Former UBS Securities Employee Wins $2.3 Million In Wrongful Termination Case

June 17, 2016

FINRA's Arbitration Code requires that arbitration awards present a "summary of the issues." In a recent dispute brought by a former UBS Securities employee, who was awarded $2.3 million, however, Blog author Bill Singer argues that the requirement of a summary explanation of the underlying issues was not met. It's frustrating because we are intrigued by the employee's allegations of non-payment of his deferred compensation and bonus, and of his charges of defamation and wrongful termination.  Is this all the result of a misplaced desire to placate powerful industry interests or just a failure by FINRA to impose quality control? Why is FINRA's mandatory-arbitration deck so stacked against the presentation of content and context?

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2014, former employee Claimant Passaretta asserted failure to pay deferred compensation and bonus compensation, defamation, tortious interference with prospective economic advantage, wrongful termination, and violation of Connecticut Unfair Trade Practices Act. Ultimately, Claimant sought deferred and bonus compensation, unpaid severance, and attorneys' fees. Additionally, Claimant sought an order recommending an expungement of his Form U5. In the Matter of the FINRA Arbitration Between Gianluca Passaretta, Claimant, vs. UBS Securities LLC, Respondent (FINRA Arbitration  14-00740, June 13, 2016).

Respondent UBS Securities generally denied the allegations in the Statement of Claim and asserted various affirmative defenses.

A FINRA Arbitration Panel found Respondent UBS liable to and ordered it to pay to Claimant Passaretta with 9% per annum interest from July 9, 2013, until the Award is paid in full:
  • $1,369,949.00 in deferred compensation;
  • $69,231.00 in unpaid severance.
Additionally, the Panel ordered Respondent UBS to pay $868,264 in attorneys fees pursuant to ERISA.

As to Claimant's request for an expungement of  his Uniform Termination Notice for Securities Industry Registration ("Form U5"), the Panel ruled as follows:

3. The Panel recommends the expungement of the "Yes" answer to Question 7(F)3 on
the Form U5 filed by UBS Securities LLC on July 25, 2013 for Claimant Gianluca
Passaretta's (CRD #2917523) registration records maintained by the Central
Registration Depository ('CRD") based on the defamatory nature of the information.
The Panel recommends that the answer be changed to "No" and the accompanying
Termination Disclosure Reporting page be deleted in its entirety. In addition, the
panel recommends that the current Termination Explanation in Section 3 be
expunged and changed to: "After arbitration, the arbitration Panel determined that
the termination was unjustified". The Reason for Termination shall remain the
same. This recommendation is based on the defamatory nature of the information. 
The above recommendations also apply to all subsequent disclosures concerning this event, including but not limited to, the Form U4 filed by HSBC SECURITIES (USA) INC. on September 19, 2013. 

The Form U5 is not automatically amended to include the changes indicated above. Claimant Gianluca Passaretta must forward a copy of this Award to FINRA's Registration and Disclosure Department for the amendments to be incorporated into the Form U5. 

SIDE BAR: The applicable Questions on the Form U5:

Note: A "Yes" response will terminate ALL registrations with all SROs and all jurisdictions.
Reason For Termination:
[]Discharged  []Other  []Permitted to Resign  []Deceased  []Voluntary
Termination Explanation:
If the Reason for Termination entered above is Permitted to Resign, Discharged or Other, provide an explanation below:
If amending the Reason for Termination and/or termination explanation, provide an explanation below:

Termination Disclosure
7F. Did the individual voluntarily resign from your firm, or was the individual discharged or permitted to resign from your firm, after allegations were made that accused the individual of:
1. violating investment-related statutes, regulations, rules or industry standards of conduct? 
2. fraud or the wrongful taking of property? 
3. failure to supervise in connection with investment-related statutes, regulations, rules or industry standards of conduct?

Bill Singer's Comment

The good news for former employee Claimant Passaretta -- the really good news, at that -- is he was awarded over $2.3 million in deferred compensation, severance, and attorneys' fees. 
The underlying dispute must have been quite testy because this arbitration required over thirty-four hearing sessions from July 28, 2015 through May 17, 2016. 

