Legend-ary Retirement Plan Embroils Cetera and First Allied in Federal Lawsuit

May 26, 2020

Sometimes a mess is indeed a mess. Former Legend Capital reps Cecchini and Oppedisano retired from that firm way back in 2001. They went out to pasture subject to the terms of a Legend program that promised to pay them overrides provided they remained registered. I'm not quite sure about the regulatory and compliance soundness of that policy from the perspective of 2020 but that's another issue for another article for another day. In 2017, the override spigot was turned off by someone. Legend? Maybe. Maybe not. By a firm that had acquired Legend? Maybe. Maybe not. Who the hell stopped the payments and why? Ahhh . . . now you got the gist of a FINRA arbitration and federal lawsuit!

2018 FINRA Arbitration

In September 2018, associated person Claimants James Cecchini and Albert Oppedisano filed a FINRA Arbitration Statement of Claim asserting breaches of contract, of duty of good faith and fair dealing and just and equitable principles of trade, of implied-in-fact contract; and of implied-in-fact contract' negligent misrepresentation; fraudulent inducement; unjust enrichment; promissory estoppel; equitable estoppel; and specific performance. Claimants sought in excess of $5 million in damages, interest, costs, and fees attendant to their alleged compensation owed to them pursuant to the terms of a Financial Security Program, which was purportedly in place before Respondent Lincoln Investment Planning purchased Claimants' former employer. In the Matter of the Arbitration Between James Louis Cecchini and Albert Oppedisano, Claimants, v Lincoln Investment Planning LLC, Respondent (FINRA Arbitration Decision 17-02366 / December 17, 2018)

Respondent Lincoln Investment Planning generally denied the allegations and asserted various affirmative responses. 

The FINRA Arbitration Panel denied Claimants' claims. As is the unfortunate default with  FINRA Arbitration Decisions, no rationale or explanation for the Decision is set forth in that document.

SIDE BAR: Online FINRA BrokerCheck records as of May 26, 2020, disclose that Claimant Oppedisano was registered with Legend Capital Corporation from June 1981 to January 1994; and, thereafter by Legend Equities Corporation until January 2017; and, thereafter by Lincoln Investment until February 2019. Cecchini's BrokerCheck registration records largely track the dates and affiliations on Oppedisano's.

2019 SDFL Complaints

On February 13, 2019 (about two months after the issuance of the December 2018 FINRA Arbitration Decision referenced above), Plaintiffs James Cecchini and Albert Oppedisano filed a Complaint in the United States District Court for the Southern District of Florida ("SDFL") against Cetera Financial Group, Inc., First Allied Holdings, Inc., Legend Group Holdings, LLC, Lincoln Investment Capital Holdings, LLC, Adam Antoniades, and Edward Forst, Jr. Thereafter, the Plaintiffs filed an Amended Complaint in which they removed Defendants Lincoln, Antoniades, and the Legend entities. 

On May 28, 2019, remaining Defendants Cetera Financial Group and First Allied Holdings filed a Motion to Dismiss. 

On October 28, 2019, Plaintiffs moved for permission to file a Second Amended Complaint, which asserts tortious interference with business relations and tortious interference with contract. 

So . . . what's going on with all these comings and goings of parties in and parties out and amended and further amended complaints? Let's start with the fact pattern as set forth in James Cecchini and Albert Oppedisano, Plaintiffs, v. Cetera Financial Group, Inc., and First Allied Holdings, Inc., Defendants (Order, United States District Court for the Southern District of Florida, Case No. 9:19-CV-80215) http://brokeandbroker.com/PDF/CecchiniOrderSDFL200521.pdf:

This case concerns two former employees, Plaintiffs James Cecchini and Albert Oppedisano, of Legend Group Holdings, LLC ("Legend"), a financial investment firm. Legend hired Plaintiffs to help establish the firm's 403(b) retirement savings plan market in New York. [DE 118 at ¶ 9]. Legend recruited Plaintiffs by allowing them to establish their own branch offices under a Legend program called the Legend Advisor Financial Security Program ("LAFSP" or "the Program"). [DE 118 at ¶¶ 11-16]. The Program also permitted participants to "retire on active duty" which allowed them to maintain their active securities licenses and entitled them to certain payments called "override percentages," albeit at a reduced rate, but required the "retired" employees to retire their books of business and not pursue additional clients. Id. Plaintiffs both chose to retire on active duty from Legend in 2001 and began receiving their override payments. [DE 118 at ¶¶ 18-19]. Legend's ownership changed hands in 1999 and 2012, but it continued to pay out override payments to Plaintiffs. [DE 118 at ¶¶16, 21-23]. However, shortly thereafter, Legend was again sold for a third time, this time to Defendant First Allied Holdings, Inc. ("First Allied"). [DE 118 at ¶ 23]. First Allied is owned and controlled by Defendant Cetera Financial Group ("Cetera"). [DE 118 at ¶ 24]. 

