Under Pursuit by Former Employer

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Jul 9, 2010 12:55 pm

My Jr. Partner, Secretary and I went independent in the Spring of 2009. Our former employer's successor is after us, we are in the middle of a FINRA arbitration case. 

Below are some key facts, and any thoughts, suggestions or shared experiences are greatly appreciated. Likewise, anyone with questions about dealing with a similar case is welcome to my experience/advice.

Our firm had gone under, and in the middle of the night was given to a very large US Financial Institution. After several months, the new employer demanded that we sign a new employment contract, and we had 10 days to deliver. I could clearly see that this new firm was a very poor match, and the three of us decided to quit the day the contract was due instead of signing it and continuing our employment. 

We went independent with a fairly well known firm, not RJ or LPL. The day of resignation, we called all our key relations, announced our resignation, thanked the clients for doing business. Upon asking us, we told folks we were setting up independent shop. We only utilized name address and phone numbers.

Pretty much right off the bat, we got legal notices from the former employer, cease and desist stuff. Then, our attorney called us one morning after getting a 160 page fax dumped upon his machine, that we were due in Superior Court that very day. So, I rushed up to the Court, and listened to the opposing attorney and my attorney hash it out. Surprisingly, the opposing attorney accused us of having stolen furniture from the office, and produced photo evidence of our team putting our personal computers away into the basement, and said we were "crazy". Only 1 of about 1000 customers signed a declaration against us, stating we had solicited their business. A limited TRO was placed upon us, restricting us from calling clients, but authorized us to send 3 announcements.

2 months later we went to a FINRA hearing. Their only witness was our Regional Sales Manager, who had been in charge of our team for a whopping 10 days. This fellow was behind the false accusations of theft, and in the hearings admitted that his testimony was not correct, and that his declaration was drafted by attorneys, and he wasn't sure who the attorney was. The former employer accused us of solicitation, and violation of the US Trade Secrets Act. We admitted that we took client lists, but the former employer attorney suggested we had much more than that. The former employer wanted us to be restricted from business, and any contact of clients. A month later, we got the ruling, that until one year had passed, we could not initiate any contact with clients, but we were allowed 3 more announcement mailings. 

As the months went by, we did quite well, taking about 50m of a 100m book. We hit exactly our goal of client AUM, and our revenues matched goals too. So, we're pretty happy, other than the legal issues, and the $65,000 it had cost so far. Late fall of last year, the former employer and ourselves changed discovery motions, with us delivering limited amounts, and the other side giving us virtually nothing. Basically, they were not going to give up anything that might fuel a counter suit.

For a long time, we heard NOTHING. Our attorney dropped off the face of the earth, and so did theirs. Nice to not have legal bills, but I was getting concerned that our attorney wasn't minding the store. This attorney is not aggressive at all, though he's a former RR and is an Arbitrist himself, along with a specialty in security matters. One day, our BD wanted to know what was going on. I told them that we'd heard nothing, and we were all beginning to wonder if the entire matter was dead. Unfortunately, just as that hope entered my mind, we know have recieved a letter from their attorneys, that they wish to settle with us, for a meager... $325,000, as compared to the Million they were looking for previously.

Out of 50 former colleagues, 40 have left since we did, but they were signatories to the new very TIGHT contract. NONE of them are being pursued..... All the 40, have gone to other Bank Broker Dealers, while we went Indy. I assume that has something to do with it, with limited pockets. Some of the colleagues have done things to warrant pursuit, but nothing has happened to them...

So, help me out here. I assume I need to threaten a counter suit at least so that the former employer has some sort of risk in a hearing. Is my attorney the right guy for the job? Brokers seem to NEVER beat the system, so should I just make a decent settlement to call the whole thing off?? I'm thinking I'd agree to 30k, with a many year pay back period. Suggestions please!

As you can see, I'm not sharing key names here, to keep myself out of trouble. But, for the most part if giving some more information is necessary, no problem.

Jul 10, 2010 7:40 pm

The only one who can adequately answer your question, is an experienced, sophisticated attorney who specializes in this stuff.

With that said, it seems to me, if everything you say is true, and you took no info other than nams and contact info, if i were you, i would seek out an attorney who has teeth, like a shark, and go after them with a countersuit of great magnitude. The wirehouses are made up of people who have no spine, and who could care less about ruining careers, if it gets them a gold star and status of employee of the month with their boss who is one step above them on some assenine organizational chart.

Sorry for the rant, it just bugs me that these people care less about ruining someones livelihood. In any other industry people move freely from job to job and are not forced to leave their relationsips behind.

