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Lax & Neville LLP is investigating claims against brokerage firms for the sale of auto-callable notes to customers or investors.

An auto-callable note is a complex, highly risky structured product that can result in a complete loss of principal. Financial advisors at brokerage firms are highly incentivized to recommend these structured products to their customers despite the facts that these auto-callable notes may neither be suitable nor in the best interests for their customers.

Prior to recommending these investment products to investors, financial advisors are required to fully explain the details and risks of these complex investment products, such as, illiquidity due to the highly customized nature of the investment; market risk, including market volatility or changes in the underlying stock or index; and credit risks, including defaulting on its debt obligations, which could expose investors to lose some, or all, of the principal amount they invested as well as any other payments that may be due on the structured notes.

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Join Jenny Kim from The Gershman Group as she sits down with Brian Neville from Lax and Neville to discuss the latest retention package in the financial industry. They explore the unusual nature of KKR’s acquisition of Janney and what it means for financial advisors. Tune in to gain valuable insights into how this deal differs from past transactions and its potential impact on the industry.

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Recently, financial advisory firms have been getting slammed by lawsuits over deferred compensation and ERISA violations, with cases involving major players like Morgan Stanley, Merrill Lynch, and U.S. Bancorp. To help you navigate these turbulent waters, we sat down with Barry R. Lax, a founding partner of Lax & Neville LLP, who provided an in-depth analysis of these landmark cases. Barry’s expertise sheds light on the complexities and potential pitfalls of deferred compensation plans, offering crucial insights for financial advisors who might have deferred compensation coming their way.

In this episode, Barry explains the recent victories and defeats of these firms in arbitration and court battles, providing a detailed look at the legal strategies and outcomes. He discusses the implications of these cases for advisors, especially those dealing with deferred compensation and retirement plans protected by ERISA. Barry also shares practical advice on how advisors can protect their interests and navigate the legal landscape.

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On July 26, 2024, the Federal District Court in Charlotte, NC, granted Plaintiffs’ motion for conditional certification of a Fair Labor Standards Act (“FLSA”) collective of Bank of America (“BOA”) loan officers, which allows them to pursue their unpaid overtime claims against BOA on a collective basis.  The Court also authorized Plaintiffs to send a Notice to all the loan officers who are part of the FLSA collective informing them of the lawsuit and their right to join the lawsuit.  The Court’s Order can be viewed here.

Lax & Neville files FLSA overtime collective and class action against Bank of America on behalf of Loan Officers

Lax & Neville LLP has filed a federal lawsuit in the Western District of North Carolina against Bank of America Corporation and Bank of America N.A. (“BOA”) on behalf of loan or mortgage officers who worked in locations across the country.   The action for unpaid overtime and minimum wage is brought under the Fair Labor Standards Act (“FLSA”) and state labor statutes and seeks certification of an FLSA collective and class action.  On February 29, 2024, Plaintiffs filed an Amended Complaint adding additional state law claims.  The Amended Complaint can be viewed here.

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On April 30, 2024, a class action was filed against Merrill Lynch in the Western District Court of North Carolina to recover the deferred compensation that Merrill Lynch cancelled upon Plaintiffs’ voluntary resignation.  While we believe there are strong claims against Merrill Lynch for violation of ERISA, we believe that they must be arbitrated at FINRA.  See Regulatory Notice 16-25 here.  Lax & Neville is pursuing arbitration claims on behalf of former Merrill Lynch advisors for their cancelled deferred compensation comprised of both Long-Term Incentive (LTI) Cash Plans/WealthChoice and Restricted Stock Units (RSUs).

In a similarly situated class action, Shafer, et. al. v. Morgan Stanley, et. al., the Plaintiffs, former Morgan Stanley financial advisors, sued Morgan Stanley in December 2020 to recover their deferred compensation, which was cancelled by Morgan Stanley when those advisors voluntarily resigned.  Morgan Stanley moved to compel those advisors’ claims to FINRA arbitration.  On November 21, 2023, almost three years after the filing of the Complaint, the Federal Court granted Morgan Stanley’s motion requiring any Morgan Stanley advisor who wants to recover their deferred compensation to file FINRA arbitration claims against Morgan Stanley.  See the Court’s Order and Opinion here.  For more information on the Morgan Stanley decision, see here.

Our firm has extensive experience successfully pursuing deferred compensation claims in FINRA arbitration.  Most recently, we have won more than $35 million in unpaid deferred compensation, interest, costs, and attorneys’ fees for more than two dozen former Credit Suisse investment advisers, and we represent dozens of Morgan Stanley financial advisors seeking to recover their deferred compensation.

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On April 3, 2024, Lax & Neville LLP won a FINRA arbitration award on behalf of a 75-year-old retiree (“Claimant”) against E1 Asset Management, Inc., Shaun Joseph Grimaldi, and Ron Yehuda Itin (“Respondents”).  Respondents, who all have checkered regulatory histories, capitalized on Claimant’s trust and friendship for a decade to conceal their fraud and exercise complete control over his accounts, by investing in options and risky triple leveraged ETFs, on margin, and relentlessly churning his accounts for the sole purpose of generating $1,604,814 in commissions, interest and fees.  They accomplished this by making more than $341 million in trades, on margin, for an annual turnover rate of 13.2 and an average cost to equity ratio of 12.4%.   Respondents at all times acted with a willful intent to defraud Claimant, breached their fiduciary duties to him, and violated FINRA Rule 2111 (Suitability), SEC Regulation Best Interest (Reg BI), and FINRA Rule 3010 (Supervision).