On September 12, 2016, Legend notified Program participants that it was terminating the LAFSP, effectively immediately, because Legend determined that the LAFSP was "no longer supported by regulatory guidance."[DE 118 at ¶ 26; DE 118-2]. Legend's notice stated that "[t]o the extent you are receiving overrides on any such accounts, be assured that you will continue to receive these overrides as long as you remain appropriately licensed." Id. The notice was drafted by non-party Adam Antoniades, an officer of Cetera and First Allied, along with Cetera's counsel and others, and allegedly sent at Cetera's and/or First Allied's direction. [DE 118 at ¶¶ 27-29]. Plaintiffs maintained active securities licenses and continued to receive overrides. [DE 118 at ¶¶ 18, 31]. 

Legend was then sold yet again in January 2017, this time by Defendants to Lincoln Investment Capital Holdings, LLC ("Lincoln"). [DE 118 at ¶ 30]. Nonetheless, from September 2016 to approximately July 2017, Plaintiffs continued to receive the override payments. However, on July 14, 2017, Lincoln notified Plaintiffs that "after due consideration," it determined that "there was no basis for past or ongoing payments to [LAFSP participants] of overrides," thus, "effective immediately, no further payments of these overrides will be made." [DE 118 at ¶ 31] 

Plaintiffs brought the matter to arbitration against Lincoln only, [DE 129-1], where Lincoln's President, Mr. Ed Forst, testified that the LAFSP "had been cancelled before Lincoln closed on the transaction to purchase Legend" from Defendants First Allied and Cetera, and further, that the September 12, 21016 [sic] letter "was completely at Cetera's direction" and that Cetera had required Legend to terminate the Program prior to closing. [DE 118 ¶ 33]. This litigation followed.

at Pages 1 - 3 of the SDFL Order

SIDE BAR: There's a lot going on in that brief recitation of the background leading up to the SDFL Complaint. Let's try and bullet-point the key events so as to make things a tad clearer:

  • Legend hired Cecchini and Oppedisano subject to the terms of the Legend Adviosr Financial Security Program ("LAFSP").

  • In 2001, Cecchini and Oppdeisano "retired on active duty" from Legend, at which time they were paid "override percentages" per the LAFSP.

  • In 2016 Legend notified LAFSP participants that the program was terminated subject to the proviso that Plaintiffs would "continue to received overrides . . . as long as you remain appropriately licensed." The 2016 Notice was drafted by Adam Antoniades, who was an officer of Cetera Financial Group and First Allied Holdings, Inc., the latter of which is owned and controlled by the former.

  • In 2017, Legend was sold by Defendants Cetera and First Allied to Lincoln Investment Capital Holdings, which notified Plaintiffs that on July 14, 2017, further payments of overrides was terminated.

  • At the FINRA Arbitration, Lincoln's President, Mr. Ed Forst, testified that the LAFSP had been cancelled before Lincoln closed on its purchase of Legend from Cetera/First Allied and he asserted that the the September 12, 2016 letter was prepared at Cetera's direction and that Cetera required Legend to terminate the LAFSP prior to closing.
Plaintiffs seem to have retired subject to Legend's LAFSP, which provided for payments to them of overrides; however, in 2017, the overrides were terminated. Plaintiffs sued Lincoln in a FINRA Arbitration but the arbitrators denied their claims. Perhaps seeking a second bite of the apple, Plaintiffs sued Defendants Cetera and First Allied in SDFL. Why? Perhaps the FINRA arbitration was based on the arbitration Claimants' theory that the termination of overrides was all Lincoln's fault -- which Lincoln's President Forst seems to have asserted during his arbitration testimony. The FINRA Respondent pointed the old finger at two unnamed parties -- so . . . will SDFL allow the Plaintiffs to go after the unnamed (Cetera and First Allied) in federal court? 

