Credit Suisse's going-away present to the brokerage industry.

So I’ve been in the securities business for over 30 years now.  For as long as I can remember, disputes between brokers and their firms went to NASD, then FINRA, arbitration.  The U-4 says it.  The FINRA Manual says it.  But Credit Suisse has a different view and, in a bizarro ruling, the Second Circuit agreed.  If you want to read the opinion, here it is..

I’m going to try to explain what happened in simple terms.  The employees had an internal beef with Credit Suisse.  The firm has an internal dispute resolution program that is informal, then mediated, then formal.  The employees went through the first two steps not to their satisfaction so, not surprisingly, they took their marbles and client list and left for Merrill Lynch.  Both firms are members of the Protocol for Broker Recruiting.

Credit Suisse then filed an arbitration against the brokers with JAMS, a mediation and arbitration service, regarding their alleged improper solicitation after leaving the firm’s employ.  Eventually, the brokers and Merrill Lynch filed a FINRA arbitration alleging that Credit Suisse violated the Protocol.  Credit Suisse said “oh no, we have to go to JAMS” and went to court to stop the FINRA arbitration, at least with the brokers.

The brokers told the court that they agreed to arbitrate in FINRA under the U-4 and FINRA Constitution and Rules.  Credit Suisse argued, incredibly, that Rule 13200 only requires arbitration, not an arbitration at FINRA.  Huh?  Worse yet, that argument prevailed, both at the trial level and the Second Circuit.  This makes my head hurt.

Did I forget to mention, Credit Suisse is pulling out of the US retail business?  So this will be the firm’s legacy.

The result left me wondering about FINRA’s actions against Merrill Lynch for making retention loans from a non-FINRA entity.  In that situation, Merrill paid a $1,000,000 fine.  I’m trying to reconcile these two situations and it makes my head hurt – again.

I’m thinking, just like the manner in which FINRA keeps sticking its finger in the expungement dike, that FINRA will be making pronouncements about how arbitration means FINRA arbitration.  If not, then it will confirm some of the suspicions held about the agency’s bias.

That’s the sporadic view of one lawyer from Jupiter, Palm Beach County, Florida.  I’m Marc Dobin.

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Dobin Law Group Successfully Represents FONU2, Inc. in AAA Arbitration.

A single AAA arbitrator denied all claims for relief against Fonu2, Inc., a publicly-held company headquartered in Fort Lauderdale, Florida.  Summit Trading, Ltd., a Bahamian company owned by the Weast Family Trust, filed an arbitration related to a Consulting Agreement entered into by Summit and Cygnus Internet, Inc. (“Cygnus”).  Fonu2 purchased the majority of Cygnus’ assets in March 2012.  In the arbitration, Summit demanded the value of 10 percent of the issued and outstanding shares of FONU2, as well as punitive damages, interest and any other appropriate relief.  Marc Dobin represented Fonu2 in the arbitration.  Jon Lieber was involved in the pre-trial issues and did most of the briefing.

In its Answer, Fonu2 alleged that Summit was required to be registered as a business broker pursuant to Fla. Stat. 475.41.  Because the payment under the subject contract was only required if a transaction occurred, we argued that the contract was illegal and unenforceable.  The arbitrator agreed.  A Florida lawyer was not involved in the drafting of the contract.  Would this have changed the outcome?  Maybe.  We won’t know.

When the testimony concluded, the parties agreed to waive oral closing and make written submissions after receiving a list of questions from the arbitrator.  This way, the parties were able to clear up any issues that the arbitrator believed to be outstanding.  The briefs were submitted just over two weeks after the arbitration concluded and the award was issued on September 26, 2014.

This case did demonstrate some of the efficiencies of arbitration.  There were no depositions.  Interrogatories and Document Requests were limited in number.  The case was completed in less than one year from start to finish.  This likely kept the legal fees down from what a full-blown jury trial in court would have cost.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida.  I’m Marc Dobin.

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FINRA Dispute Resolution Statistics Show No Advantage To All-Public Panel

I keep waiting to be wrong.  In fact, there are many instances where I am wrong.  But I don’t think I am in this instance.

FINRA has released its latest arbitration statistics and the hand-wringing and stat-twisting from the Claimants’ bar will likely continue unabated.

