Wells Fargo Crushed in FINRA Retention Award Arbitrations

April 19, 2011

In a Financial Industry Regulatory Authority ("FINRA") arbitration Statement of Claim filed in September 2010, Claimant Wells Fargo (formerly Wachovia) sought $16,280.97 plus attorneys' fees and costs from Respondent Harrill on the basis that he had breached the repayment terms of his Retention Award Agreement.  In the Matter of the FINRA Arbitration between Wells Fargo Advisors, LLC f/k/a Wachovia Securities, LLC, Claimantvs. Michael R. Harrill, Respondent (FINRA 10-04216, April 11, 2011). 

Claimant Wells Fargo appeared through Christopher S. Griesmeyer, Esq., of the law firm of Greiman, Rome & Griesmeyer, P.C, Chicago, IL. Respondent Harrill appeared without legal counsel and represented himself pro se.

Whoomp (There It Is)

In keeping with the bare-bones nature of most FINRA arbitration decisions, the FINRA arbitrator ruled that:

  1. Claimant's claims are denied in their entirety; 
  2. Claimant's request for attorneys' fees is denied;
  3. All other relief requests are denied;
  4. FINRA Dispute Resolution shall retain the $1,050.00 filing fee previously deposited by Claimant; and
  5. Claimant was assessed the $425.00 Member Surcharge.

SIDE BAR: Why? Dunno. What rationale is provided in the Decision? None. Were there any unusual facts presented? Dunno. How did the pro se Respondent employee defeat the lawyered-up Claimant employer? Dunno. 

Variation on a Theme

In another FINRA arbitration Statement of Claim filed in October 2010, Claimant Wells Fargo sought  $10,302.00 and $14,228.08 in damages that the member firm sustained as a result of the alleged breach of a:

  • Retention Award Agreement, and
  • 2009 Private Client Group Branch Manager Retention Plan.

Unlike Wells Fargo v. Harrill above, both parties came fully armed and armored to this battle. Claimant appeared through in-house lawyer Carolyn LaMar, Wells Fargo Advisors, LLC, St. Louis, MO. Respondent appeared through David J. Hase, Esq., of the law firm of Cook & Franke S.C, Milwaukee, WI. In the Matter of the FINRA Arbitration between Wells Fargo Advisors, LLC Claimant vs. Michael Sonnichsen, Respondent (FINRA 10-04702, April 11, 2011).

Whoomp (There It Is) - Remix

In yet another frustratingly terse decision, the FINRA arbitrator ruled that:

  1. Claimant's claims are denied in their entirety;
  2. FINRA Dispute Resolution shall retain the $1,050.00 filing fee previously deposited by Claimant; 
  3. Respondent is liable for and shall pay to Claimant costs in the amount of $525.00 to reimburse Claimant for one-half of the filing fee previously paid to FINRA Dispute Resolution; and
  4. All other relief requests are denied.

SIDE BAR:  Talk about having a bad day at the office! Wells Fargo had two bites at the retention apple. Apparently, Respondent Sonnichsen received payments under both a standard retention plan for retained employees and under a second retention plan for branch managers.  At worst, you're supposed to split a double-header. However, taking a page from my hapless New York Mets, Wells Fargo managed to lose both ends of this twofer.

Bill Singer's Comment

Seems that no matter what Wells Fargo did in the Harrill and Sonnichsen FINRA arbitrations, it couldn't win. 

Pro Se

In Harrill we have what is typically a slam dunk of a case for a claimant employer: A claim for repayment of a retention award against a pro se former employee. The critical points here are that Wells Fargo made the decision to file the claim, the firm was represented by a competent law firm, the respondent was not represented by a lawyer, and someone at Wells Fargo apparently was so confident in the prospects of victory that this matter was not resolved via settlement. 

