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New York Securities Lawyer Blog - Breaking Cases


On November 6, 2018, Nicolas Finn, a former Credit Suisse investment adviser represented by Lax & Neville LLP, won a FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation. On November 27, 2018, Credit Suisse petitioned the New York Supreme Court (Commercial Division) to vacate the Finn Award on grounds of arbitrator misconduct and manifest disregard of the law. See Credit Suisse Securities (USA) LLC v. Nicholas B. Finn, CV 655870/2018. The Honorable Judge Jennifer Schecter, by order dated April 24, 2018, denied the Petition to Vacate in its entirety and entered judgment for Mr. Finn.

Credit Suisse is currently being sued by dozens of its former investment advisers in connection with the 2015 closure of its US private bank. Four FINRA Panels have issued awards thus far, all of them finding Credit Suisse terminated its advisers without cause and ordering it to pay deferred compensation. This is the first time a court has heard Credit Suisse's defenses to the Credit Suisse Deferred Compensation Arbitrations.

Credit Suisse contended that the Finn Panel acted in manifest disregard of the law on two issues. First, Credit Suisse argued that Mr. Finn resigned as a matter of law when he left Credit Suisse on November 23, 2015, a month after Credit Suisse announced it was closing its private bank. Under the terms of Credit Suisse's contracts with its investment advisers, deferred compensation is cancelled immediately upon voluntary resignation but vests immediately upon termination without cause. The evidence at arbitration overwhelmingly established that Credit Suisse both structured the closure of the private bank and deliberately concealed and misrepresented material information in order to mischaracterize its advisers as having "resigned" after they were given no option but to leave Credit Suisse. It then cancelled more than 95% of its advisers' deferred compensation, amounting to almost $200 million. The Finn Panel rejected Credit Suisse's argument that Mr. Finn resigned voluntarily and ordered expungement of "Voluntary" termination from his Form U-5. The Panel recommended that the Form U-5 be amended to state that the reason for termination was "Termination Without Cause."

Having reviewed the record, including ten days of testimony and more than a hundred internal Credit Suisse documents, the Court observed that Mr. Finn had no option but to leave Credit Suisse and that the Panel was not in manifest disregard of the law when it found he was terminated involuntarily.

Second, Credit Suisse argued that even if Mr. Finn was terminated without cause, immediately vesting 100% of his deferred compensation, he was "made whole" when he accepted employment with UBS. As part of his hiring package, Mr. Finn was to receive forgivable promissory notes over the course of nine years provided he remained an employee in good standing at UBS and met a production target. In effect, Credit Suisse contended that, as a "matter of black letter law," Mr. Finn must work 9 years for UBS in order to pay off Credit Suisse's debt to Mr. Finn.

The Court disagreed, finding that even in the event Mr. Finn remains at UBS for 9 years and receives 100% of his UBS compensation "[h]e will have earned it from UBS and he will have earned it from Credit Suisse." It held that the Panel did not act in manifest disregard of the law when it found there was no "mitigation" of a vested right to compensation by Credit Suisse.

Credit Suisse owes more than $100 million in deferred compensation to investment advisers who joined firms other than Wells Fargo after Credit Suisse terminated them without cause. To discuss this matter, please contact Barry R. Lax, Brian J. Neville, Sandra P. Lahens or Robert R. Miller at (212) 696-1999.


On April 6, 2016, the Department of Labor ("DOL") issued its final rule expanding the "investment advice fiduciary" definition under the Employee Retirement Income Security Act of 1974 ("ERISA"). The rule, which is effective April 10, 2017, has already had significant impact on the wealth management business and advisers should be particularly aware of changes to recruitment and compensation.

The rule modifies the Best Interest Contract Exemption ("BIC"), under which the DOL permits financial advisers and their firms to engage in otherwise prohibited transactions. When the rule was issued last year, many firms were concerned that the revised BIC would create unacceptable liability risk on commission-based retirement accounts and prohibit back-end performance-based incentives altogether. The DOL has now confirmed that the back-end incentives, such as bonuses for meeting asset or sales targets, will no longer be exempted under the BIC.

