New York Securities Lawyer Blog

On September 18, 2017, Lax & Neville LLP was appointed special securities litigation counsel for court-appointed Receiver, Richard W. Barry, in an action commenced by the Attorney General of New Jersey on behalf of the Chief of the New Jersey Bureau of Securities. The action alleged securities fraud in the sale of securities, as well as other violations of the New Jersey Uniform Securities Laws, by defendants Osiris Fund Limited Partnership (a hedge fund), Peter Zuck, and others.  State of New Jersey, et al. v. Peter Zuck, et al., Docket No.: HDU-C-125-12.

The Receiver—who was empowered to pursue actions on behalf of the receivership estate to recover assets for the benefit of defrauded investors, victims, and creditors—filed a motion to approve the retention of Lax & Neville LLP as special securities counsel to assist the Receiver in his duties and seek relief on behalf of those defrauded.  Given the sophisticated nature of the securities-related issues, the Receiver sought to retain a law firm with specialized skill, knowledge and experience in securities law and arbitration.  Lax & Neville LLP’s retention as special securities counsel was approved by court order on September 18, 2017.

On December 30, 2017, Lax & Neville LLP commenced a Financial Industry Regulatory Authority (“FINRA”) arbitration claim on the Receiver’s behalf against Interactive Brokers and Kevin Michael Fischer, who is the head of Interactive Brokers LLC’s block trading desk.  The FINRA arbitration concerned the collapse of Osiris Fund, a fraudulent Ponzi scheme orchestrated by Peter Zuck, a convicted felon who was banned from the securities industry (specifically, the National Futures Association (“NFA”)) fifteen years before he opened accounts with Fischer at Interactive Brokers.  The Receiver’s Statement of Claim alleged that, from April 2009 through December 2011, Interactive Brokers ignored numerous red flags, including obviously fraudulent account opening documents, suspicious fund transfers, ludicrously high “management fees,” and hundreds of e-mails and hours of recorded phone calls between Osiris Fund’s employees and Fischer.  The Receiver further alleged that Interactive Brokers and Fisher became instrumental to the scheme, with Interactive Brokers providing substantial participation in the form of what was apparently a completely unsupervised platform that gave Osiris Fund credibility with Investors, and with Fischer participating substantially in marketing and solicitating new investors, recommending securities, directing Osiris Fund’s employees, and at times managing Osiris Fund’s investments himself.  The Receiver alleged that Interactive Brokers, Fisher, and Osiris Fund defrauded approximately 72 investors out of approximately $6.5 million.

On May 7, 2019, two former Credit Suisse investment advisers represented by Lax & Neville LLP won a $6.68 million FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation and violations of the New York Labor Law (“NYLL”).  This is the fourth FINRA Award against Credit Suisse for unpaid deferred compensation.

The claimants, Joseph Todd Lerner and Anna Sarai Winderbaum, were advisers in the New York branch of Credit Suisse’s US private banking division (“PBUSA”) and were terminated when Credit Suisse closed PBUSA.  Credit Suisse took the position, as it has with hundreds of its former investment advisers, that Ms. Winderbaum and Mr. Lerner voluntarily resigned and forfeited their deferred compensation.  A three member FINRA Arbitration Panel determined that Credit Suisse terminated Ms. Winderbaum and Mr. Lerner without cause, breached their employment agreements by cancelling their deferred compensation and violated the NYLL.    The FINRA Panel was chaired by a law professor and expert in labor and employment law.

The FINRA Panel awarded Ms. Winderbaum and Mr. Lerner compensatory damages totaling $2,787,344, which included 100% of their deferred compensation awards, 2015 deferred compensation, and severance.  Having concluded that the cancellation of deferred compensation violated the NYLL, the FINRA Panel awarded statutorily mandated interest, attorneys’ fees and liquidated damages equal to 100% of the unpaid compensation.  See NYLL § 198(1-a).  The FINRA Panel ordered Credit Suisse to pay 100% of the FINRA forum fees, totaling $50,250.00, and recommended expungement of Mr. Lerner and Ms. Winderbaum’s Form 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 Mr. Lerner and Ms. Winderbaum’s “Reason for Termination” was “Voluntary,” i.e. that they voluntarily resigned.  The FINRA Panel recommended that the “Reason for Termination” be changed to “terminated without cause.”   The FINRA Panel also denied Credit Suisse’s counterclaims.  To view this Award, visit 17-00057.

