Credit Suisse Doubles Down on Broker Litigation
Undeterred by six- and seven-figure arbitration awards to former Credit Suisse Securities (USA) brokers for unpaid compensation, the Swiss bank in recent weeks filed lawsuits to vacate two awards and is appealing a New York’s court refusal to vacate a third one.The rare strategy of asking courts to overturn arbitration awards is justified by the law and by industry standards that frown on allowing departing brokers to collect back pay if they are compensated for it at new firms they join, according to Credit Suisse. The Swiss bank shuttered its U.S. brokerage operations in 2016, and urged its brokers to join Wells Fargo Advisors, which paid it referral fees.
Lawyers for scores of brokers who left Credit Suisse for firms other than its preferred partner argue that the lawsuits are bullying tactics aimed at persuading dozens of brokers with outstanding claims to reach settlements. They also deny the “double-dipping” characterization.
On May 31, Credit Suisse asked a New York State Supreme Court judge to vacate a $6.7 million award to two brokers who joined Morgan Stanley. A week later it petitioned a judge in the Superior Court of Fulton County in Georgia to invalidate a $3.2 million deferred compensation award to an Atlanta advisor who joined J.P. Morgan Securities (despite having won more than $3 million in arbitration from the broker for promissory notes he owed).
Credit Suisse has also filed to overturn a New York State supreme court judge’s refusal to vacate a $975,531 deferred-compensation arbitration award to a third New York broker who joined UBS Financial Services. The case is pending in the New York State Appellate Division, First Department.
Credit Suisse’s litigation strategy has persuaded more than a dozen of its former “relationship managers” who brought arbitration claims to drop them voluntarily, according to the bank. It also has won three arbitration awards tied to “forgivable loans” that brokers owed the bank (while losing four claims to date on deferred pay).
“In the handful of cases where arbitration panels reached incorrect conclusions, Credit Suisse is pursuing motions to vacate because we continue to believe that no one is entitled to double-dip and be paid the same dollar twice,” a bank spokesperson said. “To be clear, these RMs were paid by the firms they joined for the same money they are suing for. We believe our position is correct as a matter of law and right as a matter of fair play in the marketplace.”
Lawyers in the three recent court cases declined to discuss Credit Suisse’s filings, or did not respond.
Rogge Dunn, a Dallas lawyer who represents some former Credit Suisse financial advisors in ongoing Financial Industry Regulatory Authority arbitrations, said they and dozens of other brokers who have brought pay claims are undeterred by threats of drawn-out litigation.
“My understanding is almost all of the FA’s who are currently arbitrating against Credit Suisse have not succumbed to Credit Suisse’s scorched-earth tactics,” he wrote in an e-mail. “While the appeal of the FAs’ victories by Credit Suisse makes it more expensive, I can’t imagine any FA who would not fight the appeal to perfect their FINRA victory.”
A broker who has brought an arbitration claim said he has been told that 14 or 15 former brokers who were owed relatively small amounts of deferred compensation have reached settlements. A Credit Suisse source confirmed the estimate, but did not discuss specifics or the size of the claims.
As a matter of law, judges give high deference to arbitration decisions that help unclog court calendars, and rarely vacate the decisions. The Federal Arbitration Act requires parties to prove blatant misconduct on the part of arbitrators or egregious procedural errors.
Credit Suisse has argued in some of its vacate petitions that arbitrators failed to allow evidence to be submitted or to schedule testimony from a senior former bank executive.
The bank and the brokers also disagree about the double-dipping allegations.
Lawyers for brokers who left Credit Suisse for places other than Wells Fargo argue that their clients were essentially terminated involuntarily when the Swiss bank announced it was shuttering operations in 2015, triggering accelerated vesting clauses in their employment contracts.
Credit Suisse has argued in court that those who did not accept the Wells Fargo deal resigned voluntarily, and were not entitled to deferred compensation because of money they received from their new firms.
“Credit Suisse’s claim that its former FAs have been fully reimbursed by their new firms for the damages they suffered when CS closed and abandoned its clients and financial advisors is untrue,” Dunn said. “The fallacy in Credit Suisse’s arguments is proven by the fact that four out of the five arbitrations that have gone to trial have all awarded the FAs the full amount of their deferred compensation.”