Ameriprise Financial Loses Battle with Two Former Brokers

Posted on April 13th, 2016 at 10:50 AM
Ameriprise Financial Loses Battle with Two Former Brokers

From the Desk of Jim Eccleston at Eccleston Law LLC:

An effort to repossess stock awards from two advisers not only failed but produced costly consequences for Ameriprise Financial. In March, FINRA arbitration panels awarded the two advisers with more than $500,000 for Ameriprise’s alleged misconduct including unfair trade practices and breach of the Broker Protocol, a legal framework governing how advisers can transfer to new firms.

The conflict began when the two representatives left Ameriprise in January of 2014 to work with Janney Montgomery Scott. They worked in the same office, but, according to attorneys, were not a team. Before working with Ameriprise the two brokers worked in the advisory unit of H&R Block, which was sold to Ameriprise in 2008. Upon the acquisition, Ameriprise Financial, parent company of Ameriprise’s brokerage unit, issued a stock award to advisers as an incentive for them to stay on with the new firm. The stock award had a five year vesting period that ended January 2, 2014. One representative sold his shares four days after the vesting period and subsequently resigned on January 27, 2014.

The parent company quickly after tried to reclaim the stock awards by using the American Arbitration Association (AAA), claiming that, as a separate entity from the brokerage unit, it was not bound by the Broker Protocol. It then used this status to arbitrate outside of FINRA. This marked an unusual play in employment disputes between advisers and firms, as they are almost always resolved in FINRA’s arbitration process. In the event that the advisers had lost, a precedent might have been set allowing firms to dodge the protocol.

Fortunately for the brokers, they were able to use their W2 forms to trace the awards back to the Ameriprise brokerage unit. The parent company claimed that the brokers should repay the award on the grounds that they broke the contract by competing against Ameriprise Financial Services (the brokerage unit). However, the arbitrators with the AAA ruled in favor of the brokers, asserting that Ameriprise’s claims had no basis. In Griffith’s case arbitrator Wade stated that Ameriprise, “failed to carry its burden of proof to demonstrate that it suffered an actual loss due to the transfer of the stock to Griffith.”

The case presented before the AAA by Ameriprise contained important details that significantly affected the outcome. In review of the arbitration documents, there were irregularities. To begin, Ameriprise sought $567,000 from one representative, but when it came time for the hearing Ameriprise representatives revised its claim to $873,000. Ameriprise was adamant about the clarity of the incentive award leading up to the hearing, so the arbitrators were surprised by such a sudden increase in the figure. One arbitrator said, “[Ameriprise’s effort to ratchet up the damages against Respondent by a significant amount for the first time at the hearing, and its contentions that it was justified in doing so in the face of [Ameriprise’s] filings in the case, affected the credibility of [Ameriprise’s] claim.”

The final blow to Ameriprise came with parallel cases filed with FINRA in which the two brokers sought damages against Ameriprise for unfair trade practice and breach of Broker Protocol, among others. The two won an additional combined $505,000 for damages and attorney’s fees. The FINRA arbitration panel did not publicly explain its decisions which is customary. 

The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

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