Former Cetera Rep Sues AdvisorNet Financial Over Alleged Supervision and Compliance Failures

From 1989 to 2016, Welo worked for a variety of firms as a licensed securities agent. Id. ¶ 2. Under her business model, Welo traveled throughout North Dakota to assist investment clients while her office staff handled administrative tasks. Id. ¶¶ 7, 8. 

In February 2015, Cetera Advisor Networks LLC ("Cetera") hired Welo as a registered General Securities Representative. ¹ Id. ¶¶ 2, 7. AdvisorNet was the transition team, which transferred Welo's files to Cetera.² Id. ¶ 8. Welo alleges that during this transition, AdvisorNet representatives instructed her staff to obtain blank signed client forms and place them into client files. Id. Welo further alleges these actions were taken without her knowledge or approval. Id.

During Welo's employment with Cetera, AdvisorNet served as her Office of Supervisory Jurisdiction ("OSJ"). Id. ¶ 3. As OSJ, AdvisorNet assumed responsibility to supervise Welo's advisors and administrative staff. Id. ¶ 9. To ensure Welo's advisors and staff conducted business properly, AdvisorNet had the duty to maintain an ongoing presence in her office. Id. ¶ 10. Specifically, AdvisorNet had the duty to review customer files and general office operations to ensure Welo's staff followed proper business practices. Id. AdvisorNet also had the duty to ensure Welo's advisors and administrative staff followed Cetera's internal policies, along with all federal, state, and Financial Industry Regulatory Authority ("FINRA") rules and regulations. Id. ¶ 9. For serving as OSJ, Cetera paid AdvisorNet a percentage of Welo's gross commissions. Id. Welo, a busy traveling securities representative at the time, relied on AdvisorNet to diligently and skillfully complete its supervisory and compliance duties. Id. ¶ 10. Welo claims that AdvisorNet neglected, and ultimately failed, in its supervisory and compliance duties over her office. Id. ¶ 11. 

In August 2016, Cetera's internal review of Welo's office revealed blank signed client forms in client files. Id. Cetera also discovered that, without Welo's knowledge or consent, one of her assistants allegedly signed Welo's name on customer account paperwork. Id. Cetera further learned Welo's office allegedly failed to comply with Cetera's data protection and communication policies. Id. Welo claims any alleged failed compliance with Cetera's data protection and communication policies occurred "on AdvisorNet's watch." Id. The allegations "shocked" Welo because Cetera's internal review occurred within the time period covered by a previous clean AdvisorNet audit.³ Doc. No. 1-2, ¶ 13. 

These results prompted Cetera to terminate Welo and file a U-5 form with FINRA, alleging violations of securities industry rules, regulations, and standards of conduct. Id. ¶ 14. According to Welo, the filing of the U-5 form is a "scarlet letter" for a securities representative and all but ensures the representative will never work in the securities industry again. Id. Welo claims AdvisorNet was responsible for preventing these alleged violations. Id.

After Cetera terminated Welo, she lost her entire book of business, which at that time was valued at $1,170,000. Id. ¶¶ 15, 16. Welo alleges AdvisorNet's compliance and supervisory failures destroyed her career and her primary source of income. Id. ¶ 15. Through FINRA arbitration, Welo and Cetera settled, on confidential terms, the disputes regarding Cetera's handling of her termination. Id. ¶ 17. AdvisorNet was not a party to the arbitration, settlement agreement, or release. Id. 

On November 15, 2019, Welo filed her Complaint in Cass County District Court. Doc. No. 1-2. Welo's complaint pleads four causes of action: (1) negligence, (2) breach of contract, (3) unjust enrichment, and (4) declaratory judgment. AdvisorNet removed the case to federal court on December 16, 2019. Doc. No. 1. AdvisorNet then filed answer on January 15, 2020. Doc. No. 5.

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Footnote 1: Prior to joining Cetera, Welo successfully completed a Financial Industry Regulatory Authority ("FINRA") examination. Id. ¶ 7. 

Footnote 2: Welo alleges that AdvisorNet is a separate and distinct entity from Cetera, sharing no common ownership or control. Id. ¶ 3 Welo alleges that AdvisorNet is a separate and distinct entity from Cetera, sharing no common ownership or control. Id. ¶ 3

Footnote 3: Prior to August 2016, AdvisorNet conducted two clean audits of Welo's office. Id. ¶ 13.

