Stunning $413,000 Award to Wells Fargo Employee in Broker Protocol Case

May 5, 2017

At the heart of its arbitration case, Wells Fargo Advisors alleged that its former employee sent an inappropriate letter to its clients in violation of the Protocol for Broker Recruiting. Solely going by the allegations in its claim, it looked like a major six-figure payday for Wells Fargo. But litigation doesn't get decided based solely upon allegations. You need proof. Then there's that whole inconvenience of the other side's version of events.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2015, and as amended thereafter, Claimant Wells Fargo Advisors LLC. alleged breach of contract, conversion, tortious interference with business relations, misappropriation of trade secrets, copyright infringement and contributory copyright infringement, and unfair competition. In the Matter of the FINRA Arbitration Between Wells Fargo Advisors, LLC, Claimant / Counter-Respondent, vs. Joel A. Jacobs, Respondent / Counter-Claimant / Third-Party Claimant / Counter-Respondent, vs. James Pekelder, Third-Party Respondent / Counter-Claimant (FINRA Arbitration 15-00510, April 26, 2017).

Under Suspicion

As set forth in the FINRA Arbitration Decision:

[W]ells Fargo alleged that on or about February 18, 2015, Jacobs resigned from his position as a Financial Advisor, and, in an effort to manipulate customers and abuse the letter and intent of the Protocol for Broker Recruiting (the "Protocol"), Jacobs is suspected of mailing an unauthorized "inquiry" letter to firm customers in an attempt to expand the list of individuals who he could solicit upon his resignation. Wells Fargo further alleged that Jacobs has indicated that he has taken information for customers he serviced while at Wells Fargo and that he will not refuse to continue to work for customers not on his Protocol list, thus proceeding in violation of the Protocol and in violation of other agreements with Wells Fargo.  

SIDE BAR: The preamble to the "Protocol for Broker Recruiting" states the following:

The principal goal for the following protocol is to further the clients' interests of privacy and freedom of choice in connection with the movement of their Registered Representative ("RRs") between firms. If departing RRs and their new firm follow this protocol, neither the departing RR nor the firm that he or she joins would have any monetary or other liability to the firm that the RR left by reason of the RR taking the information identified below or the solicitation of the clients serviced by the RR at his or her prior firm, provided, however, that this protocol does not bar or otherwise affect the ability of the prior firm to bring an action against the new firm for "raiding." The signatories to this protocol agree to implement and adhere to it in good faith.

Bill Singer's Comment: The Protocol for Broker Recruiting is a document drafted by management in an effort to constrain the post-employment conduct of former employees. No registered representative is a signatory to the Protocol. No public customer is a signatory to the Protocol. Accordingly, the Protocol's assertion that its "principal goal" is to "further the clients' interests of privacy and freedom of choices" is self-serving nonsense. Not that I have an opinion about the issue.


Jacobs generally denied Wells Fargo's allegations and asserted various affirmative defenses.

Jacobs filed a Counterclaim against Wells Fargo seeking repayment of commissions and loss of income. In his Counterclaim, Jacobs alleged that he and Third-Party Respondent Pekelder (Jacobs and Pekelder referred to as the "Team") had purchased the books of business from two retiring members. Jacobs alleged that he grew the Team's assets under management, and bore the primary responsibility of servicing the clients. Jacobs characterized Pekelder as having "traveled and carried out his supervisory duties in the State of Nebraska." Jacobs asserted that he was "unjustly stripped of clients, assets under management, and the income they produced." Jacobs denied sending the so-called letter of inquiry.

Jacobs filed a Third-Party Claim against Peklder alleging that his Team-mate was a:

"complex manager" for Wells Fargo and spent more time in a supervisory role than as a producer. Jacobs alleged that Pekelder harassed him, refused to allow a retiring broker to transfer his book of business directly to Jacobs, and Pekelder took unreasonable inflammatory actions against Jacobs to further reduce his income.

Third-Party Respondent Pekelder generally denied the allegations and asserted various affirmative defenses. Pekelder filed a Counterclaim against Jacobs alleging breach of contract. Pekelder asserted that he and Jacobs had:

executed an agreement in August 2010. Pekelder further alleged that Jacobs has broken promises to not solicit Pekelder's clients, among other breaches of agreements and obligations owed to Wells Fargo and Pekelder, and has caused damage to him including loss of revenue.


In summarizing the demands for monetary damages, the Decision states:

At the close of the hearing, Wells Fargo and Pekelder's expert witness provided a damage summary report with a range of total damages $120,963.00 to $489,481.00.

At the close of the hearing, Jacobs expert witness provided a damage summary report that presented four scenarios. All were explained during testimony. While advocating for the expert's model, Jacobs' counsel suggested the Panel use whatever scenario and variable number [e.g. Gross Velocity %, Pay-out %, duration] it deemed appropriate based on the evidence.

Bill Singer's Comment: It may well be that Wells Fargo/Pekelder's lawyer did not specifically urge the Panel to award appropriate damages in the same express language used by Jacobs' lawyer. On the other hand, Wells Fargo/Pekelder's expert reported a "range" of damages spanning from $120,962.00 to $489,481.00. That's about $370,000 from the low- to the high-ball. I would think that there is an implied understanding in presenting  such a "range" of damages that the arbitrators will attempt to select an "appropriate" monetary award from somewhere along the spectrum. The alternative would be that the arbitrators would pick an "inappropriate" award, which would be a silly expectation. Which is not to suggest that arbitrators may not reject all proposed calculations and render what they deem . . . appropriate.

March 8th Sanctions Order

In response of a February 2017 Motion for Sanctions filed by Wells Fargo and Pekelder, and after replies and oral arguments, the Panel ordered on March 8, 2017:

1. Since the hearing on the merits is scheduled to commence within at most two business days following the communications of this Order to the parties, no further action is ordered regarding production of the documents and information in question. The parties should understand that the Panel expects that appropriate witnesses will be available and presented for testimony regarding the issues addressed in the discovery requests that are the focus of the request for sanctions.

2. The specific sanctions sought in the request for sanctions are denied.

3. As an alternative, the Panel imposes the following sanction:

a. Respondent shall be responsible for payment of the attorneys' fees of WFA's counsel associated with the preparation of the request for sanctions, and its reply in further support thereof, and participation in the March 8, 2017, pre-hearing on the matter.
b. Respondent shall be responsible for payment of the attorneys' fees of WFA's counsel associated with the preparation of the December 7, 2016, request for discovery assistance and the December 12, 2016, Reply to Respondent's Response.

4. Before the close of presentation of all evidence in this case, WFA's attorney shall submit to the Panel (with a copy to the opposing counsel) its statement for the attorneys fees assessed in #3 above.


The FINRA Arbitration Panel found Jacobs liable to and ordered him to pay to:

Wells Fargo: $975 in compensatory damages.

Wells Fargo and Pekelder: $5,532.00 in compensatory damages; and $22,694.30 in attorneys' fees as a sanction pursuant to the Panel's March 8th Order.

The FINRA Arbitration Panel found Wells Fargo and Pekelder jointly and severally liable to and ordered them to pay to:

Jacobs: $413,000.00 in compensatory damages.

The Panel offset the awards and rendered a net joint and several award against Wells Fargo and Pekelder in the amount of $384,773.70.

Bill Singer's Comment

What the hell was Wells Fargo thinking when it brought this lawsuit? More to the point, was there any thought involved? Oh well, ya win some, ya lose some. And this ain't no win for Wells Fargo. Jacobs must feel vindicated. Pekelder took one for the Team.

When I first read through this FINRA Arbitration Decision, I was puzzled by the odd characterization of an unauthorized inquiry letter. Inquiry? Given that this dispute largely revolved around the appropriateness of the content and transmission of the cited letter from Jacobs, I would have appreciated some explanation as to why it wasn't described by the more common term of "solicitation letter."I am guessing that Jacobs' communication wasn't (or wasn't merely) a solicitation but may have involved some nuance that raised it to a different level. Notwithstanding, given the importance of this letter, the Decision should have provided more of an explanation.

Also, what the hell does the Decision mean when it states that that Wells Fargo had alleged that Jacobs was "suspected of mailing" the inquiry letter? When Wells Fargo filed in February 2015 its Statement of Claim against Jacobs, are we to understand that at that late date the employer merely "suspected" that its former employee had sent an unauthorized inquiry letter to various customers? Frankly, I am surprised that a FINRA Arbitration Panel would entertain such speculative pleading rather than dismiss the case. My observation is solely based upon the presentation of content and context in the Decision and there may well be unstated facts that justify the arbitrators willingness to hear the case. The uncertainty as to such a fundamental prima facie issue only underscores the need for better quality control at FINRA when reviewing Arbitration Decisions prior to public release and online posting. There is suspicion. There is proof. Lawsuits need to be proven. An arbitration hearing is not the place to discuss theories and beliefs.

Notwithstanding my many stated concerns and objections, this Decision is generally well written and comprehensive. That the Decision is good does not mean it could not have been better.