Thinking about retiring? Think carefully before drawing up an agreement with someone at your firm to take over your book. A broker could seize your accounts with the manager's approval, leaving you out on the street.
Ellis Prince Jr., a former Prudential Securities rep, claimed that's what happened to him. This past May, an NASDR arbitration panel seemed to agree and awarded him $211,000. Prince had alleged breach of contract, tortious interference, age discrimination and U-5 defamation; the panel did not specify which claims the award covered.
In 1994, health problems compelled Prince, then 67, to look for a way to slow down. He had worked in Prudential's Richmond, Va., branch since it opened 12 years before, after four years at Merrill Lynch.
"Since most of my clients now were retired and mainly needed servicing, I chose a broker to handle their accounts because of a first-rate sales assistant he had that I knew for many years,"says Prince.
He signed a written contract with the broker, Warren Rowe, in February 1995, to transfer his $12 million-in-assets book to Rowe. In return, Rowe would pay him $2,000 a month, and Prince could continue the firm's retirement benefits and payroll deductions to his 401(k) amounting to an annual $6,667. Prince agreed to meet quarterly goals of $25,000 gross. Prudential approved the contract, which was to run three to four years.
"After taxes, it would work out that I'd get $70,000 a year, a way to make sure my family was protected," says Prince.
Several months into the contract, Prince returned from a vacation to news from Rowe that three clients had called complaining that Prince had made unauthorized trades. Rowe had notified the branch manager, Robert Provence. Even though no written complaints had been made, and Provence's follow-up calls to the clients turned up no complaints, the manager accused Prince of using unauthorized discretion. Prince resigned in July 1995--in protest--he says.
A job offer at another firm fell through when the firm discovered the charge on Prince's U-5. When the NYSE began questioning Prince about his U-5, Prince offered to provide client affidavits to disprove the charges.
In a Sept. 6, 1995, letter to the NYSE, Prince wrote: "I did not receive any commissions for any of these trades ... [the contract with Rowe] provided that all commissions from my customer base were to be paid to Mr. Rowe."
Prince sent the client affidavits to Prudential to get his U-5 amended. In one, Prince's client, Douglas Salah, says, "Mr. Rowe seemed determined to characterize my call as an allegation that Mr. Prince had executed the trade without my authorization despite the fact that I specifically told him that the call was not a complaint and should not be construed as such."
Prudential never filed the amendment, and Prince says he never heard from the NYSE again. The arbitration panel ordered Prudential to delete from Prince's U-5 all references to unauthorized discretion in the three accounts. The panel dismissed Prince's claims against Rowe and Provence.
The panel's monetary award "came very close to my actual cash loss for the two years arguing the complaint," Prince says, but didn't cover his attorneys' fees.
"It changed all our of life plans," Prince says. "We had to sell our home of 32 years." After working for several Fortune 500 companies before becoming a broker, Prince says, "I ended up retiring from the only firm I was ashamed to work for."
A Prudential spokesperson says, "We believed we were adhering to the law by putting the complaints on the U-5. We regret the arbitrators' decision, but have amended Prince's U-5 as directed."
