Explained Award: Broker Tagged with Full Liability for Both Note Debt and Settlement of a Customer Claim
Posted on Categories Arbitration, Arbitration Awards, FINRA Code of Arbitration, Securities ArbitrationTags , , ,

Note cases are pretty common these days, but broker-dealers pursuing and winning on indemnification claims against brokers are not so common. This case has both, plus additional background and reasoning supplied by the sole Public Arbitrator’s explanations on the indemnification claim.

Within four months of John Charles Wyshak's termination, Raymond James & Associates ("RJA") initiated this arbitration proceeding to collect $232,471.05, the remaining balance on a debt that RJA called a Loan Term Agreement ("LTA"). RJA claimed that the LTA balance became due on Mr. Wyshak's termination, while Mr. Wyshak, characterizing the transaction as a "signing bonus," responded that he was unable to repay and, anyway, the reassignment of his "former book of clients" would continue to produce commissions that would offset "any obligations he may have."

Making this matter particularly noteworthy was the Amendment to the Statement of Claim, filed ten months after the SOC on July 25, 2019, in which RJA claimed an additional $700,000, plus prejudgment interest, "for indemnification of costs and expenses incurred by Claimant as a result of the [settlement of a] customer action...."

The Award: Full Recovery

Lumping the two claims together, the Arbitrator in Raymond James v. Wyshak, FINRA ID #18-03421 (Los Angeles, 10/14/19) granted a full award on the principal damages claimed, declaring Respondent liable for $932,471.05, and adding pre-Award interest at 10% from 7/2/18 to 10/2/19. Costs of $4,520.47 and attorney fees of $17,677.65, pursuant to the LTA, were also assessed against Respondent. The Arbitrator charged Mr. Wyshak $1,250, "as reimbursement for the nonrefundable portion of the claim filing fee [of $2,550]..." and all of the hearing session fees ($1,200). 

Arbitrator Findings on Indemnification Claim

The Arbitrator, an Irvine-based attorney, began with the basis for RJA's claim for indemnification During the time of his registration with RJA, broker Wyshak executed several "Ethics/Corporate Policy & Handbook Certifications," where he agreed, according to the Arbitrator, to comply with RJA's "Advisory Instructions" and that he would be "responsible for firm losses," including "the cost of defending and settling client claims, complaints, arbitrations and lawsuits if the action giving rise to the client's cause of action are attributable to the Respondent." Those undertakings extended as well to such firm losses, even if they occurred when Respondent was no longer registered with Claimant.

In fact, RJA was named as a Respondent in an arbitration filed by two of Mr. Wyshak's customers in January 2018, while he still worked for RJA. According to BrokerCheck, the customers' claimed damages were $1,023,000 and, while Mr. Wyshak was not named as a Respondent, the conduct forming the basis for the claims was "attributable to Respondent...." The SOC alleged that Respondent "engaged in '32 months of destructive churning, fraud and a variety of other trading abuses ... designed to generate excessive commissions...." RJA promptly reported the claim and, ultimately, the October 16, 2018 settlement of the claim for $700,000. From these facts, the Arbitrator concludes: "Pursuant to the Certifications and Advisor Instructions executed and agreed by Respondent during his employment with Claimant, and because the Customer Action was attributable to Respondent's actions, Respondent is obligated to indemnify Claimant and reimburse the firm...."

(ed: *Counsel for Raymond James in this matter were Robert K. Jamieson and Eric R. Feld, Wiand Guerra King, PA, Tampa, FL. **The settlement of the customers' arbitration claims occurred on October 16, 2018, just three weeks after the filing of the note case. Viewing the other dates in the continuum, one can see some deft handling and tough calls in these facts for inside counsel and management. ***We understand that many considerations impact whether to chase the broker for indemnification and it does not appear from the relatively small number of Awards that it occurs frequently; we would, however, observe that such claims are often successful, when entrusted to FINRA Arbitrators.) (SAC Ref. No. 2019-43-03)

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