WealthManagement Magazine

Texas Rep Wins U-5 Case

On June 2, an NASD arbitration panel ordered the Westcap Corp., the bankrupt Houston-based broker/dealer subsidiary of National Western Life Insurance, to pay a former broker at the firm, George Hawkins, $266,000 for damage to his reputation caused by erroneous information on his U-5 form. The arbitration panel also ordered the firm to file a revised U-5 that reflects that Hawkins "was voluntarily

On June 2, an NASD arbitration panel ordered the Westcap Corp., the bankrupt Houston-based broker/dealer subsidiary of National Western Life Insurance, to pay a former broker at the firm, George Hawkins, $266,000 for damage to his reputation caused by erroneous information on his U-5 form. The arbitration panel also ordered the firm to file a revised U-5 that reflects that Hawkins "was voluntarily terminated and that removes the negative statement 'unprofessional conduct' from the U-5."

According to a summary of the case, Westcap claimed Hawkins had tried to recruit his sales assistant to join him in a new brokerage venture. Hawkins said he never sought to recruit anyone from the firm and he, in fact, had never been fired. Instead, he said, he had resigned voluntarily.

According to Hawkins' attorney, R. Christopher Bell, Westcap, in 1995, was in financial trouble. Many of the firm's brokers and employees, sensing an inevitable bankruptcy, had been looking for other opportunities. But he says Hawkins, a 10-year veteran of the firm, was not one of them.

According to Bell, on March 31, Hawkins had lunch with a colleague from a Dallas brokerage who raised the possibility of the firm opening a Houston branch. Among other subjects discussed, the colleague inquired if Hawkins might be interested in joining the firm somewhere down the road. Later that day, after being asked, Hawkins mentioned the subject of the lunch to his sales assistant.

"He could hardly have been recruiting since neither a job nor a job offer existed," says Bell. "In fact, he was merely answering a question."

Bell says shortly thereafter Westcap's CEO called him into his office and accused him of attempting to recruit his sales assistant to the new venture. However, Hawkins was promised that no punitive action would be taken against him if he signed an agreement saying he wouldn't take a position with any competitor in the Houston area for at least six months. He was also offered a financial incentive to sign, according to Bell.

"It was obvious they were doing whatever they could to keep producers from joining competitors," Bell says.

Hawkins refused to sign the document and instead drafted his own letter of resignation, Bell says.

A week later, the firm made the U-5 filing with the "unprofessional conduct" statement. In several arbitration sessions, Bell claims Westcap managers admitted that no recruitment had ever been observed, and no termination notice had been delivered prior to Hawkins' resignation. Westcap claimed it had tried to deliver a termination letter to Hawkins.

Because of Westcap's bankruptcy, the recovery of the full award, which includes $200,000 in damages and $66,000 in legal fees, is not certain. The charges against National Western Life were dismissed.

"Really the U-5 correction was the key concern," Bell says. "Without amending that, Mr. Hawkins' ability to work in this industry would have been severely impaired."

National Western Life and Westcap declined to comment.

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