Motion to Dismiss

As the second bite of the apple is taken in federal court, remaining Defendants Cetera and First Allied file a Motion to Dismiss, arguing that the Second Amended Complaint fails to plead the necessary elements of tortious interference to the extent that:

(1) Defendant intentionally interfered with the relationship, and caused the third-party to not perform, and/or (2) Plaintiffs suffered damages. Alternatively, Defendants assert the affirmative defense of collateral estoppel.

at Page 5 of the SDFL Order

Suing the Hand in the Glove

In considering the underlying allegations behind the two toritious interference counts, SDFL notes in part that [Ed: footnote omitted]:

[T]he Second Amended Complaint alleges that Plaintiffs were notified that the LAFSP, the program that authorized the override payments, would be terminated by letter dated September 12, 2016. [DE 118 ¶ 26]. Plaintiffs allege that the September 12, 2016 letter was produced at the behest of Defendants, and thus Defendants caused Lincoln not to perform. The allegation is well-pleaded, and the Court credits it as true for purposes of this motion. [DE 118 ¶ 29]. Additionally, regarding the July 2017 letter, Plaintiffs allege that "[t]he purported reason basis (sic) to stop payment of the overrides was Legend's termination of the [LAFSP] at the direction of Defendants prior to the sale to Lincoln[.]" [DE 118 ¶ 32]. Thus, while the September 2016 letter did not terminate the Plaintiffs' override payments, the allegations, viewed in the aggregate, allow the Court to draw an inference that the cancellation of the LAFSP on September 12, 2016, laid the groundwork for the cancellation of the override payments and the subsequent July 2017 letter.

at Page 5 of the SDFL Order

In considering the substance of Plaintiffs' allegations as noted above, SDFL found that the Second Amended Complaint contained sufficient factual matter; and, further, that the claims are plausible and, as such, permit the Court to reasonably infer Defendants' liability from the misconduct at issue: the wrongful termination of the LAFSP and the attendant payments due. Accordingly, SDFL found that Plaintiffs' pleadings set forth the essential elements of the two tortious interference counts and declined to grant the pending Motion to Dismiss.

Blindfolding Justice(s)

Finally, SDFL then considered Defendants' argument that Plaintiffs' claims were barred under the doctrine of collateral estoppel because they were allegedly covered in a prior FINRA arbitration. In a somewhat counter-intuitive development, the Defendants attached to their Motion papers, inter alia, the FINRA Arbitration Statement of Claim, the Award, and the damning portion of the record setting forth Forst's testimony. I say counter-intuitive because it may prove to be a petard upon which Defendants are hoisted -- or, perhaps, not.

As would be expected, the Plaintiffs argue that it is inappropriate for SDFL to even consider the FINRA Complaint and Award because neither was referenced in their Complaint. To that extent, Plaintiffs appear to argue that they may have named the wrong party in their dismissed FINRA Arbitration and that it would be doubly prejudicial for the Court to consider such documents in adjudicating the pending Defendants' Motion to Dismiss.  In response to the Plaintiffs' and Defendants' arguments, SDFL found that:

In this case, the Court declines to consider the extraneous documents at this early juncture. First, it is not clear to the Court whether the contents of the documents are, or are not, in dispute. Second, Plaintiffs made no allegation related to the FINRA Statement of Claim or the FINRA award. Accordingly, those documents will not be considered on a motion to dismiss. While Plaintiffs briefly referenced the Forst testimony, that testimony appears to be cited to bolster the allegation that Defendants caused the LAFSP to be terminated, which ultimately terminated the payments due to Plaintiffs under that program. The Court finds such testimony does not qualify as an exception to the general rule that the Court is limited to the Complaint and the documents attached thereto when considering a motion to dismiss. Plaintiffs' reference to the Forst testimony was that the "President of Lincoln Investment Planning, LLC has testified under oath that [the LAFSP was terminated at the behest of Defendants.]" [DE 118 ¶ 33]. This is somewhat cumulative of other allegations in the Complaint, such as, for example, that contained in the preceding paragraph: "[t]he purported reason basis (sic) to stop payment of the overrides was Legend's termination of the [LAFSP] at the direction of Defendants prior to the sale to Lincoln[.]" [DE 118 ¶ 32]

The Court finds that the issue of collateral estoppel is best dealt with on a full record at the time of summary judgment or trial. See Cope v. Bankamerica Hous. Serv., Inc., 2000 WL 1639590, at *4 (M.D.Ala. Oct.10, 2000) (discussing Concordia v. Bendekovic, 693 F.2d 1073, 1075 (11th Cir.1982)) (collateral estoppel is an affirmative defense that typically should be raised in an answer pursuant to Rule 8(c), rather than in a motion to dismiss pursuant to Rule 12(b)(6)). Accordingly, the Court rejects Defendants' collateral estoppel argument at this early stage of the litigation

at Pages 7 - 8 of the SDFL Order

Bill Singer's Comment

Retired on active duty. Wow . . . now that's a concept that I really have to work on.

