New York Securities Lawyer Blog

Published on: December 1, 2023

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. 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.

Published on: November 22, 2023

Court Compels Morgan Stanley Advisors to Arbitrate for Their Deferred Compensation at FINRA

By Lax & Neville LLP

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.

Published on: November 14, 2023

RIK Attorneys Won $3.2 Million for their Clients Against UBS Relating to Its YES Options Overlay Strategy

By Lax & Neville LLP

The investment fraud lawyers at Rich, Intelisano & Katz (“RIK”) won $3.2 million for their clients, Bret and Marion Pearlman, in a recent FINRA arbitration against UBS. The Pearlmans’ claim was for misrepresentations and omissions related to UBS’s Yield Enhancement Strategy (YES) – an options overlay strategy. It is the third largest award against UBS related to YES. Investors have tried to a final award approximately 46 YES cases against UBS and have won roughly one-half of those cases. RIK has tried only two cases to a final award and won the largest award ($5.2 million) and the third largest one. In both cases, the awards reflected over 90% of the clients’ losses as of the date of the filing of the arbitration. Read the full award here.

Options overlay strategies use underlying assets, such as equities, cash, and bonds, as collateral to buy and sell options. In its most basic understanding, UBS’s options overlay strategy, YES, periodically bought and sold options, simultaneously, to generate income from the sale of options. In many cases, YES was pitched and marketed to UBS customers as a “low-risk” strategy that seeks to enhance portfolios approximately 2-6% of their mandate annually (the mandate is the underlying amount of collateral the customers elect to use for the strategy). YES was further marketed as having limited to no correlation to the S&P 500. Additionally, in its materials and disclosures, UBS stated that the managers of the program utilized various methods to “limit” risk exposure. In reality, YES was a high-risk strategy that added significant risk to the underlying assets where potential losses were awfully disproportionate to any potential gains. The additional risks and potential losses were never fully disclosed to many customers.

RIK’s securities attorneys have represented many investors of YES and other complicated options strategies in legal actions against UBS and other firms. If you have losses related to YES or options trading strategies, do not hesitate and feel free to schedule an appointment here or call us at (212) 684-0300 for a free consultation.

Published on: August 30, 2023

Client Represented by Lax & Neville Wins $1.8MM Award Against Morgan Stanley for Unsuitability and Failure to Supervise Investment in WisdomTree (WETF)

By Lax & Neville LLP

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.

Published on: April 27, 2023

Ex-Merrill Financial Advisor Suspended and Fined for Violating FINRA Rule 2010 When He Took Photographs of Client’s Non-Public Information Before Leaving Firm

By Lax & Neville LLP

Recently, the Financial Industry Regulatory Authority (“FINRA”) Department of Enforcement fined and suspended an ex-Merrill registered financial advisor, who had been in the industry for nearly 35 years, for breaching FINRA Rule 2010 and firm policy by violating his duty to maintain the confidentiality of a customer’s nonpublic information. Merrill Lynch’s Employment Agreement also requires a financial advisor to preserve the confidentiality of nonpublic customer information and refrain from taking and disclosing such information upon termination of their employment. Customers’ nonpublic information, including dates of birth, social security and driver’s license numbers, account numbers, and tax information, is also protected under Regulation S-P. FINRA Letter of Acceptance, Waiver, and Consent No. 2021071850601, 2 (2021).

The financial advisor’s violative conduct consisted of taking pictures of confidential client information from the Merrill Lynch electronic systems. According to FINRA, the advisor took photographs, which contained customers’ names, dates of birth, social security numbers, and account numbers, for approximately 35 clients and advised the junior members of his team to take similar photos for at least 100 other customers. These photos were taken in anticipation of transitioning to another brokerage firm. When the advisor and his team resigned from Merrill Lynch, they retained the nonpublic personal information of customers. The information “was secured by the firm through which [the advisor] had become registered, and the firm returned the customers’ nonpublic personal information to Merrill Lynch prior to its use.” Id.

The advisor executed a letter of Acceptance, Waiver, and Consent (“AWC”) wherein he accepted the finding of a violation, consented to the imposition of sanction, and agreed to waive the right to a hearing before any panel, court, or administrative body. The FINRA AWC states that the Merrill Lynch advisor “improperly retained the customers’ nonpublic personal information” when transitioning to a new firm in violation of FINRA Rule 2010. Id. FINRA suspended the financial advisor for 10 workdays and fined him $5,000.