I was lucky, nobody bothered me. But I wish someone would go back at those arseholes.

Jul 12, 2010 11:55 am

I forgot to mention, that the only former employer witness, the executive level manager, that lied about us.... was fired a few months after our hearing. He was married, and had an "inappropriate relationship" with his secretary. So, he lied about that too. Seeing him terminated was a bit of justice, as he was a real weasel. 

For anyone that hasn't been through this experience, I strongly suggest avoiding anything that draws you into arbitration. The idea of arbitration is simplification and cost control, but it is ANYTHING BUT THAT. Just an example... The two days of hearings were held in a location that was among the most expensive you could possibly find. Just paying for the room and the daily fees of the arbitrators and travel expense, was $14,000. Disgusting....

My attorney is a very nice guy, and put quite a bit of work into our defense. Thankfully we really like the guy, because in a long grueling dilemma like this, you'd better be a good match. I'm only concerned that we have not put enough teeth into our side of things. Without a counterclaim with some danger to the opposing side, there seems to be no leverage to compel the other side to drop the matter.

Jul 14, 2010 1:21 pm

182 views, and I'm really not getting the practical lifetime experiences I was hoping to get. Surely, there are those of you that have experiences in these matters, or know of cases like this....  

Aug 13, 2010 1:00 pm

Big---

I don't know where to start... To me this appears to be a big guy pushing around a little guy. Anytime I have been in this situation agressiveness and fight is what won the battle.

With that being said, this will continue to drain you either way. For example if nothing happens your current BD will want answers, and if you settle you'll have to pay out a sum of money. The first thing you should do is figure out the costs that could be involved and what you will pay for an arb and make a financial decision.... then be prepared to deal w/ pride. A settlement will likely show on your U4/broker check... that would be hard for me to swallow.

Your case, IMO, depends on your ability to prove you did nothing wrong. This will require an aggresive and well versed atty. Further, an aggresive atty. will need to locate and discern what remedies are available to you. Discovery is the most important and expensive part of the case. Make sure your atty is compelling as much information as humanly possible. It will help if you have a solid counter suit strategy in place, obviously.

For instance, possible defamation, (slander) from the previous employee... but otherwise I don't see alot. Maybe abuse of process...?? Again, your lawyer would definitely be able to find something based on all the facts.

I hate seeing this stuff... you seem above board, and these guys have to go after somone.

Aug 13, 2010 1:32 pm

[quote=jackofalltrades]

Big---

I don't know where to start... To me this appears to be a big guy pushing around a little guy. Anytime I have been in this situation agressiveness and fight is what won the battle.

With that being said, this will continue to drain you either way. For example if nothing happens your current BD will want answers, and if you settle you'll have to pay out a sum of money. The first thing you should do is figure out the costs that could be involved and what you will pay for an arb and make a financial decision.... then be prepared to deal w/ pride. A settlement will likely show on your U4/broker check... that would be hard for me to swallow.

Your case, IMO, depends on your ability to prove you did nothing wrong. This will require an aggresive and well versed atty. Further, an aggresive atty. will need to locate and discern what remedies are available to you. Discovery is the most important and expensive part of the case. Make sure your atty is compelling as much information as humanly possible. It will help if you have a solid counter suit strategy in place, obviously.

For instance, possible defamation, (slander) from the previous employee... but otherwise I don't see alot. Maybe abuse of process...?? Again, your lawyer would definitely be able to find something based on all the facts.

I hate seeing this stuff... you seem above board, and these guys have to go after somone.

[/quote]

Thanks for your input!

We've been stonewalled, no surprise, in discovery. We're filing a motion to compel, or dismiss the case. The first 60 days of going indy were like standing at the doorway, tossing out a G each day. Man, that was intense! But, that is where the money was spent, been pretty tame since. I get the feeling, at this pace, might be continuing with this nonsense for as long as 2 more years. Oh well, everything for a reason...

I've seen some other threads, about leaving. Folks would be wise to look my situation over, and not be naive in thinking that "it will be ok", everyone does it, winks, and other stupid conceptions out there. I suspected trouble from the start, and took some advice here at RR forum before I left. I was well prepared for the fight, and that insured me of success in my SC TRO hearing. This last part is where you can REALLY get screwed.

Nov 9, 2010 2:39 pm

Not knowing the specifics of the case filing a counterclaim this late may require leave of the Panel to do so.  You'll probably have to justify why you didn't file the counterclaim at the same time you filed your answer.  Perhaps you discovered something new amidst the discovery process?  I just can't tell without being privy to the matter however, since you're represented you probably should have this discussion with your attorney.  Good luck.