JonesTrading Seeks $12.4 Million Damages Against Nomura Securities

October 14, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim in May 2010, Claimant JonesTrading asserted breach of contract, breach of fiduciary duty, misappropriation of trade secrets, conversion, and unfair competition against five individual respondents and Nomura Securities International, Inc. According to a May 11, 2010 press releasefrom JonesTrading, the five individuals were former employees of its convertible bond trading department. JonesTrading describes itself as "one of the oldest and largest pure execution-only trading firms in the U.S., and a worldwide leader in trading since 1975." Claimant JonesTrading asked for injunctive relief:

  1. preventing Respondents from using, disclosing or providing access to any of Claimant's confidential proprietary and/or trade secret information;
  2. requiring Respondents to return any and all copies of Claimant's confidential proprietary and/or trade secret information; and
  3. prohibiting the individual Respondents, for a period of 12 months, from
    1. providing services equivalent or similar to those they provided to Claimant, to any competitor, including Nomura Securities; or
    2. soliciting any other employee of Claimant on behalf of a competitor, including but not limited to Nomura.

In addition to punitive damages, interest, costs, and attorneys' fees, Claimant JonesTrading sought compensatory damages in the form of at least disgorgement of payments the firm made to any individual Respondents in salary, sign-on awards, bonuses, loans, company stock, benefits, etc. during the period of their breach of their duties of loyalty. At the hearing, JonesTrading requested compensatory damages in the amount of $9,000,000.00 to $12,400,000.00.

The Edgar Statement of Claim

In another FINRA Arbitration Statement of Claim in July 2010, Claimant Edgar asserted breach of contract, unlawful taking of property, and conversion against Respondent JonesTrading. In addition to punitive damages, costs, and attorneys' fees, Edgar sought compensatory damages equal to the distributions that JonesTrading had taken from him since January 2010, and a declaration that JonesTrading is prohibited from taking further distributions from him. Respondents in both cases generally denied the allegations and asserted various affirmative defenses.

In the Matter of the FINRA Arbitration Between

JonesTrading Institutional Services LLC, Claimant, vs. Nomura Securities International, Inc., Mark A. Edgar, Charles J. Manning, Douglas A. Finnegan, Jr., Meredith J. Curley, and Ermenegildo Niutta, Respondents (FINRA Arbitration 10-02177, October 7, 2011)

- consolidated with -

Mark Edgar, Claimant, v. JonesTrading institutional Services LLC, Respondent (FINRA Arbitration 10-03117,October 7, 2011)

DECISION

After granting a motion to consolidate the two cases, the FINRA Arbitration Panel found Nomura Securities and Mark Edgar jointly and severally liable and ordered them to pay to JonesTrading $674,000.00 compensatory damages. The Panel denied all of Claimant Edgar's claims.

Bill Singer's Comment

Hmmm . . . not really sure what to make of all of this, and there's a lot of all of this to try to make something of. 

You got JonesTrading in quite a lather - apparently really, really upset when a bunch of former employees jumped ship for Nomura.  Seems as if JonesTrading thought that its former employees stole proprietary, confidential information and trade secrets; tried to improperly solicit JonesTrading's clients; and, on top of that, also wrongfully tried to entice other JonesTrading employees to Nomura.  Which may explain why JonesTrading asked for an injunction and a whopping $12.4 Million in damages.

Clearly, the FINRA Arbitration Panel found something amiss because it awarded JonesTrading $674,000, which ain't a pittance but pales in comparison to the multi-millions sought.  Then there was the whole injunction thing, which the Panel rejected in total.

What's the bottomline here - who won?  Tough to score this one.  If JonesTrading wanted to send a message and project a tough-guy image, the outcome was a mixed bag.

On one side of the equation, the former employer jammed up five of its former employees from May 2010 through October 2011, so you have to take into account the legal fees, loss of time, and ongoing aggravation that a human being endures for nearly a year and a half with these things.  Also, don't forget to add in that $674,000 award against the Respondents.

On the other side of the equation, $674,000 is nowhere near $12.4 million.  It's something like 1/20th of that amount. Additionally, the FINRA Arbitration Panel refused to grant the comprehensive injunction sought by JonesTrading.

In the end, this comes down to a lot of unknowns.  The simplest way to figure out the winner is to calculate the benefit to the five individual respondents and Nomura of moving those five employees from JonesTrading to Nomura.  If the benefit exceeds $674,000, then advantage Respondents; if not, advantage Claimant.