April 15, 2011

Wells Fargo Crushed
in FINRA Retention Award Arbitrations

As you may note from prior blogs, I'm not a big fan of brokerage firms routinely suing their former employees for disputed forgivable loan or retention balances. My emphasis here is on the word "routinely." Some brokerage firms seem to think that playing the tough guy has merits and sends the proverbial message. Okay, as far as that goes, it's not necessarily a bad strategy; however, it has a few notable drawbacks. When a firm adopts a scorch-the-Earth policy in terms of former employees, it creates a reputation of being vindictive. The problem with such a reputation is that it often discourages veteran brokers from joining the firm because they fear similar retaliation if they plan to move. I mean, seriously, do you think that a senior broker with a significant book of business is going to be attracted to a potential broker-dealer with a reputation for going hammer and tong after departing employees?

WexTrust Case Ends
In a Whimper of Pleas and Sentencings

Beginning in 2003, Byers, Joseph Shereshevsky (a principal and the former Chief Operating Officer of WexTrust Capital) and others, raised money from investors pursuant to private placement offerings. So far so good. However - and this is the big "but" - substantial amounts of those raised funds were diverted to purposes other than those for which the investments were solicited.

For example, in one private placement, Byers and others raised approximately $9.2 million in investor funds by representing that the funds would be used to purchase and operate seven commercial properties that were leased to the United States General Services Administration ("GSA"). The private placement memorandum for that deal stated that the $9.2 million together with a mortgage of approximately $21 million would be used to purchase the seven GSA properties and cover related acquisition expenses. However, the seven GSA properties were never purchased. In furtherance of the unauthorized diversion of the investors' funds, Byers and others later agreed to make up a story that they would then tell the GSA investors regarding what happened to their investment.

When Off the Clock is On the Record

OK, a little refresher course.

Outside Business Activities: Registered persons who intend to accept compensation (or have the reasonable expectation of such); or who intend to become an employee, independent contractor, sole proprietor, officer, director or partner of another person/entity, must provide prior written notice to their member firm (typically on a required form).

Away Accounts: Prior to opening an account or placing an initial order for the purchase/sale of securities with another member, an associated person must notify in writing both the employer member and the executing member of the association with the other member. For accounts existing prior to association, such notice must be undertaken promptly after becoming so associated.