panels thus far, unanimously found that Credit Suisse terminated the advisors without cause, breached their employment agreements, and violated their respective states’ labor laws, the California Labor Code (“CLC”) and Illinois Wage Payment and Collection Act (“IWPCA”).  The FINRA Panels ordered Credit Suisse to pay the deferred compensation, statutory interest and penalties, and a total of more than $2 million in attorneys’ fees and costs.

Credit Suisse subsequently petitioned to vacate the FINRA Panels’ Awards.  Among other grounds, Credit Suisse contended that the FINRA Panels exceeded their authority when they determined that Credit Suisse had violated the labor law and awarded statutory attorneys’ fees.  The California and Illinois Courts disagreed, denying the petitions to vacate in all respects and confirming the Awards, including the labor law violations and more than $2 million in attorneys’ fees and costs.

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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 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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On August 31, 2020, the Massachusetts Superior Court confirmed a Financial Industry Regulatory Authority (“FINRA”) Arbitration Award against Credit Suisse for more than $2 million owed to four former Credit Suisse advisors represented by Lax & Neville LLP, including approximately $1.6 million in unlawfully withheld deferred compensation, more than $83,000 in costs and more than $411,000 in attorneys’ fees.

The former Credit Suisse advisors sued Credit Suisse for, among other things, violations of the Massachusetts Wage Act, breach of contract, breach of the implied covenant of good faith and fair dealing and unjust enrichment after it closed its U.S. wealth management business on October 20, 2015 and unlawfully cancelled their earned deferred compensation.  On February 14, 2020, a three-member FINRA Arbitration Panel found for the advisers and ordered Credit Suisse to pay compensatory damages totaling $1,602,609.95 plus costs, interest and attorneys’ fees.

Credit Suisse petitioned the Court to vacate in part or modify the Award, challenging the Panel’s authority to award attorneys’ fees on the basis that the advisors had no contractual right to attorneys’ fees and that Credit Suisse did not agree to submit the issue of attorneys’ fees to the Panel.  In rejecting Credit Suisse’s petition and refusing to modify or vacate the Award, the Court held that Credit Suisse itself had originally submitted a request for attorneys’ fees against its four former advisers, giving the Panel the authority it needed to award attorneys’ fees.  Under New York law, which governed the parties’ agreements, a mutual request for attorneys’ fees forms a binding contract between the parties and authorizes a Panel to award attorneys’ fees.  The Court further noted that given Credit Suisse’s many losses in the Credit Suisse Deferred Compensation Arbitrations, its surprise at, and defense to, the Panel’s award of attorneys’ fees when both parties had requested them was unreasonable, stating that the “theory should have come as no surprise to Credit Suisse, which had already been required to pay the attorney’s [sic] fee of the prevailing party in another arbitration,” referencing the $585,307 in compensatory damages, $131,694 in interest and $146,326 in attorneys’ fees awarded to Brian Chilton, another former Credit Suisse financial advisor represented by Lax & Neville LLP.  Another $1.34 million in attorneys’ fees were also awarded to former Credit Suisse advisors Joseph Lerner and Anna Winderbaum and Richard DellaRusso and Mark Sullivan, all of whom were represented by Lax & Neville LLP, as well as Christian Cram, Andrew Firstman and Mark Horncastle.

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