On November 6, 2018, Nicolas Finn, a 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. On November 27, 2018, Credit Suisse petitioned the New York Supreme Court (Commercial Division) to vacate the Finn Award on grounds of arbitrator misconduct and manifest disregard of the law. See Credit Suisse Securities (USA) LLC v. Nicholas B. Finn, CV 655870/2018. The Honorable Judge Jennifer Schecter, by order dated April 24, 2019, denied the Petition to Vacate in its entirety and entered judgment for Mr. Finn.

Credit Suisse is currently being sued by dozens of its former investment advisers in connection with the 2015 closure of its US private bank. Four FINRA Panels have issued awards thus far, all of them finding Credit Suisse terminated its advisers without cause and ordering it to pay deferred compensation. This is the first time a court has heard Credit Suisse’s defenses to the Credit Suisse Deferred Compensation Arbitrations.

Credit Suisse contended that the Finn Panel acted in manifest disregard of the law on two issues. First, Credit Suisse argued that Mr. Finn resigned as a matter of law when he left Credit Suisse on November 23, 2015, a month after Credit Suisse announced it was closing its private bank. Under the terms of Credit Suisse’s contracts with its investment advisers, deferred compensation is cancelled immediately upon voluntary resignation but vests immediately upon termination without cause. The evidence at arbitration overwhelmingly established that Credit Suisse both structured the closure of the private bank and deliberately concealed and misrepresented material information in order to mischaracterize its advisers as having “resigned” after they were given no option but to leave Credit Suisse. It then cancelled more than 95% of its advisers’ deferred compensation, amounting to almost $200 million. The Finn Panel rejected Credit Suisse’s argument that Mr. Finn resigned voluntarily and ordered expungement of “Voluntary” termination from his Form U-5. The Panel recommended that the Form U-5 be amended to state that the reason for termination was “Termination Without Cause.”

On November 6, 2018, a former Credit Suisse investment adviser represented by Lax & Neville LLP, a leading securities and employment law firm, won a FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation.  This is the second FINRA Award against Credit Suisse for unpaid deferred compensation. 

The claimant, Nicholas Finn, was an adviser in Credit Suisse’s New York US private banking division (“PBUSA”) and was terminated when Credit Suisse closed PBUSA.  Credit Suisse took the position, as it has with hundreds of other former investment advisers, that Mr. Finn voluntarily resigned and forfeited his deferred compensation.  A three arbitrator panel determined that Credit Suisse terminated Mr. Finn without cause and awarded him all of his compensatory damages in the amount of $975,530, which included all of his deferred compensation awards valued as of November 23, 2015, the day he left Credit Suisse, and his 2015 deferred compensation.  The Panel ordered Credit Suisse to pay 100% of the FINRA forum fees, totaling $27,300, and recommended expungement of Mr. Finn’s Form U-5, the termination notice a broker-dealer is required to file with FINRA.  As with Mr. Finn’s colleagues, Credit Suisse falsely reported that Mr. Finn’s “Reason for Termination” was “Voluntary,” i.e. that Mr. Finn resigned.  The Panel recommended that the “Reason for Termination” be changed to “terminated without cause.”   The Panel also denied Credit Suisse’s counterclaims.  To view this Award, Nicholas Finn v. Credit Suisse Securities (USA) LLC, FINRA Case No. 17-01277 

Credit Suisse raised a mitigation defense based upon compensation Mr. Finn received or may receive from his current employer, UBS Financial Services Inc.  Like the Panel in Brian Chilton v. Credit Suisse Securities (USA) LLC, FINRA Case No. 16-03065, the Finn Panel  rejected Credit Suisse’s mitigation defense when it awarded Mr. Finn all of his Credit Suisse deferred compensation.

