August 19, 2019
After many years of employment at Wells Fargo, two reps decided to join another firm. Hey, it happens. The new employer offered a substantial upfront bonus. Nice! The new firm promised to facilitate the transition of the reps' accounts. Alas, after some six-months into the new gig, the transition thing didn't seem to go as smoothly as the reps had expected. All of which prompted the reps to resign and move on. They want to keep their bonuses. The new employer wants the moolah back. The lights dim. The curtain rises. Act I, Scene 1 of an intra-industry FINRA lawsuit.
Case In Point
In a FINRA Arbitration Statemetn of Claim filed in June 2017, associated persons Claimants asserted breaches of oral, written and implied
contract, fiduciary duty, and of the implied covenant of good faith and fair
dealing; negligence; fraudulent inducement to contract/promissory fraud; negligent
misrepresentation/concealment; tortious interference with existing and prospective economic advantage; promissory estoppel; violations of California Labor Code; failure to supervise/negligent supervision; constructive
discharge/wrongful termination; retaliation in violation of public policy (against SCA
only); unjust enrichment; and violations of state and federal securities laws and of
FINRA, NASD and NYSE rules. In the Matter of the Arbitration Between Charles David Lautz and Francisco Malfavon, Claimants/Counter-Respondents, v. Snowden Account Services LLC and Snowden Capital Advisors LLC d/b/a Snowden Lane
Partners, Respondents/Counter-Claimants (FINRA Arbitration Decision 17-01724)
http://www.finra.org/sites/default/files/aao_documents/17-01724.pdf As set forth in the FINRA Arbitration Decision:
Respondents generally denied the allegations and filed a Counterclaim asserting breaches of
fiduciary duty, of oral, written and implied contract, and of the implied covenant
of good faith and fair dealing; fraudulent inducement; negligent/intentional
misrepresentation; unjust enrichment; and conversion. As set forth in the FINRA Arbitration Decision:
The causes of action relate to Claimants' former employment with Respondents. Claimants alleged that Respondents induced Claimants to join their firms by promising to pay large up-front bonuses and to provide Claimants with the time, tools and resources to transition their business into the firm and that Respondents breached those promises. Claimants further alleged that Respondents required Claimants to transition a majority of their clients' assets into the firms by the end of June 2017 or be terminated, which allegedly forced Claimants to resign.
[R]espondents alleged that
Claimants breached the terms of the Notes and Pledge Agreements executed by
Claimants on or about January 23, 2017 ("Notes") and that, pursuant to the Notes, they
are entitled to repayment of all principal loaned to Claimants, plus interest since the date
of their default.
At the close of the hearing, the following damages, costs, and fees were requested by:
Claimant Lautz: $334,924.50 balance of up-front payment with $81,024.20 interest, and up to $3,994,502.85 compensatory damages
Claimant Malfavon: $143,539 balance of up-front payment with $34,724.64 interest, and up to $1,475,406.57 in compensatory damages
Claimants Lautz and Malfavon: $340,014.42 legal fees, costs, and disbursement; $22,391.87 client advances, $10,000 unreimbursed business expenses, hearing costs, and filing fees.
Respondents Against Lautz: $334,924.50 in unpaid principal plus $2,657.56 and $54,013.13 in interest
Respondents Against Malfavon: $143,539 in unpaid principal plus $1,138.94 and $23,148.47 in interest
Respondents Against Both Claimants: $24,603.65 in attorneys' fees and $20,295.11 (subsequently revised to $24,013.04) in costs.
The FINRA Panel of Arbitrators denied Claimants' claims. The Panel found Claimants liable and ordered them to pay to Respondents as follows:
Lautz: $334,924.50 in unpaid principal plus $2,657.56 and $54,013.13 in interest
Malfavon: $143,539.00 in unpaid principal plus $1,138.94 and $23,148.47 in interest
Lautz and Malfavon (jointly and severally): $254,603.65 in attorneys' fees and $24,013.04 in costs.
Bill Singer's Comment
Online FINRA BrokerCheck records as of August 19, 2019, disclose that
- Lautz was first registered in 1994, was registered with Wells Fargo Investments, LLC, Wells Fargo Advisors LLC, and Wells Fargo Clearing Services, LLC, from July 2008 to January 2011, January 2011 to November 2016, and from November 2016 to January 2017 respectively; and was registered with Snowden Account Services LLC from January 2017 to June 2017; and
- Malfavon was first registered in 2007, was registered with Wells Fargo Investments, LLC and Wells Fargo Clearing Services, LLC, from April 2007 to July 2010, and from July 2010 to January 2017 respectively; and was registered with Snowden Account Services LLC from January 2017 to June 2017.
As regular readers of the BrokeAndBroker.com Blog know, I frequently rail against the lack of content and context in many FINRA Arbitration Decisions. This is yet another in that long line of grousing.
Never quite explained by the FINRA arbitrators is why they dismissed all of Claimants' claims.
Never quite explained by the FINRA arbitrators is why they rendered some $838,000 in damages, interest, fees, and costs against the Claimants.
Frankly, there is no rationale provided for the denials or the awards -- which doesn't mean that this FINRA Arbitration Panel got it wrong, but it does mean that we're left clueless (and so would any court to which the case may be appealed). It may very well be that Respondents were entitled to the full repayment of the bonuses or loans at issue. On the other hand, it may have been nice if the arbitrators had at least disclosed whether they had found the payments to be what the Claimants' styled as "up-front bonuses" versus the Respondents' characterization as "loans." Similarly, it may have been informative if the arbitrators had offered a shred of rationale for their findings and awards.