Articles Posted in Employment Issues

“My broker dealer wants me to meet with its lawyers.”  This is the start of a FINRA registered representative’s worst nightmare.

Your heart is pounding and your head starts to race.  “Why me?” “What do they want to know?”  “What could I have done?”  “Are they going to ask me about the XYZ account?”  “I’m sure that I did everything right and by the book, didn’t I?”

If you did do something that may have been a violation of the law, FINRA Rules, or the firm’s manual, you will likely begin to think about the potential punishment (fine, suspension, termination) even before you hang up the phone or close the door to your office.  Once an investigation into your conduct starts, you are not able to leave with a “voluntary” termination, but at best would be “permitted to resign during a firm investigation.”

Malecki Law announces the filing of a $10 million FINRA arbitration claim against UBS Financial Services, Inc. and UBS Financial Services Incorporated of Puerto Rico (collectively “UBS”) on behalf of former UBS Puerto Rico registered representatives, Jorge Bravo and Teresa Bravo (the “Bravos”).

In the Statement of Claim filed with FINRA, the Bravos allege that through its management (including Miguel Ferrer, Robert Mulholland and Carlos Verner Ubinas Taylor) UBS misled both its brokers and its customers about the UBS Puerto Rican closed-end funds.  In their pleading, the Bravos accuse UBS of threatening, deceiving and coercing its brokers, including them.

Specifically, the Bravos allege that they were lured away from their prior firm by UBS under the false pretense that UBS could and would help them better serve their clients.  UBS was allegedly engaged in a fraudulent course of conduct in material conflict with both its customers and its brokers, unbeknownst to the Bravos.  Over the three years they were registered with UBS, the Bravos allege that they were repeatedly and fraudulently mistreated and misled by UBS for UBS’s own benefit, until being unceremoniously forced out by the firm.

Reuters reported on February 6, 2015 that UBS in Puerto Rico held a meeting during which executives of the firm, including Miguel Ferrer, then the Chairman of UBS Financial Services Inc. of Puerto Rico, threatened financial advisors to sell UBS originated Puerto Rico closed-end bond funds despite the brokers’ and their customers’ growing concerns about “low liquidity, excessive leverage, oversupply and instability.”  According to the Reuters article, Mr. Ferrer found “unacceptable” the view of UBS financial advisors who were wary of recommending UBS funds that were loaded with debt of the Puerto Rican government.

According to the Reuters article, in a recording made by an attendee of the meeting, Mr. Ferrer reprimanded the brokers to focus on the positive aspects of the products available or “get a new job,” continuing that it was “bullshit” for brokers to claim that there were no products to sell.  Portions of the recorded meeting are available online in the Reuters article.

At the time of the recording, according to Reuters, many of UBS’s funds were highly concentrated in Puerto Rico’s debt at a time when there were concerns about the size of that debt and the weakness of the overall economy.  This recording may be beneficial to both claimants and brokers who each have hundreds of millions of dollars in damages because their claims generally alleged that there was a lack of disclosure regarding the attendant risks of bond funds underwritten by UBS.

In instances where a broker-dealer’s proprietary products fail, the brokers who are tasked with selling those failed products often suffer many customer complaints.  In these situations, the brokers often are given faulty due diligence, research and information by the firm, and sometimes even forced to sell their employing firm’s product with their jobs threatened.  Brokers have sued firms on these types of allegations, including former Morgan Keegan brokers.  A similar situation occurred with the auction rate securities debacle that began in 2008.  More recently, it appears due diligence failures and pressure may have been causes of problems for UBS brokers selling UBS Puerto Rico’s closed-end bond funds, leading to a substantial amount of customer complaints that have tarnished the reputations of many brokers in Puerto Rico.

Brokers with many customer complaints from failed products often have few options for cleaning up their professional record, which is publicly available through the Financial Industry Regulatory Authority’s (FINRA’s) CRD or Brokercheck system.  One of the options involves expungement, where the broker initiates a claim against either the broker’s firm or customer requesting that a FINRA arbitration panel “expunge” or remove the customer’s complaint from the broker’s CRD record.  A broker may also claim monetary damages, including damages for defamation for untrue statements that are made on a broker’s U-4 or U-5.