Published on: April 24, 2023

Four More Former Credit Suisse Advisers Represented by Lax & Neville LLP Win FINRA Arbitration Award Against Credit Suisse Securities (USA) LLC in the Deferred Compensation Arbitrations

By Lax & Neville LLP

On April 18, 2023, four more former Credit Suisse investment advisers represented by Lax & Neville LLP won a FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation. See Simon Clarke, Mitchell Riesenberger, Jose Rodriguez-Villalobos, Jeremy Seidman v. Credit Suisse Securities (USA) LLC, FINRA No. 20-02093. Lax & Neville has tried nine arbitrations resulting in awards of more than $35 million to 30 former Credit Suisse advisers.

The Claimants, Simon Clarke, Mitchell Riesenberger, Jose Rodriguez-Villalobos, and Jeremy Seidman, are now among the numerous former Credit Suisse advisors who have successfully brought claims for their portion of the over $200 million of deferred compensation that Credit Suisse refused to pay its advisors when it closed its US private bank in 2015, violating the advisers’ employment agreements and the firm’s own deferred compensation plans. Credit Suisse took the position, as it has with hundreds of other former investment advisers, that the Claimants voluntarily resigned and forfeited their deferred compensation. A three-arbitrator panel awarded Claimants compensatory damages, including prejudgment interest, in the amount of $2,862,019.32. The FINRA Panel recommended expungement of Claimants’ Forms U-5, the termination notice a broker-dealer is required to file with FINRA. As with hundreds of their colleagues, Credit Suisse falsely reported that Claimants’ “Reason for Termination” was “Voluntary.” The FINRA Panel recommended that the “Reason for Termination” be changed to “Termination without cause.”

Lax & Neville LLP has won more than $35 million in compensatory damages, interest, costs, and attorneys’ fees on behalf of former Credit Suisse investment advisers. To discuss these FINRA arbitration Awards, please contact Barry R. Lax, Brian J. Neville, Sandra P. Lahens or Robert R. Miller at (212) 696-1999.

Published on: February 9, 2023

Another Former Credit Suisse Adviser Represented by Lax & Neville LLP Wins a FINRA Arbitration Award Against Credit Suisse Securities (USA) LLC in the Deferred Compensation Arbitrations

By Lax & Neville LLP

On February 2, 2023, another 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. See James D. Garrity v. Credit Suisse Securities (USA) LLC, FINRA No. 20-03957. Lax & Neville has tried eight arbitrations resulting in awards of more than $32 million to 26 former Credit Suisse advisers.

The claimant, James Garrity, is now among the numerous former Credit Suisse advisors who have successfully brought claims for their portion of the over $200 million of deferred compensation that Credit Suisse refused to pay its advisors when it closed its US private bank in 2015, violating the advisers’ employment agreements and the firm’s own deferred compensation plans. Credit Suisse took the position, as it has with hundreds of other former investment advisers, that Mr. Garrity voluntarily resigned and forfeited his deferred compensation. A three-arbitrator panel awarded Mr. Garrity compensatory damages in the amount of $1,018,624.89 and prejudgment interest in the amount of $363,244.20. The Panel also ordered Credit Suisse to pay $51,000 in FINRA forum fees.

Lax & Neville LLP has won more than $32 million in compensatory damages, interest, costs, and attorneys’ fees on behalf of former Credit Suisse investment advisers. To discuss these FINRA arbitration Awards, please contact Barry R. Lax, Brian J. Neville, Sandra P. Lahens or Robert R. Miller at (212) 696-1999.

Published on: November 18, 2022

Rich, Intelisano & Katz Lawyers Investigate Regulation D Offerings Issued by HJ Sims & Co. Inc.

By Lax & Neville LLP

HJ Sims & Co. Inc. (“HJ Sims”) appears to have used Regulation D (“Reg D”) offerings to pass its risk of loss onto its customers while it retained the potential for significant gains. A scheme like this would violate numerous FINRA Rules and regulations, including suitability, Regulation BI (“Reg BI”), and due diligence obligations. See FINRA’s Due Diligence and Suitability of Private Placement. RIK’s investment lawyers are currently investigating potential claims related to HJ Sims’ possible improper sales practices.

Reg D securities are non-public offerings designed to help operating firms raise funding, and are exempt from certain security registration requirements. This type of private placement is offered by the “issuer,” and who, under the rules, is only required to make limited disclosures regarding the price of the offering – making it more challenging for investors to determine a fair price of the private placement when compared to publicly traded investments.