On October 27, the Department issued a FAQ regarding the new rule. Question 12 addressed recruitment incentives:

Such back-end awards can create acute conflicts of interest that are inconsistent with the full BIC Exemption's requirement that financial institutions adopt policies and procedures reasonably and prudently designed to ensure that individual advisers adhere to the exemption's impartial conduct standards. In particular, under the full BIC Exemption, financial institutions may not use or rely on bonuses, special awards, differential compensation, or other actions or incentives 'that are intended or would reasonably be expected to cause Advisers to make recommendations that are not in the Best Interest of the Retirement Investor.'

(Department of Labor, Conflict of Interest Exemptions FAQs, Q12). Of chief concern to the DOL is the "all or nothing" production targets of these awards, which tie a significant percentage of an adviser's compensation to the advice he or she gives individual clients, "particularly as the adviser approaches the target." This can pit a client's interest in a given investment decision, which may be comparatively minor in dollar terms, against the adviser's interest in a grossly disproportionate bonus. Accordingly, the FAQ distinguishes between front-end signing bonuses and incremental commission formulas, which do not create these disproportionate incentives, and back-end awards that tie large jumps in compensation to specific performance targets.

Recognizing that these back-end bonuses are common in the industry and were previously lawful, the DOL has advised that deals predating its guidance will be grandfathered. To qualify, however, a back-end bonus cannot be discretionary. More seriously, the firms are required to adopt "special policies and procedures specifically aimed at the conflicts of interest introduced by the arrangements and designed to protect investors from harm. These policies and procedures should establish an especially strict system of supervision and monitoring of conflicts of interest, particularly as the adviser approaches sales targets."

For advisers with current deals whose firms face this new regulatory burden, there may be pressure to renegotiate or surrender awards. Advisers moving or contemplating moving, meanwhile, will face a new recruiting environment, as firms cope with the expanded fiduciary rule in different ways. Morgan Stanley will continue to offer commission-based retirement accounts with a narrower platform of products, for example, while Merrill Lynch has already announced that it will eliminate the commission-based option entirely.

Our team at Lax & Neville LLP has extensive experience navigating compensation and regulatory issues on behalf of investment advisers. If you have an employment compensation agreement with deferred compensation or back-end bonuses based upon performance metrics, or are currently moving firms or considering moving firms, please contact us at 212-696-1999 to schedule a consultation.


Lax & Neville LLP is representing many financial advisors against their former employer, Credit Suisse Securities (USA) LLC's ("Credit Suisse"), for unpaid deferred compensation.

After months of rumors and speculation, on October 20, 2015, Credit Suisse confirmed that it was closing its U.S. Domestic Private Banking business and announced that it was entering into an exclusive recruiting arrangement with Wells Fargo & Company ("Wells Fargo"). For years Credit Suisse required its financial advisors to defer a certain percentage of their annual compensation for several years as an incentive for the advisors to voluntarily continue their employment with Credit Suisse. Therefore, if a financial advisor voluntarily resigned or was terminated for cause, that advisor would forfeit the compensation that was deferred. However, upon death, disability or termination without cause, as is the case in the closing of the business, the deferred compensation would vest immediately. Credit Suisse has failed to pay the constructively discharged financial advisors who were terminated without cause their deferred compensation. Credit Suisse's position is this: if financial advisors left after Credit Suisse announced the closing of its U.S. Domestic Private Banking business and went to Wells Fargo, such advisors would receive their deferred compensation; however, if an advisor left after the announcement to join another broker-dealer, that advisor would forfeit the deferred compensation. We believe that Credit Suisse's actions are unjustified, illegal and unconscionable. Credit Suisse is assuming that some wronged financial advisors will simply walk away. If that happens, Credit Suisse receives a windfall reward for violating employees' rights. We implore former Credit Suisse financial advisors to not let that happen, and please call Lax & Neville LLP immediately at (212) 696-1999 to recover that which is rightfully and legally yours.


