Recently, Deutsche Bank reviewed its current pay practices, particularly those regarding executive bonus compensation, in order to bolster profitability and decrease its overall costs by $5.8 billion. After a 100-day evaluation conducted by the firm’s new co-chief executive officers, Juergen Fitschen and Anshu Jain, Deutsche Bank is expected to implement changes to its expense management measures. In a statement released on September 11, 2012, Deutsche Bank confirmed that it hopes to revamp its financial plan in which it noted, amongst other schematic changes, its intent to transform its current compensation practices. See the Deutsche Bank 9/11/12 Statement here. Deutsche Bank stated that, in the event of a reduction in profit or an instance of transgression, employee bonuses will be suspended. This policy will apply to chief executives and will amend the current payment schedule for deferred bonus payouts from part-payment throughout the span of three (3) years to payment after five (5) years. There has been a great deal of industry and media attention surrounding this anticipated announcement, since it is a primary concern for the entire investment banking industry and regulators. Indeed, several European banks are being scrutinized by investors, politicians and regulators, most of whom believe that employee accountability for actions resulting in lost profits should be more closely linked to their yearly bonuses. This type of bonus policy was first introduced by UBS Financial Services, Inc. (“UBS”) in 2008 after it announced its decision to “clawback” employee bonuses. Such “clawback” provisions allow for the employer to either reduce or fully eliminate the deferred parts of bonuses that have not yet been paid out to employees. A recent example of this growing practice is espoused in JPMorgan’s July 2012 announcement that it intends to “clawback” executive bonuses from executives involved in a $5.8 billion loss originating in its London office and related to the London “Whale” blunder. At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.
In response to the mandates imparted by the Dodd-Frank Act of 2010 (the “Act”), the Internal Revenue Service (“IRS”), the Commodity Futures Trading Commission (“CFTC”) and the Securities Exchange Commission (“SEC”) (collectively referred to as “the Agencies”) have implemented agency specific whistleblowing programs. Under the Act, the Agencies are tasked with the oversight and administration of a mandatory reporting regime for tipsters to refer to when reporting potential securities law violations. The success of each agency’s respective whistle-blowing program in increasing as evidenced by the number of awards and tips received and reported to each agency. Since the creation of the Office of the Whistleblower last year by the SEC, it has reported the receipt of more than 2,700 tips of securities law violations. The SEC has also reported the issuance of its first award in the amount of $50,000 that resulted from a tip received about a multimillion-dollar fraud. In this case, the SEC opted for the maximum percentage payout to the tipster allowed under the law – thirty percent (30%) of the $150,000 it has collected to date in the case. While the actual amount of each award is deferred to the agency for determination, the Act requires that the award be at least 10 percent (10%), and no more than 30 percent (30%), of the sum amount recovered by the agency as a result of the tip. There are a number of discretionary factors that are generally considered by the agency in making an award determination, namely: (1) the significance of the information provided to the success of an enforcement action; (2) the relevancy of the information to the agency’s programmatic interest; and (3) whether an award will increase the agency’s ability to enforce the federal securities laws and encourage the submission of high-quality information from whistleblowers. Despite the evident success of the Act’s whistle-blowing program, there has been a growing industry-wide debate with regard to whistleblower eligibility. Under the IRS’s whistleblower statute, a distinction is drawn between a whistleblower who acted as a participant in the activity at issue, and is therefore eligible to receive an award award, and the coordinator of such activity, who is not. See 26 U.S.C. § 7623(b)(3). This distinction gives even more rise to the necessity of a potential whistleblower’s legal advisement in the area of securities law enforcement. At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.