But the numbers are the numbers and here’s what we know through the end of March 2014.  The “win” percentage of all-public panels so far in 2014 was 33%.  The “win” percentage of majority-public panels was 43%.  Isn’t that a surprise?  So, again I ask – What was the purpose of this change?  It’s like the placebo portion of the test is getting healthier than the patients taking the test medication.

Worse still, the numbers have flipped.  If we include all of 2013 and the first three months of 2014, the all-public panels are at 42% and the majority-public panels are at 44%.  And the numbers are trending up, not down.

So I ask again – Why did we do this?  Will the Claimants’ bar now allege that even the all-public panels, devoid of any industry panelist influence, are still biased against claimants?  Or is it, as I have thought all along, that crappy cases go to hearing and the Claimants’ bar thinks, apparently without basis, that an all-public panel will be comfortable with wool over its eyes.

That’s the admittedly smug view of one lawyer from Jupiter, Palm Beach County, Florida.  I’m Marc Dobin.

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The FINRA All Public Arbitration Panel Revisited

Two months ago, I wrote a post about FINRA All-Public panels and how they don’t seem to make a difference. FINRA has released its statistics through September 2013 here. Guess what? Nothing has changed.

The number of cases decided by both classes of panels has increased. The Majority-Public panel award percentage has held steady at 41% finding for Claimant. The All-Public panels have moved from 42% to 43%. This is insignificant given the number of cases decided. In fact, with the new numbers, if only one more case had been decided in favor of the Respondent, the numbers would be virtually indistinguishable.

So what does this mean? I’m not sure. One thing I take away from it is that I don’t put a lot of stock in all the hand-wringing about arbitration panels being a stacked deck because of the industry panelist. Take away the industry panelist and it looks like the “win” rate is just about the same. So much for the stacked deck.

That’s the “I told you so” view of one arbitration lawyer from lovely Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Further proof of the toothlessness of corporate billing policies.

We are continuing to analyze Wells Fargo’s counsel’s bills. Aside from identical billing entries for both identical or differing amounts, it seems that the firm may have figured out a way to recoup its investment, then waste it, on electronic discovery aids.

There are a number of paired entries where one legal assistant bills a .10 or .20 to tell another legal assistant to input documents into a Summation database. Summation, like the program our firm uses, Caselogistix, is a database that enables the law firm to categorize and search discovery documents, among other things. Then the second paralegal bills for importing the documents into the database and categorizing them.

The irony? I could see no laptop computer on the other side of the table. Summation has “briefcasing” abilities that allows the entire database, including the word index, to be saved on a laptop and used at trial. Caselogistix has the same functionality and I had my client’s entire database on my laptop. The other side, however, had a collection of banker’s boxes and no laptop in use that I could see. Whenever there was a document issue, I could see the senior associate leafing through the exhibit notebooks (one 4 incher and one 3 incher) trying to find a document to address the question. Again, no laptop.

Clients should not be paying for such inefficiency. I had Wells Fargo’s entire notebook in electronic form on my laptop. It was in a pdf file and I could word search it. I had better searching capabilities of Wells Fargo’s exhibit book than Wells Fargo did.

Wake up, corporate America. If you publish a billing policy, enforce it. I represent corporations with billing policies. I follow them. I have clients with e-billing and UTBMS codes. Most billing policies I’ve seen, other than one client that actually was part of FedEx, prohibit the routine use of overnight delivery services. But the fee affidavit I referred to was sent to me by email around 3:30 on Friday afternoon and then a hard copy was sent “Priority Overnight” for delivery Monday morning. I received it before 9:00 a.m. For what reason? Wells Fargo shouldn’t pay for this waste and neither should my client as the recipient of the fee application.

Dear reader (readers?), please instruct your staff about the judicious use of overnight delivery. If I am sent an email, what requirement is there to send a Priority Overnight FedEx, unless you have family members whose incomes depend on the success of FedEx?

I have represented very large corporations, and still do. But there are people within some corporations who seem to feel that a large law firm, with all of its inefficiencies, is the only way to get effective representation. Or the in-house decision-maker feels a large law firm provides “cover.” But when they do this, and pay the bills that contain obvious wastes of resources, how will a law firm ever become more efficient? Paying the bills of a firm that uses Summation in the office but not at trial, but instead sends a high-priced associate to manage the paper, rewards inefficiency. Most firms I represent will not allow two lawyers to attend a hearing without prior permission. Was there permission?