$2.3 million awarded. 34 hearing sessions. Nearly a year of hearings. And what do we know of the underlying facts? Absolutely nothing. 

How did the arbitrators arrive at their final allocation of the $2.3 million award among deferred compensation, bonus, severance, and fees? We don't know jack about that aspect either.

As is my familiar refrain, I can't blame the arbitrators for playing hide-and-seek with us. If they want to get impaneled again, they have to play ball the way FINRA wants the game played. 

If you were to ask FINRA and its mandatory-intra-industry-arbitration apologists, they will all claim that this sub rosa approach to alternative dispute resolution is out of respect for the confidential, private nature of arbitration. The funny thing about that argument is that many industry employees who are forced into FINRA's intra-industry arbitration forum profess a burning desire to publicize their allegations about their former employers's misconduct and to hopefully alert future employees and current staff as to the hostile work conditions that they experienced. In response to that zeal, how nice that the member firms who control FINRA make motions seeking to impose confidentiality upon the arbitration proceedings, and how nice that the arbitrators paid by FINRA frequently grant such gag orders. Sure, courts often grant such motions but that fails to similarly acknowledge the public docket of most civil cases where you can read the pleadings, the motions, and the orders. In contradistinction to the Passaretta FINRA Arbitration Decision, few civil court decisions would fail to present a cursory statement of facts, offer a brief recitation of the procedural history, and provide some rationale for the holdings and findings.

I dismiss most of the explanations about private contract rights and confidentiality as self-serving garbage that is nothing more than a facade behind which the employer/management interests of FINRA's member firms are protected at the expense of the interests of employees/labor and the investing public. Moreover, I believe that Statements of Claim and Answers should be publicly available on FINRA's arbitration database unless all parties oppose that posting or, in the absence of such unanimity, the arbitrators order such non-disclosure. 

What fosters this sub rosa approach to rendering arbitration awards? Consider th FINRA Code of Arbitration [Ed: yellow highlighting added]: 

FINRA Code of Arbitration for Intra-Industry Disputes 13904: Awards

(a) All awards shall be in writing and signed by a majority of the arbitrators or as required by applicable law. Such awards may be entered as a judgment in any court of competent jurisdiction.
(b) Unless the applicable law directs otherwise, all awards rendered under the Code are final and are not subject to review or appeal.
(c) The Director will serve a copy of the award on each party or the representative of the party. The Director will serve the award by using any method available and convenient to the parties and the Director, and that is reasonably expected to cause the award to be delivered to all parties, or their representative, on the same day. Methods the Director may use include, but are not limited to, first class, registered or certified mail, hand delivery, and facsimile or other electronic transmission.
(d) The panel shall endeavor to render an award within 30 business days from the date the record is closed.
(e) The award shall contain the following:
  • The names of the parties;
  • The name of the parties' representatives, if any;
  • An acknowledgement by the arbitrators that they have each read the pleadings and other materials filed by the parties;
  • A summary of the issues, including the type(s) of any security or product, in controversy;
  • The damages and other relief requested;
  • The damages and other relief awarded
  • A statement of any other issues resolved;
  • The allocation of forum fees and any other fees allocable by the panel;
  • The names of the arbitrators;
  • The dates the claim was filed and the award rendered;
  • The number and dates of hearing sessions;
  • The location of the hearings; and
  • The signatures of the arbitrators.
(f) The award may contain a rationale underlying the award.
(g) Explained Decisions
(1) This paragraph (g) applies only when all parties jointly request an explained decision.
(2) An explained decision is a fact-based award stating the general reason(s) for the arbitrators' decision. Inclusion of legal authorities and damage calculations is not required.
(3) Parties must make any request for an explained decision no later than the time for the prehearing exchange of documents and witness lists under Rule 13514(d).
(4) The chairperson of the panel will be responsible for writing the explained decision.
(5) The chairperson will receive an additional honorarium of $400 for writing the explained decision, as required by this paragraph (g). The panel will allocate the cost of the chairperson's honorarium to the parties as part of the final award.
(6) This paragraph (g) will not apply to simplified cases decided without a hearing under Rule 13800 or to default cases conducted under Rule 13801.
(h) All awards shall be made publicly available.
(i) Fees and assessments imposed by the arbitrators under the Code shall be paid immediately upon the receipt of the award by the parties. Payment of such fees shall not be deemed ratification of the award by the parties.
(j) All monetary awards shall be paid within 30 days of receipt unless a motion to vacate has been filed with a court of competent jurisdiction. An award shall bear interest from the date of the award:
  • If not paid within 30 days of receipt;
  • If the award is the subject of a motion to vacate which is denied; or
  • As specified by the panel in the award.
Interest shall be assessed at the legal rate, if any, then prevailing in the state where the award was rendered, or at a rate set by the arbitrator(s)

