A messy arbitration case during which former Raymond James & Associates brokers sought $36 million led to a confidential settlement and an award paying certainly one of them $500.
After a 26-session listening to, a three-member FINRA arbitration panel dismissed all however one of many allegations of defamation, unjust enrichment and different claims filed by monetary advisors Lynn Cooper Faust, Michael Anthony Faust and Joe Tom King Jr., in accordance to the Nov. 30 award. The case and a counterclaim filed by Raymond James revolved across the trio’s 2018 terminations over allegations about their gross sales of unit funding trusts, the identical product that later confirmed up in an SEC enforcement case towards Raymond James masking their time with the agency. The Fausts and Raymond James later settled the brokerage’s counterclaim.
The Tampa, Florida-based panel awarded King $500 in prices and assessed all however 4% out of the greater than $65,000 in administrative charges for the continuing to the agency — a small gesture towards advisors who misplaced a case accusing Raymond James of “burning” their books of enterprise and calling for a referral to FINRA over the agency’s “fraudulent ‘inside investigation’ actions.” Defamation circumstances not often result in vital funds or any victories for brokers, in keeping with Arbitration Perception’s Louis Straney, a former regulator who usually serves as an skilled witness.
The arbitrators “heard it over quite a lot of classes, and there was stay testimony,” Straney mentioned. “On the finish, there was a directed verdict in favor of the protection. It’s actually exhausting for brokers to prevail in these contract-employment circumstances as a result of the contracts are fairly stable.”
Straney identified that the arbitration award doc leaves out most particulars that would assist clarify why the arbitrators upheld the movement to dismiss the claims beneath a Nov. 7 order. In its counterclaim, Raymond James requested that the advisors pay the agency again for remediation funds to shoppers totaling greater than $800,000. Lynn and Michael Faust of Faust Wealth Administration Group now work for Stifel Monetary at a Greenville, South Carolina-based department, whereas King of Panama Metropolis, Florida-based King Advisory Group has moved on to Ameriprise.
The Fausts didn’t reply to requests for remark, whereas King referred an inquiry to lawyer Marc Dobin of the Dobin Legislation Group.
A long time within the business
The Fausts are associated, and so they didn’t work in the identical Raymond James workplace as King, Dobin mentioned in an emailed assertion. After dismissal of the opposite claims, King elected to go ahead with the remaining allegation that Raymond James violated a FINRA rule on business honor and rules of commerce. Dobin declined to offer any extra details about the settlement of the counterclaim, however he famous that King obtained a small award for prices and the arbitrators ordered Raymond James to pay tens of 1000’s of {dollars} in different charges.
“They believed that they had been handled unfairly main as much as and together with the time once they had been terminated,” Dobin mentioned. “Whereas our shoppers are clearly dissatisfied within the consequence and disagree with the conclusions reached by the arbitrators, they settle for the panel’s determination and are ready to maneuver ahead with their careers.”
Representatives for Raymond James didn’t reply to requests for remark.
King has been within the business for 45 years, whereas Lynn Faust has a four-decade tenure and Michael has been an advisor for greater than 20 years, in keeping with BrokerCheck. Lynn Faust had been a grade college instructor earlier than turning into an advisor, her firm bio says.
Lynn Faust and her son Michael left the agency as essentially the most distinguished names out of at the very least seven brokers fired in 2018 over UIT gross sales, the wealth administration information outlet AdvisorHub reported on the time. A number of unidentified folks “inside and outdoors the corporate” instructed the outlet that the terminations probably recommended there was an upcoming enforcement motion.
A few 12 months later, Raymond James agreed to pay $15 million to settle an SEC case alleging the agency charged extra commissions in sure UIT gross sales, amongst different conduct that violated the foundations. Investigators had accused the agency of recommending that brokerage clients roll over their UITs to new ones with none willpower about whether or not the exchanges had been appropriate, leading to greater gross sales commissions.
Terminated and arbitrated
The agency discharged the three former registered representatives in October and December of 2018, citing identically phrased allegations on FINRA BrokerCheck that their terminations had been “resulting from considerations referring to the character of advisor’s UIT exercise.” In September 2019, former shoppers of Lynn Faust with Raymond James obtained a settlement of $82,000 after alleging she misrepresented UITs on the time of sale, her detailed BrokerCheck file reveals. One other shopper criticism, which remains to be pending, accuses Faust of misrepresenting exchange-traded notes.
In feedback on BrokerCheck, she mentioned she had by no means even seen a replica of the shopper criticism resulting in the sooner settlement and that the agency agreed to the cost with out chatting with her or her lawyer. Of their responses to the agency’s allegations about their gross sales of UITs, each Fausts additionally denied any wrongdoing and quoted a low value for the often-expensive and dangerous merchandise.
“All trades had been made in session with the shopper, had been market-driven and made with the shopper’s finest curiosity in thoughts,” the Fausts mentioned. “We by no means made a commerce that we believed was not in line with that customary. The buying and selling additionally conformed to the Raymond James coverage in impact on the time, together with any crucial principal assessment. Our common price to shoppers together with charges and commissions was 1.04% yearly, together with the UIT exercise.”
The disappointing arbitration determination for the brokers got here greater than two years after they filed the case in July 2019. That they had named at the very least seven causes of motion towards the agency primarily based on its “unwarranted and pretextual termination” of them for the UIT gross sales. The claimants requested deferred compensation, damages, lawyer charges and different prices including as much as a mixed $35.95 million, plus expungement of their terminations. In its reply to their case, the agency accused them of unjust enrichment in its personal submitting whereas denying their allegations.
The advisors “engaged in quite a few short-hold gross sales of UITs and sometimes reinvested the proceeds in different UITs, thereby growing their very own compensation from UITs with out conducting an applicable cheap foundation suitability evaluation for respondent’s shoppers,” in keeping with an outline of the counterclaim included within the award doc.
It’s not potential to inform from the doc whether or not the settlement required them to pay Raymond James or vice versa, Straney mentioned. Most FINRA awards include little to not one of the particulars that may be out there in court docket, although events typically share them after the case or file paperwork publicly to get a decide’s affirmation of arbitration selections. Corporations should swear that any allegations showing on BrokerCheck are correct, whereas shoppers use the location to analysis advisors and brokers are searching for a good depiction of their data, Straney identified.
“Everybody has loads of vested curiosity within the data being right,” Straney mentioned. “If you terminate somebody both for trigger or terminate them as a result of they’ve give up and gone to a different agency, there’s great significance in accuracy and equity. We simply do not know the background on this example.”
