A North Carolina advisor is suing LPL Financial, alleging her supervisor tried to poach her clients after she rebuffed his sexual advances.
In the arbitration case, Jollene Austin claims LPL Financial failed to "supervise" her supervisor, Gerald "Ty" Hendrix, and prevent him from engaging in both harassment and eventually a slander campaign intended to steal her clients.
Austin claims that starting in January 2012, she switched from a home office supervision arrangement with LPL, electing to join Hendrix's OSJ. Austin says in that doing so, she lowered her expenses dramatically, from about 15 percent of her revenue to about 5 percent.
Once under Hendrix’s supervision, Austin claims the supervisor harassed her, sending text messages like "I can't wait to see you in your PJs, send me a picture," and calling on weekends wanting to meet "for beers." She spurned the alleged advances and attempted to switch back to home office supervision, but nothing came of her request.
In responding to Austin's claims, Hendrix denies any harassment occurred, saying, “Jollene was never harassed here by anybody. Any accusation that it happened is a fabrication from a person we all know to be dishonest at this point."
According to Austin's suit, Hendrix took her rebuffs badly and later informed Austin that LPL had determined she needed to “move her book” to another broker/dealer and had 30 days to do so. Hendrix allegedly offered to buy her book at this point for $150,000, otherwise she said she'd be terminated, but Austin says she turned him down and elected to switch to a new firm.
“Hendrix…initiated an ongoing scheme to attempt to ruin [Austin’s] career and reputation, and seeks to take the clients she had,” according to the case’s statement of claim filed in February 2014.
Austin left LPL in June 2013, but claims Hendrix contacted multiple clients that left with her with false reports. He told some clients she planned to move to Canada when she had no plans to so, and implied to others that her resignation with LPL wasn't voluntary, according to the case documents. Hendrix also allegedly told several clients Austin had borrowed money from a client without the firm’s knowledge and had they known, they would have fired her, according to the complaint.
But Austin says Hendrix twisted the truth of the loans she had with a client, saying LPL was well aware of the situation. While employed with Edward Jones, Austin entered into a loan agreement and a seller-financed mortgage to lease and then buy a client's home after the client was put in a nursing home. Austin says the transaction was fully documented and approved by both Edward Jones and LPL.
“It’s very difficult to defend yourself in a situation like that because he didn’t tell everyone the same story, it was kind of whatever fit the situation,” Austin, now an advisor with Securities America, told WealthManagement.com. Hendrix allegedly didn’t stop soliciting Austin’s clients until her lawyer in the case, Stuart Meissner of New York-based Meissner Associates sent a letter to both LPL and Hendrix in early December 2013.
Hendrix—who is still a broker and supervisor at LPL—told WealthManagement.com he was unaware of the loan situation when he started supervising Austin. “She took loans from clients and then defaulted on those loans. There’s not a firm in the industry that allows brokers to borrow money from clients, there’s a real good reason for that,” he said.
Hendrix noted that LPL does not allow advisors to borrow money from clients under any circumstance. “We would never approve any broker to borrow money from a client, so we didn’t know about it,” he says. Hendrix also pointed out that after leaving LPL, Austin moved to Commonwealth, where she voluntarily resigned after only a few days when she was unable to verify approval for the loan and mortgage transactions.
According to BrokerCheck, Austin voluntarily resigned from Commonwealth, with the firm noting “she was unable to provide documentation of prior firms approval” of the transactions. Austin does have email documentation and an arms length transaction letter from Edward Jones, but Meissner says Commonwealth claimed that this was not enough to show approval. "It was the only documentation she had from Edward Jones relating to the incident and as a fomer employee, once she was already at Commonealth, Edwards had no reason to assist her, yet obviously there is nothing from Edward Jones about this on her CRD, showing this was not ever an issue while there. More importantly this was all fully disclosed when LPL hired her and never was an issue while she was there," he says.
“Any broker that’s borrowing money from clients, not telling their brokerage about it, and defaulting on the loans, I would use a lot of caution in taking that person’s word for anything,” Hendrix says, however, there is no mention of her defaulting on the loan in her record and Meissner says the matter went into mediation and it was settled last year.
As for Austin’s claims he poached clients, Hendrix says that didn’t happen. “Jollene’s assets under management were very small compared to mine and so there’s not a whole lot to gain by poaching her clients.” Austin told WealthManagement.com she had about $23 million under management while with LPL.
When contacted for details surrounding the case, an LPL spokesman declined to comment, saying the firm does not comment on pending arbitration.
“What’s happened here is LPL is letting a producer affect another producer as a supervision function,” Austin says.
In LPL’s amended answer, the firm claims that it’s not responsible for Hendrix’s actions because of his status as an independent contractor.
“We have no protection from LPL’s standpoint and that makes a lot of reps susceptible to situations like mine,” Austin says. Meissner adds that LPL’s stance has broad ramifications for any broker considering going to an independent firm.
Meissner says the hearing is scheduled for March after a January date was postponed. LPL’s CEO Mark Casady is scheduled to be in attendance after the arbitration panel approved a subpoena, Meissner says. In the state of claim, Austin is seeking over $10 million in damages, but Meissner says that amount may be adjusted.