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Stipulated Arbitration Award Ends TD Ameritrade Solicitation Dispute
October 28, 2021
Another day and another dispute on Wall Street between a former employer and a former employee. As TD Ameritrade saw it, scorched earth was the way to go. The firm asked for every damn form of damages you can imagine plus injunctions up the wazoo. In the end, we got the smell of napalm in the morning, but by night, the parties reached a settlement and stipulated to a FINRA Arbitration Award. All of which may explain why the FINRA broker-dealer model is a smokin' mess when it comes to employment disputes.
Case in Point
In a FINRA Arbitration Statement of Claim filed in May 2021 by TD Ameritrade, Inc. against its former associated person Pagiazitis, the former employer asserted breach of contract; misappropriation and misuse of trade secrets; unfair competition; civil conspiracy; and unjust enrichment. In the Matter of the Arbitration Between TD Ameritrade, Inc., Claimant, v. Konstantinos Pagiazitis, Respondent
(FINRA Arbitration Stipulated Award 21-01174)
https://www.finra.org/sites/default/files/aao_documents/21-01174.pdf
As to the relief sought by TD Ameritrade, let's look at the enumerated paragraphs of demands:
1) Awarding TD Ameritrade compensatory damages to compensate for harm caused by Respondent's actions; and/or2) Awarding TD Ameritrade liquidated damages as set forth in Pagiazitis' CNIPO Agreement; and/or3) Awarding TD Ameritrade punitive and exemplary damages pursuant to statute and as permitted by law; and/or4) Granting an injunction, enjoining Pagiazitis, directly or indirectly, and whether alone or in concert with others, from using, disclosing, or transmitting for any purpose, including the solicitation or conducting of business or initiation of any contact with TD Ameritrade clients, the information contained in the records of TD Ameritrade, or other information pertaining to its clients, including, but not limited to, the names, addresses, email addresses, telephone numbers, personal data and financial information of the clients (excluding members of the Pagiazitis' immediate family and any customers who have signed account transfer forms); and/or5) Granting an injunction ordering Pagiazitis and anyone acting in concert or participation with him, to provide to TD Ameritrade and purge from their possession, custody and control any and all records or information pertaining to TD Ameritrade's customers, whether in original, copied, computerized, handwritten or any other form; and/or6) Granting an injunction, enjoining Pagiazitis for a time period to be determined by the Panel, directly or indirectly, and whether alone or in concert with others, from soliciting any business from, or initiating any further contact or communication with, any customer of TD Ameritrade whom Pagiazitis serviced at TD Ameritrade, and/or any customers or prospective customers whose identities Pagiazitis learned as a result of his employment with TD Ameritrade (the "Customers"), including for the purpose of advising any Customers of his new employment or for the purpose of inviting, encouraging, or requesting the Customer to divert business from TD Ameritrade (excluding members of Pagiazitis' immediate family and any Customers who have signed account transfer forms); and/or7) Awarding TD Ameritrade its attorneys' fees and costs, including but not limited to all FINRA fees, in addition to costs of any experts or other out of pocket costs borne by Claimant in the prosecution of this action; and/or8) Awarding TD Ameritrade pre- and post-award interest as permitted by law; and/or9) Awarding TD Ameritrade any other or further relief the Panel deems just and proper.
As usual on Wall Street, we got folks comin' and goin' -- and, just as usual, we got employers in a tizzy about how those folks left and what they did or didn't take and what they did or didn't say. Just going by the nine paragraphs of requested relief, TD Ameritrade feels aggrieved by Pagiazitis' departure and the firm wants compensatory, liquidated, punitive, and exemplary damages. On top of the panoply of damages, TD also wants at least three injunctions against Pagiazitis: one to restrain his use of the firm's records/information, a second to force him to purge records/information from his custody and control, and a third to prevent him from soliciting/contacting customers. Finally, in addition to damages and injunctions, TD wants fees, costs, interest, and anything else that the FINRA Arbitration Panel thinks would be just and proper.