Lax & Neville LLP is investigating claims on behalf of investors regarding possible sales practice abuses in connection with Merrill Lynch's sale and marketing of their Strategic Return Notes.

Strategic Return Notes, issued by Bank of America, are structured notes linked to a complex proprietary volatility index ("VOL"). The VOL attempts to calculate the volatility of the S&P 500 (i.e., how drastically the S&P 500 changes in a given time frame) and compensates investors accordingly. The SEC recently announced that Merrill Lynch agreed to a $10 million settlement in response to charges that it made misleading statements in materials provided to retail investors of the Strategic Return Notes. Specifically, the written materials provided by Merrill Lynch inappropriately failed to disclose a quarterly cost of 1.5% tied to the value of the volatility index. In addition to the SEC settlement, FINRA fined Merrill Lynch $5 million for "negligent disclosure failures" that materially misled customers that invested in the Strategic Return Notes. FINRA stated that had they been disclosed, a reasonable retail investor would have considered these costs when buying the notes.

Structured products, such as the Merrill Lynch Strategic Return Notes, are risky and complex investments that may not be suitable for all investors. If you have lost money investing in Merrill Lynch's Strategic Return Notes or structured products issued by another brokerage firm, or have information about the marketing of Merrill Lynch's Strategic Return Notes or structured products issued by another brokerage firm, please contact Lax & Neville LLP at (212) 696-1999.


Lax & Neville LLP is investigating claims on behalf of investors regarding possible securities law violations in connection with various broker-dealers’ sale and marketing of oil and natural gas structured notes, master limited partnerships (“MLPs”), funds, exchange-traded funds (“ETFs”) and private drilling programs.

According to media reports and lawsuits recently filed by investors, various broker-dealers recommended that their clients invest in oil and natural gas related investments, such as Kinder Morgan Energy Partners (KMP), Energy Transfer Partners (ETP), Energy Product Partners (EPD), Plains All American Pipeline (PAA), Magellan Midstream Partners (MMP), Buckeye Partners (BKE), Noble Energy (NE), Williams Partners (WPG), Regency Energy Partners (RGP), ONEOK Partners (OKS), MarkWest Energy Partners (MWE), Linn Energy (LINE), Encore Energy Partners (ENP), Cheniere Energy Partners (LQP), Penn West (PWE), Pengrowth Energy Trust (PGH), DCP Midstream Partners (DCP), NuStar Energy Partners LP (NS), NGL Energy Partners (NGL), Valero Energy (VLO), Chesapeake Energy (CHK), Freeport-McMoran (FCX), Alpha Natural Resources (ANR), Anadarko Petroleum (APC), and Marathon Oil (MRO), Alerian MLP ETF (AMLP), JP Morgan Alerian MLP Index ETN (AMJ), First Trust North American Energy (EMLP), EV Energy Partners (EVEP), Transamerica MLP Fund (TMLAX), Yorkville High Income MLP (YMLP), UBS Alerian MLP (MLPI), Clearbridge Energy Fund (CEM), and Credit Suisse X-Links Cushing MLP Infrastructure (MLPN).

These investments were marketed to investors as safe, income-generating investments. However, in reality, these oil and natural gas related investment products are risky, illiquid and complex investments that are unsuitable for conservative and even some moderate investors who were concerned with preserving principal. Within the last year, such investments have lost, in some instances, more than 50% of their value as a result of the sharp decline of the oil and commodities markets, and numerous income-producing investments have ceased to yield dividends, in contravention of the promises and representations by broker-dealers that investors would be receiving income from certain investments and that their principal would be protected. Some investors were even reportedly told that their investments were not linked to oil price volatility because the underlying companies generated consistent revenue from other sources. While investors have suffered alarming losses in the oil and natural gas related investments, broker-dealers such as Citigroup, Barclays, Wells Fargo, Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, Morgan Stanley, UBS and JP Morgan have made approximately $1.1 billion in fees and commissions from selling these products.

If you have lost money investing in these products or have information about broker-dealers’ or banks’ marketing and sale of these products, please call Lax & Neville LLP, (212) 696-1999.