Pursuant to FINRA Rule 13904(e), all Awards must contain a "summary of the issues, including the type(s) of any security or product, in controversy." Clearly, FINRA is incredibly flexible when it comes to ensuring the quality control of what constitutes a "summary of the issues." 

For example, imagine that a registered representative alleges in a Statement of Claim that he was 
ordered to fabricate a customer's signature on a new account form but when he refused, his manager threatened to fire him, and when the registered rep complained to Human Resources, he was fired and escorted out of the building without an opportunity to return to his office, and, thereafter, the firm filed a Form U5 asserting that he threatened to assault his manager and wrongfully attempted to forge a customer's signature on a form. 

According to FINRA's Code of Arbitration, how would those allegations need to be presented in a panel's Award?  FINRA Rule 13904(e) apparently permits the hypothetical allegations to be summarized in a resulting FINRA Arbitration Decision as nothing more expansive than "employment dispute." 

Pouring salt on a wound, FINRA Rule 13904(f) literally states that "The award may contain a rationale underlying the award." May contain?  In an arbitration forum where former employees are mandated to litigate in lieu of court, that obligatory forum actually has a rule that makes the statement of the "rationale" for an award an optional requirement? Summary fact patterns and optional rational of awards. Ain't that grand?

Finally, there is the bassackwards FINRA Rule 13904(g)(1), which unabashedly states that a so-called "Explained Decision" will come into being "only when all parties jointly request," and, thereafter, FINRA Rule 13904(g)(2) only requires that the explanation state "the general reason(s) for the arbitrators' decision. Inclusion of legal authorities and damage calculations is not required." And the difference between the default obligation to provide a "summary of the issues"  in a non-Explained Decision versus the "general reason(s) for the arbitrators' decision" in an Explained Decision is what?  

To sum it up, we got a former UBS employee who successfully sues his former employer and after nearly a year of hearings, he was awarded  $2.3 million. Pursuant to FINRA's quality control, that organization seems to believe that its Rule 13904(e) obligation to present a "summary of the issues" was satisfied. Really? Let's consider the following:

  • Why did UBS fail to pay Claimant Passaretta's deferred compensation? We don't know. 
  • How much was the disputed unpaid deferred compensation? We don't know.
  • Why did UBS fail to pay Claimant Passaretta's bonus compensation? We don't know. 
  • How much was the disputed unpaid bonus? We don't know.
  • What constituted UBS's alleged tortious interference with Passaretta's prospective economic advantage? We don't know. 
  • On what basis did the Panel find that Passaretta was unjustly terminated? We don't know. 
  • What constituted UBS's defamation of Passaretta? We don't know (to be fair, Claimant may not have wanted to have this issue made public, particularly since he seems to have prevailed. In this circumstance, a motion for non-disclosure would be sensible and its approval anticipated). 
  • Given the size of the award and the arbitrators's apparent dissatisfaction with UBS's conduct, was a referral made to FINRA for purposes of investigating UBS for possible regulatory misconduct? We don't know.