After considering the pleadings, testimony and evidence presented at the hearing, the FINRA Arbitration Panel rejected Respondents’ defenses and unanimously awarded Claimant $2.6 million, which includes 100% of his fraudulent churning damages totaling $1,604,814, plus $577,610.25 in accrued interest, $420,000 in attorneys’ fees, $5,285.83 in discovery sanctions, and post-award interest. To view this Award, click here.

To discuss this FINRA arbitration award, please contact Barry Lax or Sandra Lahens at (212) 696-1999.

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On November 16, 2023, the United States District Court for the Southern District of New York entered judgment on a FINRA Arbitration Award against Credit Suisse Securities (USA) LLC, ordering it to pay more than $1.3 million to an investment advisor formerly employed by its now-closed US private bank.  See Opinion and Order here.

The claimant and nearly fifteen hundred other employees were terminated when Credit Suisse announced it was closing its US private bank in October 2015.  Credit Suisse unlawfully refused to pay $245 million in deferred compensation it owed to the advisors and claimant, like dozens of his colleagues, brought claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and unjust enrichment.  On February 02, 2023, a three-member FINRA Arbitration Panel found for the adviser and ordered Credit Suisse to pay claimant the full amount of his deferred compensation and prejudgment interest.

Credit Suisse moved to vacate in the Southern District.  The Court denied the motion, confirmed the award and entered judgment.

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Lax & Neville LLP has filed a federal lawsuit in the Western District of North Carolina against Bank of America Corporation and Bank of America N.A. (“BOA”) on behalf of loan or mortgage officers who worked in locations across the country.   The action for unpaid overtime and minimum wage is brought under the Fair Labor Standards Act (“FLSA”) and state labor statutes and seeks certification of an FLSA collective and class action.  The Complaint can be viewed here.

If you are a current or former BOA loan or mortgage officer who would like to speak to Lax & Neville about this matter, please click here.

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Today, the Southern District of New York granted Morgan Stanley’s motion to compel arbitration in the class action Shafer, et. al. v. Morgan Stanley, et. al. (Case 1:20-cv-11047-PGG).

Plaintiffs, former Morgan Stanley financial advisors, sued Morgan Stanley asserting that Morgan Stanley violated the Employee Retirement Income Security Act of 1974 (“ERISA”) by not paying Plaintiffs all of their deferred compensation when they resigned from Morgan Stanley, and Morgan Stanley moved to compel arbitration on June 29, 2022.  The Court’s decision forces Plaintiffs and any similarly situated former Morgan Stanley financial advisor to file their claims for unpaid deferred compensation in FINRA Arbitration.

In its opinion, the Court held that Morgan Stanley’s Compensation Incentive Plan and Equity Incentive Plan are ERISA plans and “‘individual account plans,’” which under ERISA “means a pension plan which provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant’s account….” (Order, p. 44).  The Court’s holding may significantly strengthen FINRA arbitration claims against Morgan Stanley, which primarily depend on the applicability, and Morgan Stanley’s violation, of ERISA.

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On August 21, 2023, a retired artist and teacher of the visually impaired represented by Lax & Neville LLP won a FINRA award against Morgan Stanley for its years-long recommendation that she invest her savings in WisdomTree (WETF), a sponsor of exchange traded funds (“ETFs”) and asset manager.  Over a period of nearly seven years, the customer’s Morgan Stanley advisors, David and Todd Wachsman, solicited numerous purchases of WisdomTree stock even as its price fell and her position became highly concentrated.  WisdomTree stock ultimately made up the vast majority of her networth.  Despite numerous red-flags and internal recognition that the position was highly concentrated and sustaining substantial losses, Morgan Stanley permitted the Wachsmans to recommend additional investments in WisdomTree for years, including selling risky put options that significantly increased her exposure to decline in WisdomTree’s price, decimating her savings.  Morgan Stanley’s primary defense was that, over the lifetime of the account prior to the first WisdomTree purchase a decade ago, Morgan Stanley had made money for the customer, a retiree in her mid-seventies, and was therefore entitled to bet it all on a single-stock strategy.  Additionally, Morgan Stanley took the position that they warned the customer of the risks involved.  However, it still allowed the Wachsmans to recommend that she purchase more WETF, that she sell other securities rather than WETF, and that she hold the overly concentrated position they built in her accounts.

After considering the pleadings, testimony and evidence presented at the hearing, the Arbitration Panel rejected Morgan Stanley’s defense and unanimously awarded the customer $1.8 million, including the entirety of damages caused by Morgan Stanley’s investment in WisdomTree market adjusted to account for Morgan Stanley’s mismanagement of her account during an historic bull market.

The Arbitration Panel also denied the expungement requests made on behalf of the financial advisors, Todd Wachsman and David Wachsman.  To view this Award, Karen Busch v. Morgan Stanley Smith Barney, LLC – FINRA Case No. 21-00203, click here.

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Phone: 212-696-1999
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