This was a $200,000 collection case. My firm has two lawyers and a paralegal. Wells Fargo is an enormous corporation. Did they think I was going to outgun them with my “vast” resources from the world HQ in Jupiter, FL? At one point they had five people working on this file. That’s two more people than I have in my firm. The staffing on this file was ridiculous as was the billing.

That’s the incredulous view of one lawyer from Jupiter, Florida. I’m Marc Dobin and I billed no one for this blog entry.

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Corporate Billing Policies – Proof They are a Joke.

Within the last 20 years, corporate billing policies have become much more prevalent. This was a result, in my opinion, of lawyers and law firms becoming pigs and billing for ridiculous things and outrageous amounts. Most law firms, chastened by this increased scrutiny, tightened up their billing practices and changed the way they do business. Most clients did so as well.

Well, I found an exception. As I mentioned, I just finished trying a case against Wells Fargo Advisors. In connection with that case, which was tried in less than two days, I submitted a bill for the work my firm did, including costs, to the arbitrators. That bill was in the low $30,000 range. That’s about right for a case of the type and size I was handling.

Opposing counsel, however, apparently did a lot more work than I did. Their bill was over $150,000! That’s not a typo folks. For a two day collection case, with defenses. At the hearing, the law firm sent a senior partner, at a higher rate than mine, and a senior associate, who’s rate was about 75% of mine. Collectively, the firm seems to have billed its client about $10.50 per minute for the hearing.

There are many outrageous entries. There’s a 36 minute entry by opposing counsel to review a two-line email that I sent to FINRA. Then a 12 minute entry to write a two-word response. There’s what appears to be duplicate billing. There’s billing for administrative tasks like changing the due date on a calendar. I saw at least one entry where the file was billed for one legal assistant to tell another what to do.

There’s billing for hours and hours of reviewing the arbitrators’ bios. There’s billing for “organizing arbitrator ranking award information.” I thought that corporate clients stopped paying for administrative tasks a long time ago. Apparently Wells Fargo is in the minority. The firm even paid for legal assistants to update pleading binders, a task that most corporate clients stopped paying for. If you’re a lawyer and you’re reading this, get Wells Fargo’s work. It seems that they either pay for stuff that most clients no longer pay for, or they don’t review their bills closely enough to see that they’re paying for things that their policy, if they have one, prohibits.

When I received this affidavit of fees on Friday, I only looked at the total. Now that we’re digging deep into the bill, we found that this firm, which claims to represent brokerage firms, charged their client to research FINRA rules on whether or not exhibit notebooks had to be exchanged. This is basic stuff. Any firm that does this work would know that there is no such requirement without spending 48 minutes to figure this out. They could have asked their client and only billed twelve minutes for that.

There are plenty more examples of entries that a corporate client should not pay but apparently did.

That’s the view of an astounded lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin and I did not bill my client for this message.

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Things I learned at an arbitration with Wells Fargo Advisors last week.

As you might know, I handle a lot of securities arbitrations. I usually end up learning a thing or two during the course of the arbitration. I thought I’d share some things with you.

1 – Wells Fargo Advisors does not have a policy stating that commissions generated by a client only belong to the “broker of record.” This may be the practice, but the branch manager testified that there is no such policy.

2 – Wells Fargo Advisors, as a matter of course, compounds interest monthly when it calculates the amount it is claiming on promissory notes. However, the promissory notes do not provide for monthly compounding of interest. When the witness was asked why the interest was compounded monthly, he essentially said “because that’s how we do it.” Wells Fargo withdrew its monthly compounding of interest calculation and was going to submit the simple interest calculation by affidavit. Haven’t seen the affidavit yet.

3 – Wells Fargo Advisors has a prepaid management fee agreement. A Wells Fargo witness claims that it is electronically attested to. No such agreement was produced.