On June 8, 2015, Stifel Financial Corp. (“Stifel”) announced that it is set to acquire Barclays’s Wealth and Investment Management, Americas business (“Barclays Wealth Management”) through a definitive purchase agreement.

Barclays Wealth Management has approximately 180 financial advisors managing near $56 billion in client assets. Barclays Wealth Management’s business is centered in New York, but it also operates out of 11 other branch offices nationwide.

Stifel is a financial services holding company with its headquarters located in St. Louis, Missouri. In the United States, Stifel’s broker-dealer clients are currently served through Stifel, Nicolaus & Company, Inc., Keefe Bruyette & Woods, Inc., Miller Buckfire & Co., LLC, and Century Securities Associates, Inc.

Subject to regulatory approval, the deal is expected to close in November of 2015.

Our team at Lax & Neville LLP has represented hundreds of registered representatives in their transitions between firms, including many registered representatives from Barclays Wealth Management. When a broker-dealer, such as Barclays sells its wealth management business, that transaction may create many legal issues for its registered representatives and their clients. If you are a Barclays Wealth Management registered representative with questions regarding the implications of Stifel’s acquisition of Barclays Wealth Management and potentially transitioning to a new firm, call our offices today at (212) 696-1999.


Lax & Neville was recently retained by an investor to file a claim regarding alleged sales practice abuses by Gilford Securities Inc. ("Gilford"), a broker-dealer, and Adam Coblin ("Coblin"), CRD# 2005853, one of its former financial advisors who resigned in July 2013 while under review by Gilford for customer complaints. We believe that Coblin may have engaged in similar sales practice abuses with many of his customers and are currently investigating whether Coblin churned and charged excessive commissions in his customers' brokerage accounts, and whether he sold unsuitable securities such as Delcath Systems, Prospect Global Resources or Vivus Inc. to customers. It should be noted that according to Coblin's FINRA BrokerCheck Report, several customers have recently filed customer complaints against him based on alleged sales practice abuses. For example, one of his former customers filed an arbitration claim against him and Gilford in November 2012 alleging compensatory damages of $910,555 as a result of alleged unsuitable investments and excessive trading. Gilford settled that matter for $375,000 in September 2013. Another customer filed an arbitration claim against Gilford and Coblin in October 2013 alleging compensatory damages of $133,000 as a result of alleged misrepresentations, unsuitability, unauthorized trading and other sales practice abuses. That claim and other customer complaints against Coblin are still pending.

If you are a current or former customer of Gilford or Coblin and believe sales practice abuses occurred relating to your account, please contact Lax & Neville LLP at (212) 696-1999 for a free consultation.


Lax & Neville LLP is investigating claims on behalf of investors regarding possible sales practice abuses in connection with UBS Financial Services Inc.'s sale and marketing of various highly leveraged closed-end bond funds to customers in Puerto Rico.
According to media reports and lawsuits filed against UBS by investors in Puerto Rico, UBS recommended that its clients invest in highly leveraged, risky closed-end bond funds that were heavily invested in Puerto Rican municipal debt, such as the Tax Free Puerto Rico Fund II. These closed-end bond funds had a leverage ratio of approximately 50%, which means that for every dollar of customer assets the fund holds, it has approximately another dollar of assets bought with borrowed money. By way of comparison, an average leverage ratio on funds similar to UBS's in the U.S. is approximately only 20%. To make matters worse, UBS brokers encouraged clients to borrow money on margin or through the use of credit lines to invest in the funds, which essentially doubled the leverage and increased the riskiness of the investments. The value of these risky highly leveraged closed-end bond funds managed by UBS have declined in value by approximately 50% or more, resulting in losses to investors. UBS's clients have been forced to liquidate hundreds of millions of dollars in holdings in the bond funds to meet margin calls. Numerous lawsuits have been filed against UBS, and many more are expected to come. If you have lost money investing in leveraged bond funds in Puerto Rico or have information about UBS's marketing and sale of these leveraged bond funds, please call Lax & Neville LLP, (212) 696-1999.

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