July 2, 2019
Few Wall Street issues anger me more than when workplaces become toxic and management engages in tortious misconduct. The forced sale of a producer's book of business to a younger rep or to one of the guys or to the nephew of the new manager. The weaponization of regulatory filings to hamstring former employees and send a message to those left behind. FINRA is oh-so-quick to step in and assist its members' collection efforts of unpaid promissory note balances, or the debits arising from NSF checks or kited funds. In those cases, it's always about conduct inconsistent with just and equitable principles of trade. When the employees are the victims, however, FINRA's prism bends the light and its member firms' conduct just never seems to appear as "misconduct." FINRA the regulator is nowhere to be found when its members' workplace abuses devastate the lives of associated persons and their families. The substitute offered to the industry's victimized workers is FINRA the arbitration forum, which has nothing to do with regulation but everything to do with costly and protracted litigation.
Case In Point
In a FINRA Arbitration Statement of Claim filed in December 2017 and as amended by associated persons Claimants asserted against Respondent USAA Financial Advisors breach of contract; breach of the implied covenant of good faith and fair dealing (withdrawn in the Amended Claim); tortious
interference with actual and prospective economic advantage; tortious interference with employment agreement; intentional and negligent misrepresentation; negligent
supervision and retention of employees; wrongful discharge in violation of public policy; promissory estoppel; and defamation. Claimants Claimants sought compensatory damages, punitive damages, incidental damages, emotional distress damages, interest, fees, and costs. Further, Claimants sought the expungement and modification of their Forms U5 and Central Registration Depository records ("CRD"). In the Matter of the Arbitration Between Michael Andrews, James Goggins, Christopher Johnson, Jennifer Meyer, Jason Proctor, Lee Przybyla, and Alex Wilson, Claimants, v. USAA Financial Advisors, Inc., Respondent (FINRA Arbitration Decision 17-03279) http://www.finra.org/sites/default/files/aao_documents/17-03279.pdf
As set forth in the FINRA Arbitration Decision, Claimant's claims purportedly arose in connection with their allegations that they were:
wrongfully terminated by Respondent for practices related to the preparation and publishing of financial plans. Claimants further allege that they were high performing, highly compensated financial advisors for Respondent and, as a result of their termination, Claimants have been financially devastated and unable to secure equivalent employment. . . .
Respondent USAA generally denied the allegations and asserted various affirmative defenses.
Prior to the evidentiary hearing, the following procedural motions and Panel rulings transpired:
On or about February 23, 2018, Respondent filed a Motion to the Director of Arbitration
for Separate Arbitrations ("Motion to Sever"), requesting that the claims of each claimant
be separated into separate FINRA arbitrations. On or about March 9, 2018, Claimants
filed a response requesting that the Motion to Sever be denied. On or about March 16,
2018, Respondent filed a reply in support of the Motion to Sever. After considering the
pleadings submitted by the parties and hearing oral arguments on April 24, 2018, in an
order dated May 9, 2018, the Panel denied the Motion to Sever in part, ruling that it
would retain jurisdiction regarding Przybyla and Johnson, and granted the Motion to
Sever in part, severing the claims of Andrews, Goggins, Meyer, Proctor and Wilson from
the instant arbitration.
The FINRA Arbitration Panel found Respondent USAA liable to Claimants Johnson and Przybyla, and ordered the firm to pay:
Additionally, the Panel recommended the expungement of Johnson and Przybyla's CRDs based upon findings of defamation. The Panel recommended the the "Reason for Termination" on both Claimant's Form U5 be changed to "Voluntary" and the "Comment" section left blank. Also, the Panel recommended that the "YES" answer to Form U5 Question 7F(1) be revised to "NO" and the Disclosure Reporting Page be deleted.
Johnson: $500,000 in compensatory damages and $350,000 in punitive damages
Pryzybyla: $350,000 in compensatory damages and $350,000 in punitive damages
Johnson and Pryzybyla: $250,000 in total attorneys' fees
SIDE BAR: Form U5: 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? . . .
Bill Singer's Comment
Compliments to the FINRA Arbitration Panel from not shying away from awarding punitive damages. It's about time arbitrators recognized the horrific impact caused by FINRA member firms' abusive workplace practices and their weaponization of Forms U5.
Somewhat lost in the shuffle here is that USAA moved to sever Respondents Andrews, Goggins, Meyer, Proctor and Wilson. Sometimes you rue the day that your wishes came true. As Round Two is rung in, it will be interesting to see whether USAA gets slammed with another batch of seven figure damages, costs, and fees.
Finally, compliments to the legal team from the law firm of Shustak Reynolds & Partners, P.C. for a superb job: