Federal Court Orders Rare TRO In Favor of Terminated Rep Against Investacorp

May 5, 2020

In a fairly common version of  Wall Street hardball, a veteran rep finds himself on the ropes. The firm seems to think it's time for the old boy to go out to pasture. First they ask for his resignation. Then, you know, there's a bit of pressure. Then the young stud enters the picture. Then the pressure is less subtle. At some point, it's either you leave or we'll fire you. In today's featured variation on the theme, we're largely at the "He Said" stage of things, so it might be best to sort of suspend judgment, for now. At issue in today's case is Investacorp's termination of a rep who was the subject of two FINRA investigations. Perhaps the rep invited the firm to throw high and tight? Be that as it may, after hitting the dirt and dusting himself off, the broker filed a TRO against his former firm. That doesn't usually pan out. This time, however, it did!

Case In Point

In a Complaint filed in the United States District Court for the Middle District of Louisiana ("MDLA"), Plaintiff Ian James, a 25-year veteran stockbroker and investment advisor, sought injunctive relief and asserted deceptive and unfair trade practices under Florida law, tortious interference with an advantageous business relationship, defamation, and breach of contract against his former employer, Defendant Investacorp Inc. Ian James v. Investacorp Inc. (Complaint and TRO Memorandum, United States District Court for the Middle District of Louisiana, 20-CV-00254)

The RRA Terminated For Cause

The Complaint alleges that James, who joined Defendant Investacorp in July 2014, advises hundreds of clients, mainly folks in their 60s through 80s, who have over $100 million in assets. On April 20, 2020, Investacopr allegedly informed James that it intended to terminate his Registered Representative Agreement ("RRA") on a "for cause" basis:

32. Investacorp representatives further explained to James that reporting of the "for cause" termination would effectively prevent James from ever working in the financial services industry again. James understood this to mean that, in addition to FINRA, Investacorp would inform his clients and other registered representatives of Investacorp that James was fired in an attempt to persuade those clients to terminate their direct relationship with James and use the services of other financial advisors, whether with Investacorp or elsewhere. 

33. At the same time threatening to terminate James for cause, and outlining the related career-destroying consequences, Investacorp representatives told James that if he sold his book of business to another Investacorp advisor, hand-selected by Investacorp, James would be allowed to "resign" and Investacorp would not report his departure as termination "for cause" so there would be no long-term consequences for James' career. 

34. Investacorp representatives indicated that the purchase price for James' book of business would be far less than fair market value. 

35. When James asked if he would be permitted to sell his book of business to an advisor of his own choosing (based on his knowledge of the advisor's skill and experience), rather than the one hand-selected by Investacorp, he was told by Investacorp representatives, unequivocally, no. 

36. James eventually contacted another Investacorp registered representative to discuss the sale. Investacorp had already told the potential purchaser that James was to be terminated for cause, which the potential purchaser told James severely diminished the value of his book of business.

FINRA's Lien-ing Tower Investigation

As further alleged in the Complaint, James is the subject of an ongoing FINRA investigation about his purported untimely disclosure of a lien. Attendant to that alleged non-disclosure, the Complaint offers this context:

41. Very recently uncovered information evidences James' timely disclosure of the subject lien to Investacorp, and Investacorp's agreement to make the required reporting to FINRA. On September 18, 2014, James contacted compliance personnel at Investacorp via email requesting assistance with amending his Form U4 to disclose matters related to the subject lien. On December 1, 2014, Investacorp's Compliance Coordinator confirmed that she had submitted an updated Form U4 for James. See Exhibit 6, in globo. 

42. On June 4, 2015, June 8, 2015 and July 29, 2015, James contacted Investacorp's Compliance Coordinator regarding further amendment to his Form U4 to remove disclosure of a lien that had been discharged in his bankruptcy proceedings. See Exhibit 7 in globo (excerpts). 

43. Subsequent to these communications, James was not informed that his disclosure to Investacorp was deficient, or that his Form U4 had not been sufficiently updated. 

44. Based on the recently uncovered emails, it appears that Investacorp, and not James, was dilatory in disclosing the subject lien to FINRA. 

45. Investacorp has been aware of the subject lien for some time and has continued to support James, and reward his performance as a top producer. 

FINRA's Outside Business Activities Investigation

Additionally, the Complaint asserts that FINRA is also investigating James' association with an LLC unrelated to the financial services industry. As to that alleged FINRA investigation, the Complaint offers this context:

47. In the 2018 timeframe, James previously disclosed his potential involvement in the subject LLC and proposed business venture to Investacorp's compliance department, and Investacorp representatives advised that his involvement in the proposed business venture did not require disclosure to FINRA, but could require disclosure if the contemplated business activities commenced. 

48. James relied upon the advice of Investacorp's compliance department representatives. 

49. The proposed business venture did not proceed and the associated LLC was dissolved. As a result, James adhered to Investacorp's advice and no disclosure to FINRA was made. 

James Seeks TRO and PI in MDLA

Concurrent with the filing of his Complaint in MDLA, James filed a Motion for Temporary Restraining Order and Preliminary Injunction seeking the following relief:

WHEREFORE, Ian James respectfully requests this Court enter the proposed Temporary Restraining Order against Investacorp, Inc., to remain in effect for a period of fourteen days, enjoining Investacorp, Inc. as follows: 

I. Investacorp, Inc. and persons or entities acting for or in concert with it are restrained, enjoined, and prohibited from terminating, modifying, or amending the Registered Representative Agreement with Ian James, or otherwise interfering with James' performance thereunder, and/or James' performance of financial and/or investment services for his clients, including with respect to Investacorp contact with clients identified with James; 

II. Investacorp, Inc. and persons or entities acting for or in concert with it are restrained, enjoined, and prohibited from terminating James' status as a registered representative of Investacorp; 

III. Investacorp, Inc. and persons or entities acting for or in concert with it are restrained, enjoined, and prohibited from making any disparaging or derogatory statements about James, including with respect to any alleged non-compliance with industry rules or regulations by James;

IV. Investacorp, Inc. and persons or entities acting for or in concert with it are restrained, enjoined, and prohibited from violating Fla. Stat. § 501.201, et seq. with respect to James; 

V. Investacorp, Inc. and persons or entities acting for or in concert with it are restrained, enjoined, and prohibited from interfering with James' business relationships; 

VI. Investacorp, Inc. and persons or entities acting for or in concert with it are restrained, enjoined, and prohibited from reporting, publicizing or otherwise making false statements with respect to James; and 

VII. Investacorp, Inc. and persons or entities acting for or in concert with it are restrained, enjoined and prohibited from breaching the Registered Representative Agreement with James.

Victory for James

In granting James' motion for a TRO without notice, Ian James v. Investacorp Inc. (Ruling and Order, United States District Court for the Middle District of Louisiana, 20-CV-00254)
http://brokeandbroker.com/PDF/JamesMDLA200430.pdf, MDLA  found in pertinent part that:

[F]irst, Plaintiff has made a preliminary showing that he is likely to succeed on the merits of his claims, assuming he can present evidence to support them. Plaintiff acknowledges that he is the subject of an ongoing Financial Industry Regulatory Authority (FINRA) investigation for untimely disclosure of a lien levied against him and a FINRA inquiry regarding the disclosure of his association with a Louisiana limited liability company. (Doc. 2-1 at 4). However, Plaintiff alleges that prior to the inquiry, Defendant 1) advised him that it would report the lien to FINRA yet it failed to do so and 2) advised him that disclosure of his association with the LLC was not necessary. Id. Plaintiff further alleges that Defendant has indicated that it plans to make disparaging or derogatory comments about him. (Id. at 3). 

Second, Plaintiff has demonstrated a substantial threat of irreparable injury- specifically, termination and damage to his professional reputation-if the TRO is not granted. Third, this alleged threat to Plaintiff outweighs any injury to Defendant because Defendant is simply required to maintain its existing business relationship to Plaintiff. Fourth, there is no indication that granting the TRO will disserve the public interest. Public interest weighs in favor of protecting Plaintiff's livelihood during these challenging times. 

A hearing on converting the TRO to a Preliminary Injunction was set for May 4, 2020. 

Bill Singer's Comment

Ah yes . . . the old Wall Street hardball! Time and time again during my decades in the biz I've seen this particular bit of nasty gamesmanship. If you believe James' version of events, he was being strong-armed by Investacorp to sell his book of business on less than favorable terms. If you believe Investacorp's version of events, the firm simply thought it was acting in the best interests of James' clients and trying to move the rep in a direction that he was resisting but, you know, c'mon, time to pack it all in. 
It tends to track pretty much the same. First the firms "ask" the rep to consider resignation or retirement. Second, if the rep isn't persuaded, the performance evaluations suddenly drop and the need to make increasing numbers of cold calls suddenly goes to the front burner. Third, there's yet another sit-down and yet another round of subtle but persistent pressure. Fourth, the young stud is brought into the mix and it's made clear that this is the face of the future. Fifth, there's yet another sit-down, this one likely the final one with some Human Resources type present, and the demand for your security card and the immediate shut-down of your email and phone access, and then the hand under your arm from a security guard who escorts you off premises. In fairness to Investacorp, the scenario that I outlined is purely generic and for all I know, Investacorp may have acted well and James may have been a jerk. Then again -- sometimes you just gotta go with your gut and the statistics.

Regardless, it's not everyday that a registered rep turns the tables and wins a TRO against a former industry employer. Truly superb pleadings by James' lawyers:

https://www.longlaw.com/; and

Federal Court Orders Rare TRO In Favor of Terminated Rep Against Investacorp (BrokeAndBroker.com Blog)

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