We should not read too much, if anything, into the mere fact that in Harrill, Wells Fargo went to battle lawyered-up against a pro se respondent.  As a lawyer with nearly three decades of experience with these cases, I know that I have often been asked to prosecute or defend unwinnable cases - or have been handed winnable cases that my client managed to set aflame notwithstanding my best efforts to the contrary.  As such, Harrill may have been an unwinnable case from the start or Wells Fargo didn't have sufficient proof of its claims during the hearing.

On the other hand, an equally likely explanation these days is that Wells Fargo chose to play the tough guy. Regardless of the merits of the case or the existence of documentary proof, the firm may have decided to send the proverbial message that it's not going to sit idly by while former employees jump ship with unaccrued bonuses or awards.  Win, lose, or draw, Wells Fargo may have decided to impose an ordeal by fire upon employees seeking to take a hike and not repay alleged balances due. 

Lawyered Up

It may be easy to dismiss Harrill as a fluke and argue that the FINRA arbitrator was overly influenced by the David versus Goliath theme of the big, bad brokerage firm with its lawyer against the little pro se registered person.  However, there was no such scenario in Sonnischsen, where both parties were fully lawyered up - Wells Fargo through an in-house lawyer and the Respondent through a law firm.

In Sonnischsen, Wells Fargo went after its former employee for balances owed on both a retention award and a branch manager retention plan. However, it's not as if the disputed amounts of about $25,000 were relatively large.  It may well be that Respondent Sonnischsen was entirely unreasonable from Wells Fargo's perspective and left the firm with no alternative but to fully contest the case through verdict. 

On the other hand, sometimes you have to wonder whether public companies understand the concept of the "cost of doing business" as a legitimate component of the litigation equation.  As a veteran Wall Street lawyer, I often remind my clients that it's not always a question of whether you can afford to lose - to the contrary, these days with rising litigation costs and the potential for damaging publicity, it's often a question of can you afford to win.

In Harrill, the disputed amount was about $16,000; in Sonnischsen, that number was about $25,000.  It's hard to imagine that Wells Fargo incurred no costs or expenses in connection with pursuing both former employees and, at the end of the day (barring a full award of attorneys' fees, costs, and expenses), it still has to cost quite a few bucks merely to initiate the demand for repayment, collection efforts, threatened litigation, and then the litigation itself.  At some point, this posturing can get awful expense for public shareholders if the litigation losses start to pile up. At some point, someone needs to ask: Can we afford to win?

Scorch the Earth

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?

Similarly, when firms get sued by customers, former employees and managers are needed to testify in support of the company.  There's nothing like filing a FINRA arbitration against your former brokers and branch manager to ensure that they become hostile witnesses whose testimony can be devastating to the defense of the firm.  It's not unheard of for a former employee's anger over demanded repayment of a $20,000 loan to motivate damaging testimony that tips the balance of arbitrators on a panel in a six- or seven-figure customer complaint arbitration.

Further, in order to maintain the credibility of its threat to sue every former employee unless a demanded settlement is forthcoming, Wall Street employers create a monster that must continue to win every contested case.  That's simply not a reasonable expectation.  Consequently, that one loss out of one hundred cases becomes the hot topic around the water coolers and the popular attached file in thousands of emails.  Moreover, such losses become the subject of published works such as this.  The legacy of a single loss is far more meaningful than a string of wins.

Let's Go to the Numbers

Anecdotally, it seemed to me that I have been seeing Wells Fargo and/or Wachovia's name in FINRA arbitrationswith increasing regularity.  In order to confirm my feeling, I did a simply search of the FINRA Arbitration Award database for the period of January 1, 2011 through April 13, 2011.  I entered the names indicated below into that search field to see how many arbitration decisions had been reported for that period. Keep in mind that the results simply reflect FINRA arbitration decisions in which those names were mentioned and includes both public customer and intra-industry disputes. Nonetheless, it's informative and I leave it to you to draw your own conclusions:

Goldman Sachs: 4

J.P. Morgan: 6

Citigroup: 31

Merrill Lynch: 35

Smith Barney: 37

Wachovia: 38

Morgan Stanley: 42

Wells Fargo: 53