Articles Posted in FINRA Arbitration

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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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On April 3, 2024, Lax & Neville LLP won a FINRA arbitration award on behalf of a 75-year-old retiree (“Claimant”) against E1 Asset Management, Inc., Shaun Joseph Grimaldi, and Ron Yehuda Itin (“Respondents”).  Respondents, who all have checkered regulatory histories, capitalized on Claimant’s trust and friendship for a decade to conceal their fraud and exercise complete control over his accounts, by investing in options and risky triple leveraged ETFs, on margin, and relentlessly churning his accounts for the sole purpose of generating $1,604,814 in commissions, interest and fees.  They accomplished this by making more than $341 million in trades, on margin, for an annual turnover rate of 13.2 and an average cost to equity ratio of 12.4%.   Respondents at all times acted with a willful intent to defraud Claimant, breached their fiduciary duties to him, and violated FINRA Rule 2111 (Suitability), SEC Regulation Best Interest (Reg BI), and FINRA Rule 3010 (Supervision).

After considering the pleadings, testimony and evidence presented at the hearing, the FINRA Arbitration Panel rejected Respondents’ defenses and unanimously awarded Claimant $2.6 million, which includes 100% of his fraudulent churning damages totaling $1,604,814, plus $577,610.25 in accrued interest, $420,000 in attorneys’ fees, $5,285.83 in discovery sanctions, and post-award interest. To view this Award, click here.

To discuss this FINRA arbitration award, please contact Barry Lax or Sandra Lahens at (212) 696-1999.

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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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On August 21, 2023, a retired artist and teacher of the visually impaired represented by Lax & Neville LLP won a FINRA award against Morgan Stanley for its years-long recommendation that she invest her savings in WisdomTree (WETF), a sponsor of exchange traded funds (“ETFs”) and asset manager.  Over a period of nearly seven years, the customer’s Morgan Stanley advisors, David and Todd Wachsman, solicited numerous purchases of WisdomTree stock even as its price fell and her position became highly concentrated.  WisdomTree stock ultimately made up the vast majority of her networth.  Despite numerous red-flags and internal recognition that the position was highly concentrated and sustaining substantial losses, Morgan Stanley permitted the Wachsmans to recommend additional investments in WisdomTree for years, including selling risky put options that significantly increased her exposure to decline in WisdomTree’s price, decimating her savings.  Morgan Stanley’s primary defense was that, over the lifetime of the account prior to the first WisdomTree purchase a decade ago, Morgan Stanley had made money for the customer, a retiree in her mid-seventies, and was therefore entitled to bet it all on a single-stock strategy.  Additionally, Morgan Stanley took the position that they warned the customer of the risks involved.  However, it still allowed the Wachsmans to recommend that she purchase more WETF, that she sell other securities rather than WETF, and that she hold the overly concentrated position they built in her accounts.

After considering the pleadings, testimony and evidence presented at the hearing, the Arbitration Panel rejected Morgan Stanley’s defense and unanimously awarded the customer $1.8 million, including the entirety of damages caused by Morgan Stanley’s investment in WisdomTree market adjusted to account for Morgan Stanley’s mismanagement of her account during an historic bull market.

The Arbitration Panel also denied the expungement requests made on behalf of the financial advisors, Todd Wachsman and David Wachsman.  To view this Award, Karen Busch v. Morgan Stanley Smith Barney, LLC – FINRA Case No. 21-00203, click here.

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On February 2, 2023, another former Credit Suisse investment adviser represented by Lax & Neville LLP won a FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation.  See James D. Garrity v. Credit Suisse Securities (USA) LLC, FINRA No. 20-03957.  Lax & Neville has tried eight arbitrations resulting in awards of more than $32 million to 26 former Credit Suisse advisers.

The claimant, James Garrity, is 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. Credit Suisse took the position, as it has with hundreds of other former investment advisers, that Mr. Garrity voluntarily resigned and forfeited his deferred compensation. A three-arbitrator panel awarded Mr. Garrity compensatory damages in the amount of $1,018,624.89 and prejudgment interest in the amount of $363,244.20. The Panel also ordered Credit Suisse to pay $51,000 in FINRA forum fees.

Lax & Neville LLP has won more than $32 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 June 26, 2015, Lax & Neville LLP, a leading national securities arbitration law firm, won a FINRA arbitration award on behalf of two retail investors (the “Retail Investors”), through Ontonimo (OMO) Limited (“Ontonimo”), against BNP Paribas Securities Corp. (“BNPP”) for the sale and marketing of an unsuitable security to the Retail Investors.  A highly sophisticated and experienced three (3) person Arbitration Panel rendered the arbitration award after a ninety-five (95) day arbitration hearing (186 hearing sessions), which is the longest customer FINRA arbitration hearing in the last twenty (20) years and the second longest ever.  The Arbitration Panel awarded the Retail Investors, through Ontonimo, $16.1 million in compensatory damages, inclusive of interest.  This award of compensatory damages represents 100% of the net out-of-pocket loss plus interest and is one of the largest FINRA arbitration awards of compensatory damages in a customer dispute.  Significantly, in addition to that relief, after winning six (6) Motions For Sanctions and five (5) Motions To Compel, the Arbitration Panel awarded $500,000 in sanctions for attorneys’ fees for BNPP’s failure to comply with the Arbitration Panel’s various discovery orders.  This is the largest amount of sanctions awarded in a customer FINRA Arbitration in at least the last ten (10) years.  To view this Award, Ontonimo (OMO) Limited vs. BNP Paribas Securities Corp. – FINRA Case No. 10-04744, click here.

The single investment at issue was a Resetable Strike Equity Option Transaction, which is a highly speculative and leveraged derivative call option.  BNPP recommended that the Retail Investors invest approximately $14.3 million, which is more than 60% of their investable assets, into this one unsuitable security.  Because BNPP had a policy that prohibited the sale of this product to retail customers, BNPP required the Retail Investors to form a corporate entity, Ontonimo, through which the Retail Investors would purchase the investment in order to circumvent BNPP’s own compliance rules.  Further, BNPP required one of the Retail Investors to become a so-called “investment advisor” for Ontonimo by mandating that he execute a sham investment advisory agreement, even though he had no prior professional financial services experience and no securities licenses.  In less than one and one-half years, the Resetable Strike Equity Option Transaction became worthless and the Retail Investors lost their entire $14.3 million investment.  The Retail Investors paid BNPP in excess of $2.3 million in fees and costs for this investment.  BNPP further retained approximately $700,000 of the value of the Resetable Strike Equity Option Transaction after its expiration.

The Arbitration Panel’s message was clear:  The Retail Investors should never have been marketed and sold this unsuitable security.

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