4 – Wells Fargo Advisors’ practice of conducting most supervision through a central office, rather than at the branch level, has actually reduced the level of supervision, in my opinion as someone with over 25 years’ of experience in the securities business, not increased it. For example, a central supervision office employee has no “feel” for the office. That employee won’t recognize patterns or put a broker’s rep number to a name and then wonder why the broker is engaging in certain transactions. Instead, it appears that the branch manager pretty much waits for the central office to tell him/her what to do. In the meantime, there are certain things that the central office doesn’t look for and the branch manager can’t see. It’s a shame, too.

I used to describe being a branch manager as requiring as much art as science. Walking around the office, the branch manager can “feel” what’s going on. The manager can tell who is working and who isn’t. But if the manager is simply waiting for a computer to tell him or her what to look for, rather than being proactive, then it may be too late. And then to remove many of these tasks and assign them to some remote office to look at, well that’s just asking for a problem.

As an example, many years ago, probably close to 30, a regional administrative manager walked into a satellite office at 2:30 or so in the afternoon. The lobby was full of clients waiting to see one of the two brokers in the office. The office looked very busy. But the office had only entered 3 or 4 order tickets by 2:30. The regional admin thought it was odd and they decided to close the office and move the the brokers to the main office, under greater supervision. The brokers refused to relocate and resigned. After they left the firm, the wheels came off of the Ponzi scheme they were participating in. The regional admin was right. A computer could not detect what the regional admin understood. By the way, that regional admin is now a branch manager with Wells Fargo. And I hope his talents aren’t being wasted by relying only on computer printouts.

Today I enter my 21st year as a resident of the Sunshine State. When I left New York, branch managers managed. They reviewed. They gave sales advice. They mentored. Now they wait for HAL (that’s a Space Odyssey reference there) to tell them what to do. In my opinion, heavily relying on computers for branch office supervision (and I love computers for many things) is a mistake. Computers don’t feel. They don’t see. They don’t hear. But that’s what good managers do. Or at least they did until someone decided that computerized supervision was the next big thing.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Morgan Stanley Wealth Management Ordered to Pay 1 Million Dollars in FINRA Arbitration.

We had the distinct privilege of representing Greg Torretta in an arbitration against Morgan Stanley Wealth Management (formerly known as Morgan Stanley Smith Barney). Greg worked for Morgan Stanley and its predecessor companies for 26 years. He started as a trainee with EF Hutton (When EF Hutton talks, people listen) in 1984. He kept going to the same job every day. The firm changed its name any number of times. But Greg kept working.

Greg was the perfect example of a company man. He relocated his family to Texas when the firm asked him (firmly) to take over the Houston branch complex there. He relocated to New York, and lived apart from his family, to be a Regional Director for Smith Barney (as his employer was called then). He waited patiently to find out if he had a job after the Morgan Stanley – Smith Barney merger. He took the job as complex manager of the Garden City, New York complex, which was a lower prestige position than Regional Director. But he kept at it.

He was asked to coach a subordinate manager and see if he could be salvaged. He did what he was asked. But he eventually realized that this manager just wasn’t going to make it in the MSSB system. He recommended a termination, which he could have done all along. MSSB dawdled a bit. The manager sensed that Greg was going to fire him. So he took aggressive action to save his job. He and MSSB sacrificed Greg in the process. Greg felt that he wasn’t handled the same way that other employees had been treated in similar situations. And he felt that, after 26 years with the same company, he deserved a bit of consideration.

MSSB would have none of that. A swift decision was made that Greg would either resign or be fired. He resigned, having never been fired from a job before. He thought for a few months and then he hired a lawyer. Notice I didn’t say that he “found” a lawyer. He didn’t find us. I’ve known Greg for almost as long as I’ve been in Florida. I coached his younger daughter in soccer. I was honored that he came to my firm for representation.

We started to work on the case. While we were investigating, MSSB realized what Greg knew all along — the branch manager must be fired. MSSB fired the manager for the very reason that Greg wanted to fire him. But it was too late, and corporations are not well-known for saying they’re sorry.

We filed the arbitration. MSSB answered the claim. We had four and a half days of hearings last September and November. We demonstrated that Greg had big damages. These weren’t made up numbers but real facts. People at Greg’s level within MSSB are well-compensated. The hearing was hard-fought. Opposing counsel was a good lawyer. And he had quite an impressive track record. From what I could tell, he didn’t lose very often.