Settling Down Per Stip
In response to TD's onslaught, Respondent Pagiazitis did not file a Submission Agreement or a Statement of Answer, but, wait, all was not lost and abandoned. In September 2021, the parties filed a Motion for Entry of a Stipulated Award, which the sole FINRA Arbitrator granted. As such, there was no evidentiary hearing and an Award was rendered as agreed to in advance by the Claimant and Respondent.
When a client contacts me about a post-employment dispute involving allegations that the whole walking-out-the-door thing didn't quite go as smoothly as planned, the most common question posed to me is "what's the worst thing that they could do to me?" At which point, I am reminded of the lovely medieval custom of first showing a prisoner the instruments of torture and afterwards inviting that poor captive the chance to just sign whatever the hell was put in front of him, thus avoiding the actual torture part of things. Much of what passes for modern-day Wall Street employment-related dispute resolution entails little more progress than putting the instruments of torture on the table.
Speaking of instruments of torture, did you catch a glance at that 9-point rack of horrors set out by TD Ameritrade? Should be enough to scare the crap out of anyone. On the other hand, Pagiazitis had hired the veteran securities industry law firm of Lax & Neville LLP, and was ably represented by Matthew C. Plant, Esq.
https://www.laxneville.com/matthew-c-plant.html and Brian J. Neville, Esq. https://www.laxneville.com/brian-j-neville.html After the litigants apparently sat down and hashed out something akin to a settlement, this is what they stipulated to:
https://www.laxneville.com/matthew-c-plant.html and Brian J. Neville, Esq. https://www.laxneville.com/brian-j-neville.html After the litigants apparently sat down and hashed out something akin to a settlement, this is what they stipulated to:
1. Through and including April 4, 2022, Pagiazitis is hereby enjoined, directly or indirectly, and whether alone or in concert with others, including any officer, agent, employee and/or representative of any other financial services firm, from: soliciting any business from, or initiating any further contact or communication with, any customer of TD Ameritrade whom Pagiazitis serviced at TD Ameritrade, and/or any customers whose identities Pagiazitis learned as a result of his employment with TD Ameritrade (the "Customers"), including for the purpose of advising any Customers of his employment or affiliation with any other financial services firm. For purposes of clarity, this paragraph I: (A) prohibits Pagiazitis from initiating contact with any Customer regardless of whether that Customer previously asked Pagiazitis to contact him/her/it in the future or otherwise expressed consent to any such future contacts; provided further, however, that Pagiazitis is permitted to initiate contact with a Customer after the execution of this Stipulated Final Injunction in response to a specific, temporally proximate, communication initiated by that Customer after the execution of this injunction. The restrictions in this paragraph shall not apply to members of Pagiazitis' immediate family and any Customers who have signed, or in the future sign, an agreement authorizing Pagiazitis to provide financial services.2. Pagiazitis is hereby enjoined, directly or indirectly, and whether alone or in concert with others, including any officer, agent, employee and/or representative of any other financial services firm from: using, disclosing, or transmitting for any purpose, including the solicitation or conducting of business or initiation of any contact with TD Ameritrade clients, the information contained in the records of TD Ameritrade, or other information pertaining to TD Ameritrade clients that he learned as a result of his employment with TD Ameritrade, including, but not limited to, the names, addresses, email addresses, telephone numbers, personal data and financial information of the clients. The restrictions in this paragraph shall not apply to members of Pagiazitis' immediate family and any Customers who have signed, or in the future sign, an agreement authorizing Pagiazitis to provide financial services.3. To the extent he has not already done so, Pagiazitis and anyone acting in concert or participation with him, including his counsel, and any agent, employee, officer or representative of any other financial services firm, are further ordered to provide to TD Ameritrade any and all records or information pertaining to TD Ameritrade's clients or its business, regardless of whether they were obtained by Pagiazitis as a result of his employment with TD Ameritrade or recreated by Pagiazitis after the termination of his employment with TD Ameritrade, whether in original, copied, handwritten or any other form, and then Pagiazitis shall purge any such records or information from his possession, custody, or control, within 24 hours of notice to Pagiazitis or his counsel of the terms of this order. The restrictions in this paragraph shall not apply to members of Pagiazitis' immediate family and any Customers who have signed, or in the future sign, an agreement authorizing Pagiazitis to provide financial services.4. The parties agree that this stipulated injunction constitutes a final arbitration award. All other requests for relief, including any requests for compensatory, liquidated, and punitive damages, that have been made by either party that are not expressly addressed herein are hereby denied. Nothing herein shall be interpreted as an admission of wrongdoing. Nothing herein shall be interpreted to nullify or contradict the terms of the settlement agreement between Pagiazitis and TD Ameritrade pursuant to which this stipulation is made
Ain't compromise grand? Everyone gives up a little sumthin', everyone gets a little sumthin', life goes on, TD Ameritrade stays in business, Pagiazitis continues to earn a living, and, hopefully, the lawyers are all paid.