AdvisorNet makes four primary arguments in its motion to dismiss. First, AdvisorNet argues that the Court should dismiss Welo's negligence claim because Welo failed to allege that AdvisorNet is a broker-dealer and owes a duty to Welo. Second, AdvisorNet asserts that Welo's breach of contract claim should be dismissed because Welo failed to plead facts that establish a contract. Third, AdvisorNet argues that the Court should dismiss Welo's unjust enrichment claim because Welo has an adequate remedy at law for the exact harm alleged because Welo filed and settled a previous lawsuit with Cetera. Lastly, AdvisorNet argues that each of Welo's claims should fail because Welo has not alleged facts that support the existence of an agency relationship between AdvisorNet and any individuals with an alleged supervisory duty.

the origin of the parties' relationship, how AdvisorNet became the OSJ, who signed the agreement, what was the consideration for the agreement, when the agreement was signed, how the agreement was breached and how Welo, as a registered representative for Cetera, was capable of contracting for a principal to supervise her work when that duty belongs to Cetera as a matter of law. Welo responds by arguing that she properly pleaded the existence of an oral contract.

At this stage, Welo need only allege a plausible breach of contract claim. The Court finds she has done so. In her Complaint, Welo alleges AdvisorNet entered into an agreement with her to serve as the OSJ for her office. Doc. No. 1-2, ¶ 24. Welo further claims that Cetera paid AdvisorNet a percentage of Welo's gross commissions as consideration for its services as OSJ. Id. ¶ 9. Welo alleges AdvisorNet breached its obligations under the agreement by, among other things, failing to perform its contractual duties to supervise and assure all advisors and administrative staff in Welo's office followed Cetera's internal policies, along with all federal, state, and FINRA rules and regulations. Id. ¶ 26. Finally, she asserts that damages resulted from the breach. Id. ¶ 27. Collectively, those allegations are sufficient to sustain Welo's breach of contract claim, and AdivsorNet's arguments to the contrary create a genuine dispute of material fact inappropriate for resolution on a Rule 12(c) motion.

Additionally, while Welo engaged in FINRA arbitration with Cetera, they ultimately settled the matter on confidential terms and executed a settlement agreement and release. Doc. No. 1-2, ¶ 17. Whether there was any agreement between Welo and Cetera or AdvisorNet and Cetera that could somehow preclude Welo's equitable claim against AdvisorNet is a question of fact that the Court will not decide at this stage of litigation. 

Turning to the claim itself, Welo alleges AdvisorNet benefited from and was enriched by receiving a percentage of her gross commission. Id. ¶ 29. Welo further claims she was impoverished by, among other things, AdvisorNet's failure to provide her with proper and necessary services. Id. ¶ 30. While AdvisorNet takes issue with the fact that Cetera-not Welo-paid AdvisorNet, the payment itself was a percentage of Welo's gross commissions. See id. ¶ 8. In these circumstances, the Court finds Welo's unjust enrichment claim is plausible. Furthermore, judgment under Rule 12(c) is appropriate only if no material issue of fact remains. The threshold issue of whether an oral contract exists is a question of fact, rendering judgment under Rule 12(c) inappropriate at this time. 

Here, the Complaint alleges that AdvsiorNet and/or its representatives instructed Welo's staff to obtain blank signed client forms and place them into client files. Doc. No. 1-2, ¶ 8. Welo alleges these actions were taken without her knowledge or approval. Id. Additionally, without Welo's knowledge or consent, one of her assistants allegedly signed Welo's name on customer account paperwork. Id. ¶ 11. Welo claims any alleged failed compliance with Cetera's data protection and communication occurred "on AdvisorNet's watch." Id. Welo claims AdvisorNet was responsible for preventing these alleged violations. Id. ¶ 14. These allegations are sufficient to support a plausible agency relationship. 

• Welo
• Cetera Advisor Network
• AdvisorNet Financial
• Transition Team
• OSJ
• FINRA
• Arbitration
• Blank Forms
• Negligence
• Breach of Contract
• Unjust Enrichment
• BrokeAndBroker
• Bill Singer