It would seem that you're either retired or you're not. Moreover, from a compliance and/or regulatory perspective, it sort of seems that, you know, a member firm might be promoting something akin to the improper "parking" of a license if you're willing to look askance at the whole idea of being actively registered. Which is not to say that you can't receive transactional compensation pursuant to a written plan of retirement but it is to say that the retirement contemplated by such ongoing comp would seem to be largely dependent upon the cessation of association by the rep with the member firm and that individual's leaving the industry; see for example, FINRA Rule 2040: Payments to Unregistered Persons https://www.finra.org/rules-guidance/rulebooks/finra-rules/2040, which in pertinent part provides:

(b) Retiring Representatives
(1) A member may pay continuing commissions to a retiring registered representative of the member, after he or she ceases to be associated with such member, that are derived from accounts held for continuing customers of the retiring registered representative regardless of whether customer funds or securities are added to the accounts during the period of retirement, provided that:
(A) a bona fide contract between the member and the retiring registered representative providing for the payments was entered into in good faith while the person was a registered representative of the member and such contract, among other things, prohibits the retiring registered representative from soliciting new business, opening new accounts, or servicing the accounts generating the continuing commission payments; and
(B) the arrangement complies with applicable federal securities laws, SEA rules and regulations.
(2) The term "retiring registered representative," as used in this Rule shall mean an individual who retires from a member (including as a result of a total disability) and leaves the securities industry. In the case of death of the retiring registered representative, the retiring registered representative's beneficiary designated in the written contract or the retiring registered representative's estate if no beneficiary is so designated may be the beneficiary of the respective member's agreement with the deceased representative.

A personal note from Bill Singer, BrokeAndBroker.com Blog:

Stephen A. Kohn is running as a candidate for the 2020 Financial Industry Regulatory Authority ("FINRA") Small Firm Governor seat on the self-regulatory organization's Board. Stephen has demonstrated a persistent and consistent record as an unabashed advocate for industry reform and effective regulation. He is not running for office in order to burnish his resume. Without question, Stephen seeks a Board seat in order to shake things up, to force consideration of reforms that are long overdue, and to make sure that someone fights for the legitimate needs of FINRA's besieged small firms.  

I supported Stephen's successful candidacy for the 2017 FINRA Small Firm Governor seat and support his bid for a second term in 2020. I urge all Securities Industry Commentator and BrokeAndBroker.com Blog readers to press their FINRA member firm's Executive Representative to support Stephen's candidacy for the Board.
As set forth in part "Upcoming FINRA Board of Governors Election / Petitions for Candidacy Due: June 22, 2020" (FINRA Election Notice / May 8, 2020)

Petition Process for Additional Candidates

A person who has not been nominated by the Nominating Committee for election to the FINRA Board may be included on the ballot for the election of governors if:

a. within 45 days after the date of this Election Notice (Monday, June 22, 2020), such person presents to FINRA's Corporate Secretary petitions in support of his or her nomination, duly executed by at least 3 percent of FINRA member firms entitled to vote for such nominee's election. If, however, a candidate's name appears on a petition in support of more than one nominee, the petition must be endorsed by 10 percent of FINRA member firms entitled to vote for such nominees' election; and

b. the Corporate Secretary certifies that such petitions have been duly executed by the executive representatives of the requisite number of FINRA member firms entitled to vote for such person's election, and the person being nominated satisfies the classification of the governorship to be filled.

As of the close of business on Thursday, May 7, 2020, the number of FINRA large firms was 166, and the number of small firms was 3,165. Therefore, the requisite number of petitions for a large firm petitioner is 5, and the requisite number of petitions for a small firm petitioner is 95.

Firms may only endorse one petitioner for the same firm size seat as their own. No firm may endorse more than one such petitioner.

Petitioners must submit sufficient information to determine the person's status with respect to the category for which he or she is petitioning to be nominated. Individuals seeking nomination for election as a Large Firm Governor or a Small Firm Governor have an obligation to satisfy the firm-size classification on the date the petition is circulated, the date the petitions are certified by FINRA's Corporate Secretary, and the date of the annual meeting. Individuals who fail to meet this requirement will be disqualified from election. 

Petitioners must also provide information sufficient for the Corporate Secretary to determine that the petitions are duly executed by the executive representatives of the requisite number of applicable size firm members. In addition, to assist in the process of verifying petitions, FINRA requests that all petitions submitted be dated by their signatory.

Petitions must be submitted no later than Monday, June 22, 2020.

The names of persons obtaining the requisite number of valid petitions will be included on the appropriate proxy mailed to eligible firms in advance of the annual meeting. . . 

URGENT: Petition to Nominate Stephen A. Kohn for Small Firm Seat on FINRA Board of Governors /  2020 Election

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