Update: CAP Cases Certified as Class Actions

Editor’s Note: Story update June 20. Adds Salomon Smith Barney comment and details on state certification. Four separate class-action lawsuits have been certified against Salomon Smith Barney, challenging the firm’s Capital Accumulation Plan (CAP). On June 8, Judge Robert Keeton of the U.S. District Court in Boston certified class actions in Florida, Connecticut, Massachusetts and Mississippi. Another

Editor’s Note: Story update June 20. Adds Salomon Smith Barney comment and details on state certification.

Four separate class-action lawsuits have been certified against Salomon Smith Barney, challenging the firm’s Capital Accumulation Plan (CAP).

On June 8, Judge Robert Keeton of the U.S. District Court in Boston certified class actions in Florida, Connecticut, Massachusetts and Mississippi. Another suit against SSB had already been certified in New Jersey in October 2000.

Under SSB’s CAP program, brokers and executives forfeit a portion of their contributions to the plan if they quit or are terminated before becoming fully vested.

“Salomon Smith Barney took a huge hit today,” says Bruce Nagel, an attorney with Nagel Rice Dreifuss and Mazie of Livingston N.J., which represents brokers challenging the firm. “It is incredible that Smith Barney employees should not receive the full fruits of their labor.”

“It was a procedural decision, not one made on the merits,” counters a SSB spokesperson. The lawsuit did not get national certification status, the spokesperson adds. A team of lawyers for defendants in Mississippi had sought national certification.

Nagel says the case failed to achieve national certification because each state has different wage and hour provisions. “It’s a real mix of law on employment issue and wages, and differing state laws,” he says.

Nagel says class claims can now go forward in those states where the cases have been certified. “Brokers [in those five states] who feel they were wronged can now allow their cases to proceed,” says Nagel, who will be litigating cases in New Jersey and Florida.

“There are many other states that are ripe [for certification],” he says, “Texas and Illinois in particular. So we can expect to see a lot of action around the country.”

Salomon Smith Barney, meanwhile, continues to believe that CAP “is well within the letter of state law,” according to the spokesperson.

The combined claims of the class-action members in the four states are at least several hundred million dollars, according to Nagel. In Florida alone, the ruling affects 150 former SSB employees and about $50 million, he adds.

“There are billions of dollars at stake [nationwide],” Nagel claims. The SSB spokesperson could not say what the firm thinks the amount of money under dispute might be.

Nagel adds that his firm is challenging Prudential Securities’ similar MasterShare plan in California.

A case against SSB could come to trial early next year, according to Nagel.

Editor's note: For any comments regarding this article, or to suggest a story idea for RR Online or Registered Representative magazine, contact Editor in Chief Dan Jamieson at [email protected], Online Editor Rick Weinberg at [email protected], Online Managing Editor Cheryl Cooper at [email protected] or Senior Editor Michael Hayes at [email protected]

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