The arbitration award showed up in our office late Friday afternoon. The arbitration panel awarded Greg $1,000,000. That’s a lot of zeroes. But Greg deserved it–and more. But most of all, Greg felt vindicated. He felt that the panel saw what he knew to be the case, that Morgan Stanley had obligations and didn’t fulfill them. That he had been mistreated. And he saw that, despite its many critics, at least this time the system worked.

Yes, winning feels better than losing. Anyone who denies that is lying. But winning for a client who you genuinely like and respect is a reward on a different level. We were glad that we got Greg some relief. We can’t unwind history, but can tell Greg that the panel agreed with him. And that’s what arbitration is all about.

Every case is different. Every arbitration panel is different. Every client is different. I could lose a big case tomorrow. But last Friday, when I was talking to Greg, I was glad to be a lawyer and glad to be his lawyer.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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FINRA allows for special procedures for big cases.

FINRA announced this week the establishment of a pilot program for cases involving $10 million dollars or more. If your claim is $9.5 million, you’re not out of luck. The “pilot program” is available to any case, but they are targeting $10 Million dollar cases and above.

Basically, the new procedures will give the parties (inmates) the ability to make their own rules (keys to the asylum). FINRA is making a large assumption — that lawyers on opposite sides can mutually agree on anything other than the other lawyer is a nitwit. If lawyers are so agreeable, why did FINRA have to amend its arbitrator selection procedures to make sure that at least two arbitrators remained on the list after the parties exercised their strikes? Because most lawyers in “litigation mode” are disagreeable and uncooperative.

I know I’ve mentioned this before, but there was a time when an arbitration over $250,000 warranted five arbitrators. It was like being in front of an appellate bench (although most in Florida are 3 judges). Now FINRA is allowing the parties to change almost any rule.

And FINRA will allow all those discovery vehicles that courtroom-oriented lawyers love so much — interrogatories, admissions and depositions. I can hear the slobber drooling off of the faces onto the desks of hourly lawyers all across the country. Now lawyers can’t be sanctioned for outrageous discovery conduct (because arbitrators don’t have that authority), so they can act like spoiled children in a sandbox with impunity. Cynic? Me? No.

The good news – parties can only enter into the pilot program upon consent of all parties. The bad news – once there is agreement, and it looks like it was a bad idea, a party can’t back out. All or nothing folks.

So who will sign up for this? My guess is it will be large institutional claimants and respondents who are represented by large institutional law firms. Let’s face it, most of those firms aren’t really comfortable in arbitration anyway. Now they can assign the squadron of young, under-utilized, lawyers to all the menial tasks that they were missing out on when a case was in arbitration.

Basically, it appears that the only the thing that may end up missing from this is a judge and jury. It will be interesting to see how this program plays out.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Merrill Lynch fined for trying to avoid arbitration.

I thought this smelled when I first heard about it. When Merill Lynch merged with Bank Of America, the retention awards were made by an entity called Merrill Lynch International Finance, or some such nonsense. And I heard that there was a specific waiver of counterclaim rights in the agreement. Of course, brokers signed these agreements. What are the chances that they read them? About as high a rate as one might expect of those people who read the iTunes license agreement. (Google “south park” and “Why won’t it read?”)

It was quite obvious to me that Merrill Lynch had overplayed its sizable power. It was also clear that Merrill was trying desperately to avoid going to the very forum that it has used for years, arbitration. Merrill is likely sick and tired of arbitrators actually applying the “real world” to its employment situations instead of the world according to Merrill’s employment lawyers at their high-priced law firms. (I have friends at those firms, but it doesn’t mean I agree with them.)

FINRA got wind of what Merrill/Bank of America was up to. And it has cost Merrill $1,000,000 in fines to atone for its sin of trying to avoid arbitration. Reuters reports that Merrill gave out $2.8 billion in retention bonuses and used this ruse to avoid arbitration. One wonders what other things Merrill Lynch did and is still doing to brokers who went through the retention process. Those may come to light as well.

In the meantime, FINRA did its job and stopped Merrill from continuing to pull this stunt. Like I said at the beginning, it didn’t smell right. It seems that FINRA picked up the same odor and traced it to its source.

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