In the past 10 years, HJ Sims sold 93 Reg D Offerings (listed below), where most of the issuers of the Reg D bonds were owned and/or controlled by HJ Sims executives. Because of this, not only did HJ Sims gain commissions and other fees associated with the offerings, “[i]f a Sims’ Reg D offering failed, the executives would suffer a portion of the losses but realize all the gains if an offering succeeded.” See HJ Sims Reg D Offerings: Heads, HJ Sims Wins – Tails, Their Investors Lose. Ultimately, the risks associated with the Reg D offerings were passed onto the customers. As stated by SLCG Economic Consulting, “HJ Sims ability to shift losses to its clients would naturally lead it to invest in riskier projects with unusually high likelihood of failure.” See id.

Published on: September 28, 2022

RIK Won the Largest Award Against UBS Relating to Its YES Options Strategy

By Lax & Neville LLP

The investment fraud attorneys at Rich, Intelisano & Katz won a $5.2 million FINRA arbitration award for their clients, George and Sandra Schussel, in a case relating to UBS’s Yield Enhancement Strategy (“YES”). Investors in YES, including the Schussels, suffered significant losses in December 2018. Many investors in YES have since filed FINRA claims against UBS. To date, over 40 of the filed claims have gone to award – approximately half have been in favor of investors while half favored UBS. RIK has been successful in representing multiple YES investors. The September 15, 2022 award of $5.2 million represents the largest YES-related award against UBS to date and an approximately 95% recovery for our clients. Read the full award here.

During the Schussels’ arbitration, RIK’s attorneys stressed that recommending a strategy that the advisor did not fully understand is inherently a breach of their fiduciary duty. After eight days of hearings, the panel unanimously awarded the Schussels over $5,200,000 including $95,000 in pre-judgment interest and $92,000 in costs. The significant award has received the following press coverage: FA-mag, Barron’s, and InvestmentNews.

UBS’s YES strategy is an options overlay strategy which uses investors’ conservative investments as collateral for iron condor options trading. UBS’s financial advisors marketed it as a moderate risk strategy designed to gain additional incremental investment income. Despite UBS’s disclosure statements, UBS never adequately disclosed the true risks of YES – that it was a high risk, low reward strategy. As such, investors in YES, including the Schussels, were shocked to discover significant losses in their YES accounts in December 2018.

Published on: September 22, 2022

CALIFORNIA AND ILLINOIS COURTS CONFIRM $10 MILLION AWARD AND $9.5 MILLION AWARD AGAINST CREDIT SUISSE FOR UNPAID DEFERRED COMPENSATION

By Lax & Neville LLP

On September 9, 2022, the Superior Court of the State of California entered judgment on a FINRA Arbitration Award against Credit Suisse Securities (USA) LLC, ordering it to pay more than $10 million to seven investment advisors formerly employed in the Los Angeles and San Francisco branches of its now-closed US private bank. This follows the July 8, 2022 decision of the Circuit Court of Cook County, Illinois confirming an award against Credit Suisse and entering a $9.5 million judgment for eight advisors in Chicago.

These fifteen advisors are among the more than three hundred Credit Suisse laid off when it closed its US private bank in 2015. Credit Suisse purported to “cancel” the more than $200 million in earned and vested deferred compensation it owed its three hundred advisors by claiming each of them voluntarily resigned at the same time Credit Suisse was closing their branches and eliminating their positions. The FINRA Panels in Los Angeles and Chicago, like eight other FINRA Panels thus far, unanimously found that Credit Suisse terminated the advisors without cause, breached their employment agreements, and violated their respective states’ labor laws, the California Labor Code (“CLC”) and Illinois Wage Payment and Collection Act (“IWPCA”). The FINRA Panels ordered Credit Suisse to pay the deferred compensation, statutory interest and penalties, and a total of more than $2 million in attorneys’ fees and costs.

Credit Suisse subsequently petitioned to vacate the FINRA Panels’ Awards. Among other grounds, Credit Suisse contended that the FINRA Panels exceeded their authority when they determined that Credit Suisse had violated the labor law and awarded statutory attorneys’ fees. The California and Illinois Courts disagreed, denying the petitions to vacate in all respects and confirming the Awards, including the labor law violations and more than $2 million in attorneys’ fees and costs.