Earlier today, the United States District Court for the Southern District of Florida (“District Court”) denied Bank of America Merrill Lynch’s (“Merrill Lynch”) petition to vacate a Financial Industry Regulatory Authority, Inc. (“FINRA”) arbitration panel award. See Order Denying Petition to Vacate Arbitration Award, Merrill Lynch, Pierce, Fenner & Smith, Inc., vs. Smolchek, et. al., No. 12 Civ. 80355 (S.D.Fla. Sept. 17, 2012). Merrill Lynch had publicly stated it was confident that this arbitration award would be vacated. This is a significant decision and could affect thousands of Merrill Lynch advisors who either left Merrill Lynch recently or who are thinking about leaving in the future. As a result of the District Court’s decision, Merrill Lynch will be required to pay $10.2 million to two former financial advisors, both of whom were denied deferred compensation. Similar to many other brokers who left Merrill Lynch after its merger agreement with Bank of America in September 2008, Meri Ramazio and Tamara Smolchek (“Claimants”) brought an arbitration claim against Merrill Lynch seeking disbursement of their duly owed deferred compensation. Claimants’ request for damages was based on the theory that the acquisition of Merrill Lynch constituted a “good reason” for collecting their deferred pay. The $10.2 million FINRA arbitration award rendered by the panel in April 2012 included a commensurate total of $5,150,000 in compensatory damages for a breach of contract related to the brokers’ deferred compensation awards and unpaid wage, as well as a sum total of $5,000,000 in punitive damages on the basis that Merrill Lynch has “intentionally, willfully and deliberately engaged in a systematic and systemic fraudulent scheme to deprive Claimants of their rights and benefits under [Merrill Lynch’s] Deferred Compensation Programs.” See Tamara Smolchek and Meri Ramazio v. Merrill Lynch, Pierce, Fenner & Smith, Inc., FINRA Case No. 10-04432. After the award was rendered in April, both parties filed competing petitions seeking to confirm and vacate the arbitration award. Merrill Lynch asserted that: (1) the chairwomen’s failure to disclose certain facts suggested the possibility of a bias and created an evident partiality; (2) the panel’s decision to limit Merrill Lynch’s presentation of its case and to impose certain sanctions against it is demonstrative of the panel’s misconduct; and (3) the panel exceeded its powers. In its order denying Merrill Lynch’s petition to vacate the arbitration award, the District Court concluded that Merrill Lynch “has not sufficiently demonstrated evident partiality on the part of the panel or that the panel engaged in misconduct or exceeded its powers.” In addition to the class action brought by nearly 1,400 aggrieved brokers, which was recently purported to settle for $40 million and is currently awaiting approval from a federal court judge in Manhattan, Merrill Lynch also faces more than 1,000 similar claims in the FINRA arbitration forum. See Scott Chambers et al v. Merrill Lynch & Co., Inc., et al, No. 10 Civ. 7109 (S.D.N.Y). If you are a financial advisor who has any issues related to your employment at Merrill Lynch, or if you are thinking of changing your employment, please contact Lax & Neville LLP at (212) 696-1999 to discuss your potential matter. At Lax & Neville LLP, we represent securities industry employees nationwide seeking representation in employment matters.
Bradley Birkenfeld, a former banker and employee of UBS, received a monetary award in the amount of $104 million from the Internal Revenue Service (“IRS”) for revealing information relating to UBS’s practice of advising and assisting its clients on how to shield their assets from the IRS – a clear violation of the Internal Revenue Code. Birkenfeld’s disclosure to the IRS ultimately led to a $780 million settlement between UBS and the federal government, as well as the enrollment of more than 35,000 American taxpayers in IRS amnesty programs, which will allow the repatriation of their offshore accounts. The IRS has stated that it expects to recover an estimated $5 billion as a result of Birkenfeld’s disclosure. According to a website maintained by the IRS’s Whistleblower Office, which was established as a result of the enactment of the Dodd-Frank Act in 2010, monetary awards will be provided to whistleblowers that provide specific and credible information about violations of the Internal Revenue Code. Anti-retaliation protections are also afforded to those who choose to disclaim such information. In a statement confirming the award, the IRS emphasized the importance of the whistleblower statue and acknowledged it as a “valuable tool to combat tax non-compliance.” At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.