May 8, 2019
You post an ad to sell your used car. I answer the ad. We agree on a price -- let's say $3,500. I pay you the funds. You deliver the title to me. I drive the car away. The next day, you see an ad posted by me asking $7,000 for the same car that you just sold to me. For whatever reason, you feel cheated. I didn't put a gun to your head. You were happy with the cash that you got for your clunker. I have incurred all the risk of flipping the car that I just paid for. Still, you feel cheated and angry. Now, imagine that instead of the sale of a used car, we got two guys who engineered the sale of an investment firm, and the seller gets wind of the buyer's plan to flip the biz. Read today's blog to see how that case made its way through a FINRA arbitration.
Case In Point
In a FINRA Arbitration Statement of Claim filed in April 2017, associated person Claimant Butler asserted breaches of contract and fiduciary duty; misappropriation of trade secrets, civil conspiracy, unjust enrichment, interference with contractual relationships, and violation of FINRA Rule 2010. As set forth in part in the FINRA Arbitration Decision:
[C]laimant's claims relate to Respondents' conduct following Wiggins's sale of his investment firm to Claimant. Claimant alleged that, when Wiggins became aware that Claimant intended to resell the business to a third party, Wiggins, with the assistance of Ellinger and Cetera, sought to "reclaim" it by systematically contacting and transferring Claimant's clients back to his own firm.
Claimant Butler sought at least $975,000 in actual damages plus compensatory and punitive damages, interest, costs, and fees. In the Matter of the Arbitration Between Peter Frederick Butler, Claimant, v. Cetera Advisor Networks LLC, Victoria Louise Ellinger, and Craig Douglas Wiggins, Respondents (FINRA Arbitration Decision 17-01012)
Respondents Cetera Advisor Networks, Ellinger, and Wiggins generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim in which they asserted in part that:
[W]iggins asserted that Claimant breached the
terms of a Promissory Note dated April 10, 2012 (the "Note"). Wiggins alleged that
Claimant's failure to make certain installment payments due under the Note on January 1,
2017 and April 1, 2017 resulted in a default, making the unpaid balance of the Note due
and payable on demand.
Respondents sought all remaining principal and interest on the Note (believed to be "in excess of $85,000.00" plus interest, costs, and fees.
In March 2019, Claimant Butler dismissed with prejudice all of his claims against Respondent Cetera Advisor Network. At the evidentiary hearing, the Panel granted Claimant's motion to dismiss his claim for misappropriation of trade secrets.
The FINRA Arbitration Panel found Respondent Wiggins liable to and and ordered him to pay to Claimant Butler $600,000 in compensatory damages. The FINRA Arbitration Panel found Butler liable to and ordered him to pay to Wiggins $110,000 in compensatory damages reflecting payments and interest due on the Note. Taking the two Awards into account, the Panel ordered a net Offset Award from Wiggins to Butler of $490,000.
Bill Singer's Comment
Oh how I wish that the FINRA Arbitration Decision had provided us with more details about the underlying dispute, which struck me as a fascinating bit of seller's remorse.
As best I can infer, Respondent Wiggins sold an investment firm to Claimant Butler. The Decision doesn't name the name of the sold entity. The Decision doesn't specify the exact nature of the sold business: broker-dealer, RIA, etc. The Decision doesn't provide us with the material terms of the transaction. The Decision doesn't set out the relevant dates of the transaction.
At some point, Wiggins allegedly realized that Butler was going to sell the firm to a third party. Had Butler intended from the git-go to "flip" Wiggin's firm? That fact is not discussed at all in the Decision; however, even assuming that Butler's intention was to flip the biz, so what? Wiggins had decided to sell the firm; Butler was incurring the risk of paying for Wiggins' firm; and Butler and Wiggins negotiated terms acceptable to both. In the end, a deal is a deal is a deal.
For reasons that are never made clear in the Decision, Wiggins allegedly enlisted Respondents Ellinger and Cetera Advisor Network as part of his effort to "reclaim" his sold firm. Lovely euphemism "reclaim." Instead of "reclaim," some might say "breach of contract" or "bad faith." Then again, that's mere conjecture given the absence of a substantive presentation in the Decision of the underlying agreement.
According to online FINRA BrokerCheck records as of May 8, 2019, Wiggins was first registered in 1979; and from May 2012 to January 2017, he was associated with Ameriprise Financial Services, Inc., and, thereafter, with Cetera Advisor Networks LLC
According to online FINRA BrokerCheck records as of May 8, 2019, Butler was first registered in 1989. On September 14, 2016, Butler entered into a Letter of Acceptance, Waiver and Consent settlement with FINRA without admitting or denying the findings, prior to a hearing, and without any adjudication. In accordance with the terms of the AWC, FINRA imposed upon Butler a $15,000 fine and a four-month suspension in Principal capacity only from association with any FINRA member firm. In the Matter of Peter Frederick Butler (FINRA AWC 2014040269302)
https://www.finra.org/sites/default/files/fda_documents/2014040269302_FDA_JG411757.pdf As set forth in the AWC's "Overview"
Between April 2010 and September 2013 (the 'relevant period"), Butler failed to
reasonably supervise an Ameriprise registered representative who was employed
by Butler as a sales associate and office manager ("the office manager"). Because
of his lack of adequate supervision, Butler failed to detect and prevent the office
manager from converting money from Ameriprise customers and from Butler's
business, the Partners Financial Group, LLC (the "Partners Group"). As a result,
Butler violated NASD Rule 3010(a) and FINRA Rule 2010.
BrokerCheck further discloses that on January 12, 2017, Ameriprise permitted Butler to resign based upon allegations that "Registered Representative resigned while on suspension pending termination for violation of company policy related to selling away and disclosure of an outside activity."