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Citigroup is Dunne-in By FINRA Arbitration Loss
Written: May 7, 2010

As a result of the termination of employment of several employees and their subsequent employment with Convergent Wealth Advisors, LLC,  former employer Citigroup Global Markets, Inc. d/b/a Smith Barney (CGMI) filed a FINRA Arbitration Statement of Claim on September 4, 2008, which asserted claims against a number of Respondents for

  • Breach of Contract
  • Conversion/Fraud;
  • Breach of Fiduciary Duty;
  • Misappropriation of Trade Secrets;
  • Intentional Interference with Business Relationships;
  • Unfair Competition;
  • Civil Conspiracy; and
  • Raiding.

Claimant CGMI requested an Order from the FINRA Arbitration Panel:

  • Enjoining Respondents, for a period of one year following their termination, from soliciting Claimant’s customers or initiating contact with Claimant’s customers for the purpose of getting the customer to transfer their account, to open a new account with CWA, or otherwise to discontinue their relationship with Claimant;
  • Requiring Respondents to return all of Claimant’s records;
  • Requiring Respondents to remove all of Claimant’s proprietary and confidential information from their computers;
  • Precluding Respondetns from soliciting any of Claimant’s employees or customers;
  • Permitting Claimant to inspect Respondents’ computers to ensure no proprietary and/or confidential information remains on Respondents’ computers.

Further, Claimant sought compensatory damages, attorneys’ fees, costs, and a referral of the Respondents by the FINRA Arbitration Panel to FINRA for disciplinary actions, and any other relief that the Panel deemed appropriate.


In the Matter of the Arbitration Between Citigroup Global Markets, Inc. d/b/a Smith Barney, Claimant, versus Peter F. Dunne, George A. Dunn, Lori Van Dusen, David Mattia, Bruce Wall, Winship Rose, Richard Vankuren, Jeffrey Wagner, Thomas Hawks, Jeffrey Santos, James Henson, Douglas Smith, and Convergent Wealth Advisors, LLC, Respondents (FINRA Arbitration 08-03123, April 30, 2010).


The Respondents Weigh In


Respondents generally denied the allegations and asserted various affirmative defenses.


Respondents Dunne, Dunn, Wall, Ross, Santos, and Smith filed a Counterclaim asserting:

  • Tortious Interference with Economic Relations;
  • Unfair Competition;
  • Failure to Comply with the Protocol for Broker Recruiting; and
  • Failure to Comply with FINRA’s Rules 

Respondents Dusen, Mattia, Vankuren, Wagner and Hawks filed a Counterclaim asserting:

  • Tortious Interference with Economic Relations;
  • Unfair Competition;
  • Defamation;
  • Injurious Falsehood;
  • Failure to Comply with the Protocol for Broker Recruiting; and
  • Failure to Comply with FINRA’s Rules 

Respondents sought attorneys’ fees, costs, and other equitable relief.  Moreover, in furtherance of their Counterclaims, Respondents sought

  • Complete account information for all of Respondents/ current clients who were formerly clients of Claimant;
  • Compensatory damages;
  • Punitive damages;
  • Attorneys' fees;
  • Costs;
  • a referral of the Claimant by the FINRA Arbitration Panel to FINRA for disciplinary actions 

Claimant CGMI generally denied the Counterclaims’ allegations and asserted various affirmative defenses.


The Preliminaries


Respondent CWA is not a FINRA member and did not voluntarily submit to arbitration; and, as a consequence, the Panel made no determination with respect to claims against CWA.


In June 2009, Claimant filed a Notice of Dismissal of Respondent James Henson.


In September 2009, the FINRA Arbitration Panel granted Claimant’s Motion for Additional Time to submit discovery materials subject to a $10,000 sanction payable to Respondents for Claimant’s discovery failure.  Throughout this proceeding, the Panel dismissed five of Respondents’ Motions to Dismiss based upon allegations that Claimant had intentionally and materially failed to comply with the Panel’s discovery order.


The Decision


The FINRA Panel dismissed all claims and requests with prejudice. 


Bill Singer's Comment: Thirteen, count 'em, 13 Respondents!  And what does Claimant CGMI have to show for all its hardball?  Well, some 20 months after Claimant CGMI filed its Statement of Claim, the FINRA Panel essentially gave the firm a cockeyed look as if to say "What the hell are you talking about?"  Although all claims of all parties were dismissed, this was clearly a big black eye of a loss of Citigroup/Smith Barney.


As I have often said about these "send 'em a message" cases, very often the message gets lost in the mail.  Large firms such as Citigroup can afford the financial costs of playing hardball with these types of employee disputes.  The theory is that the employer needs to demand its terms for settlement or go to the mat at a hearing.  Assuming you buy the logic, the benefit of such a strategy is that the word gets out that you either pony up the settlement bucks or you could get crushed at a hearing (both in terms of compensatory damages, interest, their attorneys' fee, and all the other greater and lesser pains of such stress).


As a strategy -- as a theory -- that's great.  The only problem is that a firm such as CGMI has this one major Achille's Heel: It can't afford to lose a single arbitration.  When CGMI loses a case, such as this one, it becomes part of the lore of Wall Street.  Which means that brokers gather round the water coolers, at the bar on Friday afternoon, and on the online forums and talk about how so-and-so spit in CGMI's face and got away with it -- and if I ever decide to leave, I'm not taking any crap from them either!  


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