On October 10, 2018, a former Credit Suisse investment adviser represented by Lax & Neville LLP, a leading securities and employment law firm, won a FINRA arbitration award against Credit Suisse Securities (USA) LLC for unpaid deferred compensation.  The claimant, Brian Chilton, was an adviser in Credit Suisse’s US private banking division (“PBUSA”) and was terminated when Credit Suisse closed PBUSA.  As it did with hundreds of his colleagues, Credit Suisse took the position that Mr. Chilton voluntarily resigned and forfeited his deferred compensation.  A highly sophisticated and experienced three arbitrator panel determined that Credit Suisse terminated Mr. Chilton without cause and awarded him all of his deferred compensation, consisting of 39,980 shares of Credit Suisse AG valued as of the date of his termination at $585,307.20.  The Panel ordered Credit Suisse to pay interest of $131,694.12, attorneys’ fees of $146,326.80, and 100% of the FINRA forum fees, totaling $69,750.00.  The Panel also recommended expungement of Mr. Chilton’s Form U-5, the termination notice a broker-dealer is required to file with FINRA.  Credit Suisse had falsely reported that Mr. Chilton’s “Reason for Termination” was “Voluntary,” i.e. that Mr. Chilton resigned.  The Panel recommended that the “Reason for Termination” be changed to “terminated without cause.”  To view this Award, Brian Chilton v. Credit Suisse Securities (USA) LLC, FINRA Case No. 16-03065.

Credit Suisse announced it was closing PBUSA on October 20, 2015.  Dozens of its former advisers have subsequently filed FINRA Arbitration claims for their unpaid deferred compensation.  The claims are based upon unambiguous language in Credit Suisse’s contracts providing that deferred compensation awards vest immediately upon termination without cause.  In a transparent attempt to evade its deferred compensation liabilities, which amounted to hundreds of millions of dollars, Credit Suisse deliberately mischaracterized its advisers’ terminations as voluntary resignations, notwithstanding that it had announced it was closing PBUSA, told its employees, including the advisers, to find someplace else to work and told its clients to close their accounts.  In its Form U-5 filings, Credit Suisse misrepresented to its regulator that the advisers had voluntarily resigned.

The Chilton Panel was the first to reach a decision on this issue and found that Mr. Chilton’s Form U-5 filing was false and should be changed to termination without cause.  Under the unambiguous terms of Credit Suisse’s contracts, Mr. Chilton was therefore entitled to his deferred compensation.

On March 7, 2016, Lax & Neville LLP, together with a number of other concerned law firms, submitted a letter to Financial Industry Regulatory Authority (“FINRA”) urging it to take action in light of Credit Suisse’s repeated violations.  In particular, the letter sought to address Credit Suisse’s current Employment Dispute Resolution Program (EDRP), which prevents employees from exercising their right to resolve disputes through FINRA arbitrations.  A second letter was sent to FINRA on July 19, 2016.

On July 22, 2016, FINRA released a Regulatory Notice addressing “Forum Selection Provisions Involving Customers, Associated Persons and Member Firms.”  Therein, FINRA stated that it “considers actions by member firms that require associated persons to waive their right under the Industry Code to arbitration of disputes at FINRA in a predispute agreement as a violation of FINRA Rule 13200 and as conduct inconsistent with just and equitable principles of trade and a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade).”  FINRA further noted, “a member firm cannot use an existing non-compliant agreement as a basis to deny an associated person the right to FINRA arbitration as specified in FINRA rules, without violating FINRA rules.”   Accordingly, FINRA has determined that the EDRP, which Credit Suisse has insisted its employees follow, violates FINRA rules and cannot be relied upon in resolving disputes with Credit Suisse.

The Regulatory Notice further noted that FINRA has a statutory obligation to enforce compliance by member firms and warned that “[m]ember firms with provisions in predispute agreements that do not comply with FINRA rules may be subject to disciplinary action.” Specifically, “FINRA may sanction its members or associated persons for violating any of its rules by ‘expulsion, suspension, limitation of activities, functions, and operations, fine,  ensure, being suspended or barred from being associated with a member, or any other fitting sanction.’”  In light of this, FINRA recommends that member firms review their predispute agreements to ensure compliance.