Peek-Behind Award: Finn v. Credit Suisse Securities (USA) — Compensation Deferred or Denied?
Posted on Categories Arbitration, Arbitration Awards, Broker-Dealer, Securities ArbitrationTags , , , ,


We hear there are dozens of these cases against CSS for unpaid deferred compensation. This Award provides a bird’s eye view of the issues at play and the arguments for and against payment. The Panel's Award in the matter supplies no reasoning, but we do have the pleadings from this arbitration proceeding (FINRA ID #17-01277 (NYC, 11/6/18)) from which to glean the facts, as alleged by the two parties. 

First, the Award

Claimant Nicholas Brine Finn asserted in an Amended Statement of Claim that Respondent CSS’s conduct caused him damages equal to his unpaid earned deferred compensation of at least $800,000, plus attorney fees, prejudgment interest, costs, New York Labor Law damages and reformation of his Form U5 Notice of Termination. At the close of hearing, these claims translated to a minimum of $975,530.75 in compensatory damages, and a total claim of $3.7 million. CSS counterclaimed, charging breaches and seeking damages as well -- expressed in the millions, but not otherwise specified. It denied Claimant’s charges and asked for dismissal with prejudice. The mixed Panel of arbitrators held CSS liable for $975,530 in compensatory damages. It recommended a change to the reason for termination on the Form U5 from "Voluntary" to "Other," specifically "Termination without cause." CSS's counterclaim was denied and pre-hearing and hearing session charges totaling $27,300 were assessed against CSS. 

Claimant’s View of the Case

Under the provisions of Mr. Finn's deferred compensation agreement, both vested and unvested deferred compensation would be his if a "change of control" occurred or he was terminated by CSS without cause. If he resigned voluntarily, he would sacrifice his deferred compensation package. He did leave to join UBS in November 2015. He did so, however, after CSS publicly announced that it was shuttering its wealth management business. By March 31, 2016, it had done just that. CSS characterized this shutdown as a "mass layoff" to DOL and a "business closure" to its investors and the public, but in its U-5 filings, correspondence, and in litigation, CSS has asserted that brokers who left had "voluntarily" resigned.

No Choice But to Leave

Mr. Finn further contended that had to leave. CSS plans to close his division were irrevocable. His clients were nervous and asking questions, and his livelihood was at stake. CSS had arranged an "exclusive recruiting agreement" with Wells Fargo, which would permit him to transfer to Wells with a CSS "onboarding" package in hand, but the Wells Fargo side of the package was meager by industry standards, he would have had to sign a release of claims as part of the "onboarding" payments, and, most importantly, his clients would not have been well-served. Wells Fargo is a "retail bank;" it did not offer "products Mr. Finn routinely relied upon to serve his clients" and his clients were "uncomfortable with Wells Fargo." Besides, Wells Fargo never made him an offer. CSS had made its decision; as a consequence, Mr. Finn had to act and there was no advantage to either party in waiting.

Respondent’s View of the Case

Mr. Finn is an experienced and sophisticated financial professional. When CSS announced in October 2015 that it was "transitioning its Private Banking USA business ... to Wells Fargo Advisors LLC, Claimant "chose to turn down employment" there. Instead, he "chose to resign without notice" and accept "an even more generous compensation package" with UBS. He suffered no economic harm as a result and "his deal with UBS left him in a better financial position than he otherwise would have been." His position that "he was somehow 'constructively discharged,' or that he had no option but to resign is not supported by the facts or the law."

As for the package available under the Wells Fargo arrangement, it was "extremely generous by industry standards --- generally equating to 300% of [a broker's] trailing twelve-month production, including a large upfront loan and back-end performance targets...." The beauty of the arrangement was its offer of a "smooth transition," with plenty of time for brokers and clients to "evaluate the Wells Fargo platform." Credit Suisse, for its part, contributed a "voluntary payment to the [brokers] to effectively make them whole for any contingent deferred awards that would otherwise be cancelled because they were resigning as long as they signed a document...."

Finally, CSS claimed that Mr. Finn both sacrificed his rights under the "operative deferred award certificates" and caused CSS damages (for which it counterclaimed), by leaving without notice, failing to refrain from disclosing confidential CSS information, soliciting CSS employees or clients, and engaging in "materially detrimental conduct to" CSS. "Claimant ... violated each of these obligations and thereby breached his contract and his fiduciary duty and engaged in misappropriation of trade secrets and unfair competition.

Postscript: A Motion to Vacate

CSS in late November 2018 moved to vacate the Award in New York State court. It contends the Panel violated section 7511 of the Civil Practice Law and Rules by failing to hear relevant and material evidence and by refusing to postpone a hearing to accommodate a key witness. The action is pending.

(ed: A SAC h/t to Brian Neville and the folks at Lax & Neville for alerting us to this Award. Barry Lax and Robert Miller from that firm represented Claimant in this matter.)

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