A messy arbitration case in which former Raymond James & Associates brokers demanded $ 36 million resulted in a confidential settlement and compensation paying one of them $ 500.
After a 26-session hearing, a three-member FINRA arbitration panel dismissed all claims of libel, unjust enrichment and other complaints filed by financial advisers Lynn Cooper Faust, Michael Anthony Faust and Joe Tom King Jr. , except one. according to at the price of November 30. The case and a counterclaim filed by Raymond James revolved around the trio’s 2018 layoffs over allegations about their sales of open-ended investment trusts, the same product that later appeared in an SEC application. Case against Raymond James covering their time with the company. The Faust and Raymond James subsequently settled the brokerage’s counterclaim.
Tampa, Fla.-Based panel awarded King $ 500 in costs and assessed all but 4% of the over $ 65,000 administrative fee for the cabinet proceeding – a small gesture to advisers who lost a case accusing Raymond James of “burning” their business books and calling for a referral to FINRA for the “company’s” fraudulent ‘internal investigation’ activities “. Defamation cases rarely lead to large payments or any victory for brokers, according to Louis Straney of Arbitration Insight, a former regulator who often serves as an expert witness.
The umpires “have heard it over a number of sessions, and there has been live testimony,” Straney said. “In the end, there was a verdict directed in favor of the defense. It’s really hard for brokers to win in these employment contract cases because the contracts are pretty strong.
Straney pointed out that the arbitration award document omits most of the details that might help explain why the arbitrators upheld the motion to dismiss the claims under a Nov. 7 order. In his counterclaim, Raymond James requested that the advisers reimburse the firm for repair payments to customers totaling more than $ 800,000. Lynn and Michael Faust of Faust Wealth Management Group now work for Stifel Financial at a branch based in Greenville, South Carolina, while King Advisory Group, based in Panama City, Fla., Has moved to Ameriprise.
The Faust did not respond to requests for comment, while King referred an investigation to attorney Marc Dobin of the Dobin Law Group.
Decades in the industry
The Faust are related and they did not work in the same Raymond James office as King, Dobin said in an emailed statement. After the remaining claims were dismissed, King chose to go ahead with the remaining claim that Raymond James violated a FINRA rule on commercial honor and the principles of commerce. Dobin declined to provide more information on the settlement of the counterclaim, but noted that King received a small sum for costs and that arbitrators ordered Raymond James to pay tens of thousands of dollars in other costs.
“They thought they had been treated unfairly before and including the time they were fired,” Dobin said. “Although our clients are clearly disappointed with the result and disagree with the arbitrators’ conclusions, they accept the panel’s decision and are ready to continue their careers. “
Representatives for Raymond James did not respond to requests for comment.
King has been in the industry for 45 years, while Lynn Faust has a four-decade tenure and Michael has been a consultant for over 20 years, according to BrokerCheck. Lynn Faust had been an elementary school teacher before becoming a counselor, says the biography of her company.
Lynn Faust and her son Michael left the firm as the most prominent names on at least seven brokers fired in 2018 for sales from ITU, the wealth management medium. AdvisorHub reported at the time. Several unidentified people “inside and outside the company” told the outlet that the layoffs likely suggested there was enforcement action ahead.
About a year later, Raymond James agreed to pay $ 15 million to settle a SEC case alleging that the company charged excess commissions on certain ITU sales, among other illegal behavior. Investigators had accused the company of recommending brokerage clients replace their UITs with new ones without any determination as to whether if the exchanges were suitable, resulting in higher sales commissions.
Terminated and arbitrated
The company fired the three former registered representatives in October and December 2018, citing alike allegations on FINRA BrokerCheck that their layoffs were “due to concerns about the nature of the advisor’s ITU business.” In September 2019, Lynn Faust’s former clients with Raymond James received a settlement of $ 82,000 after alleging that she distorted the UITs at the time of the sale, according to her detailed BrokerCheck file. Another customer complaint, still pending, accuses Faust of having distorted the exchange-traded notes.
In comments to BrokerCheck, she said she had never even seen a copy of the client’s complaint leading to the previous settlement and that the firm accepted the payment without speaking to her or her lawyer. In their responses to the company’s allegations regarding their sales of ITU, the two Faust also denied any wrongdoing and put prices low for the often expensive and risky products.
“All transactions were done in consultation with the client, were market driven and done in the best interest of the client,” Faust said. “We have never done a transaction that we believe did not meet this standard. The negotiation was also in accordance with Raymond James’ policy in effect at the time, including any necessary primary reviews. Our average cost to customers including fees and commissions was 1.04% per year, including ITU activity.
The disappointing arbitration award for the brokers came more than two years after they filed the case in July 2019. They had named at least seven causes of action against the company on the basis of its “wrongful and pretextual termination “of them for ITU sales. The plaintiffs sought deferred compensation, damages, attorney fees and other costs totaling $ 35.95 million, plus the write-off of their layoffs. In its response to their case, the cabinet accused them of unjust enrichment in its own case while denying their allegations.
Based on a description of the counterclaim included in the award document.
It is not possible to tell from the document whether the settlement required them to pay Raymond James or vice versa, Straney said. Most FINRA awards contain little or no details that would be available in court, although parties sometimes share them after the case or file documents publicly to obtain a judge’s confirmation of arbitration decisions. Companies must swear that all claims appearing on BrokerCheck are correct, while clients use the site to seek advisers and brokers seek a true representation of their records, Straney said.
“Everyone has a great interest in the information being correct,” Straney said. “When you fire someone for just cause or because they quit and went to another company, accuracy and fairness are of the utmost importance. We just don’t know the background to this situation.