As to #1 of the stipulated relief, read it over a few times. Pagiazitis is enjoined from soliciting/contacting/communicating with customers he had serviced at TD or learned about while employed there but he is
permitted to initiate contact with a Customer after the execution of this Stipulated Final Injunction in response to a specific, temporally proximate, communication initiated by that Customer after the execution of this injunction. The restrictions in this paragraph shall not apply to members of Pagiazitis' immediate family and any Customers who have signed, or in the future sign, an agreement authorizing Pagiazitis to provide financial service.
Assuming there was some non-solicitation clause in effect when Pagiazitis left TD, such a provision would never have precluded unsolicited contacts from former clients -- which is what #1 seems to restate after the fact. Also, the enjoined solicitations are only in force through April 4, 2022, which is about six months from now.
The injunctions #2 and #3 pretty much track #1 but for the April 4th sunset provision. In #2, Pagiazitis can't use TD's client-related/business-related records/information and has to purge such materials from his control, but, again, that doesn't cover immediate family or customers who sign an agreement authorizing him to provide financial services. Finally, we got #4 which is the cold water thrown on all the inflamed aspects of this employment dispute. The stipulated injunction is deemed a final arbitration award. No one admitted any wrongdoing. Also, there appears to have been a Settlement Agreement entered into between the parties, which prompted the Stipulated Award, but we don't know much about what transpired with that agreement, however, nothing in the Stipulated FINRA Award "shall be interpreted to nullify or contradict" that Settlement Agreement.
Bill Singer's Comment
At this point in my career, I am bone weary from noting my frustration with Wall Street's tired, antiquated, outdated, anti-consumer, and counter-productive approach to post-employment disputes. In an industry founded upon the bedrock of free enterprise, it is disappointing that so much effort is expended towards implementing and enforcing policies that hamstring an employee's ability to get on with his life and profession by joining another firm. Lost in this zeal to keep 'em on the farm is an appreciation for the best interests of the customers, many of whom placed their trust in the employee and would just as soon follow him to the next firm, as is their right and prerogative. Instead, Wall Street constructed a process whereby its investment professionals are often constrained from post-employment solicitation of their customers, and in the event a dispute arises, they are required to arbitrate at FINRA, which is a member organization where only the employer-firm is a member. It's not a good system. It's not a fair system. It's not a system designed to protect customers. The sole purpose of the system is to frustrate and inhibit what should be the free flow of employees among the industry's employers. Worse of all, FINRA-the-regulator is complicit by its silence and assent.
Sadly, the industry gets it all wrong. The better approach would be for employers such as TD Ameritrade to create a wonderful workplace and provide world-class support. That would serve the employer's interest of retaining the best and brightest. And when one of your employees opts for greener pastures, how about you wish them the best, thank them for their efforts, and let them know that if things don't work out at the new shop, that they're always welcome back. What never, ever seems to dawn upon the likes of TD Ameritrade is the negative impact of the publicity of a case like Pagiazitis. What veteran stockbroker with a flush book of biz would want to join a TD Ameritrade after seeing Pagiazitis' horror story? What newbie would want to join such a firm if a few years down the road, when some other employer offers more money and a better opportunity, the instruments of torture will be laid upon the table? How well did TD Ameritrade's approach work? Let's remember that in June 2020, the Charles Schwab Corporation acquired TD Ameritrade Holding Corporation. Perhaps a better run TD Ameritrade-- a fairer run company -- might have survived on its own or acquired Schwab.