As mentioned in previous posts, once a firm’s product fails and the brokers get too many customer complaints, the employing firm may not want to keep them employed.  It may be very difficult for brokers to obtain jobs elsewhere in the industry because once a broker gets 2 to 3 complaints, they required heightened supervision, something most broker-dealers avoid if possible.

Broker-dealers may be held liable to brokers who they threatened, misled, and/or lied to about the features and relative safety of an investment sold to their customers.

The stockbroker and broker-dealer relationship can be characterized as one of agent-principal, respectively.   While many understand that an agent has a duty to his or her principal, frequently overlooked in this capacity is the duty of the principal to the agent.

In the securities world, it is known that a broker has certain and specific obligations to his firm both contractually and as agent.  Yet many industry participants are unaware of the duties the firm can be said to have to its brokers beyond those bargained for in their employment contracts.

It is no secret on Wall Street today of what is happening in Puerto Rico in connection with the devastation of the UBS Puerto Rican Closed End Bond Funds.  For many on the island and others in the 50 states, it is a whopper of a problem.

Any time there is a complete catastrophe with a product, such as there is in Puerto Rico, two sets of victims emerge.

The first is the investors who were likely misled and as a result have lost significant portions of their life savings.

The financial industry is one built on commissions on the sales side and bonuses in the back office.  While sales staff can often readily determine where they fall on the commission scale to determine their net payout, non-sales personnel do not typically have that luxury.  Non-sales employees such as product engineers, traders and the like frequently receive performance bonuses that are not tied to any predetermined scale or schedule.   Just this past week Citigroup and Bank of America reportedly shrunk their bonus pool for certain investment banking, trading and other securities related employees.

Such performance bonuses are usually understood that they are not above and beyond, but rather a necessary part of the employee’s annual compensation.  Given that many bonuses may be multiples of an employee’s relatively small annual salary, not receiving a year-end bonus can be devastating for someone who was counting on it.  Those who get “stiffed” out of their bonus may find themselves facing the year ahead with uncertainty.  Worries like “How am I going to pay my mortgage? Or my child’s tuition?” can quickly become an unfortunate reality.

The first step someone in this position usually takes is speaking with their supervisor or a representative in their company’s HR department.  If you have already done this, you were likely told that your bonus was “discretionary” and the firm did not owe you a penny.

Today, the SEC‘s new whistleblower program under the Dodd-Frank Act becomes effective, and is on the minds of many New York securities lawyers. These new rules were devised in such a way to provide an incentive for would-be whistleblowers to come forward and assist the SEC with investigations of possible securities law violations. Under these new rules, if an individual provides the SEC with original information about possible federal securities laws violations, and that information leads to a recovery by the SEC of $1 million or more, that individual would be entitled to receive up to 30% of the sanctions received by the SEC.

Under the new rules, internal reporting is encouraged, but it is not required. Individuals may instead go directly to the SEC. However, the value of internal compliance programs is addressed in the release, and there are incentives in place in the new rules to urge whistleblowers to report internally first.

There are also a few groups of individual who, for public policy reasons, are excluded from participation under the new rules. These include: compliance and internal audit personnel; officers, directors, trustees and partners who only discover the violations as a result of internal compliance procedures; public auditors who learn of the violations in the course of an engagement. However, these people may be eligible under certain circumstances, such as: they reasonably believe that disclosure is necessary to prevent the company from causing substantial injury to the property or financial interests of the company or investors; they reasonably believe that the company is impeding an investigation of the misconduct; or at least 120 days have passed since the initial internal report. Attorneys are also excluded, provided that they learned of the violations directly from attorney-client communications.

Investment News reports that FINRA has authorized its staff to propose a new rule that would ban “collective action” employment claims under the Fair Labor Standards Act or the Age Discrimination in Employment Act from arbitration. This rule would have to be approved by the SEC before it could take effect, but it has potential longterm significance for New York securities lawyers and the American workforce at large.

Collective action claims differ from class actions in that a potential plaintiff must choose to “opt in” to the lawsuit, while class actions have the effect of automatically including covered plaintiffs, but allow individuals to opt out.

FINRA has maintained that its rules do not allow for collective or class actions in its dispute resolution system, but FINRA rules only mention class actions. Federal courts have repeatedly ordered that collective action wage and hour cases be heard in FINRA arbitrations.