Credit Suisse Ordered to Pay Two Brokers At Least $6.7 Million
(Corrects number of brokers said to have withdrawn claims to “more than a dozen,” not more than two dozen, in sixth paragraph.)
A pair of Morgan Stanley brokers who joined the firm following Credit Suisse’s 2015 announcement that it was closing its U.S. business won a wide-ranging $6.7 million judgment from Finra arbitrators on Tuesday.A three-person panel in New York made the award to Joseph T. Lerner and Anna Sarai Winderbaum. The sum represents unvested deferred compensation they claimed they lost because of the shutdown, plus attorneys’ fees, arbitration forum costs and additional interest that accrues until the award is paid.
The arbitrators doubled the $2.8 million that the advisers said they were owed in deferred stock under a “liquidated damages” provision of New York State labor law.
“Awarding costs and attorneys’ fees clearly signaled that the panel found CS’s litigation position to be frivolous,” said Robert Miller, a lawyer at the New York firm of Lax and Neville that represented the advisors.
Scores of former Credit Suisse “relationship managers” have deferred compensation cases pending in arbitration. They have prevailed in four decisions, but the Swiss bank last month won a $2.2 million arbitration against a Texas broker in the fifth deferred comp claim decided to date. The bank countersued the broker for failing to pay the balance on promissory notes he owed.
More than a dozen former Credit Suisse brokers have withdrawn claims for deferred compensation, acknowledging the bank’s argument that the new firms they joined made them whole by reproducing or bettering the performance-related bonuses they left behind, said a person familiar with the cases. (Miller said several of those cases were settled rather than withdrawn.)
“We continue to believe that no one is entitled to receive the same dollar twice, and we will continue to defend our bank against meritless attempts to do so, as we have in many other proceedings where former brokers have abandoned such claims,” a Credit Suisse spokeswoman said on Wednesday. “We believe this recent decision is flawed as it ignores the governing contracts and the industry standard make-whole process under which proper financial incentives are maintained, and the economic interests of employees are protected.”
So-called double-dipping jeopardizes the “settled industry practice” of making experienced recruits whole on deferred compensation by aligning them with their new firms and shareholders, Credit Suisse told a judge last month in an unsuccessful attempt to vacate a $976,000 arbitration award, according to a court transcript.
The Credit Suisse spokeswoman declined to say whether the bank will seek to vacate Tuesday’s decision. Neither Lerner nor Winderbaum, who had spent their entire careers with Credit Suisse and predecessor firm Donaldson, Lufkin & Jenrette before joining Morgan Stanley’s private wealth unit, returned a request for comment left with an associate.
Rogge Dunn, a Texas-based lawyer representing some Credit Suisse brokers, said the firm’s aggressive stance is funded by a litigation budget of some $20 million, and aims to deter brokers from pursuing their claims or initiating new ones.
Lawyers for both Credit Suisse and its former brokers acknowledged that neither big banks nor highly compensated advisers receive empathy from the public.
“While high earners don’t always engender sympathy, it’s all still the same” under the law, said Brian Neville, a partner at the New York firm that represented the Morgan Stanley brokers. “CS took their money with the promise that if the firm shut down or they were let go, and it was not for cause, that the employees would keep their past deferred wages.”
After announcing in late 2015 that it planned to close its U.S. “private bank” operations, Credit Suisse encouraged brokers to join Wells Fargo Advisors, which had agreed to pay the Swiss bank a finder’s fee for successful placements.
Brokers who went to Wells received 300% of the revenue they produced in the previous 12 months as well as release over a period of years of their unvested deferred compensation, according to a person familiar with the deals.
Credit Suisse agreed to release about $14 million of deferred money to brokers who joined Wells, but saved more than $200 million by denying the bonus money to advisors who joined rivals other than Wells, according to a transcript of an argument made in an earlier case by Lax and Neville partner Barry Lax.
He and other lawyers have argued that their advisor clients did not resign from Credit Suisse, which would have ended their right to unvested bonuses, but were “constructively terminated” and thus qualified for accelerated vesting as a result of the bank’s closing of its U.S. business.
The arbitrators in Tuesday’s decision said that Lerner and Winderbaum should apply to a court to have their U-5 termination forms filed by Credit Suisse changed to “terminated without cause” from voluntarily resigned.
In addition to releasing previously unvested compensation to advisors who joined Wells Fargo, Credit Suisse paid brokers who remained at the broker-dealer in the six-month interim between the closing announcement and the final closing day in May 2016 if they did join another broker-dealer.