A lengthy arbitration ruling involving Little Rock-based Stephens Inc. and several former employees who left for Jonesboro-based Benjamin F. Edwards and Co. has been resolved with a $18.17 million award for Stephens.
On Friday, Jan. 21, 2022, a dispute resolution award was published on the FINRA website. FINRA (Financial Industry Regulatory Authority) is an independent, nongovernmental organization that writes and enforces the rules governing registered brokers and broker-dealer firms in the U.S. A three-person arbitration panel oversaw the dispute before siding with Stephens Inc. in a 2-1 decision.
The dispute involves Stephens Inc. – the claimant – accusing Benjamin F. Edwards & Company, Inc. (BFE), Benjamin F. Edwards, IV, Brian Todd Erwin, Timothy Garry Fitzgerald, Jeffrey Lynn Green, and Malcolm Andy Peeler – the respondents – of a variety of industry violations, including raiding, breach of contract, conspiracy, and protocols for broker recruiting, to name a few. Not all respondents were accused of all violations.
Some conclusions from the arbitration panel, of which two members agreed and one dissented, include:
· The panel said BFE and Edwards, individually, are liable for raiding employees from Stephens Inc.
· BFE and Edwards clearly expressed an intent to commit an act not allowed within the financial industry. Multiple e-mails and texts evidenced that BFE employees, including Edwards, intended to hire the four FAs (financial advisors) in violation of their own definition of raiding.
· There was extensive evidence that BFE’s recruiting efforts were part of a single hiring plan. BFE recruited all the FAs in claimant’s Jonesboro, Arkansas office.
· Peeler’s behavior was especially egregious before and after his departure from claimant. He consistently, flagrantly violated any duty of loyalty to claimant, breached his contract, and aided an outside firm in their raiding efforts.
· BFE, Peeler, Erwin, Green and Fitzgerald violated the Broker Protocol.
The arbitration conclusion said Stephens Inc. did suffer from lost net profits and lost business due to the actions of the respondents.
“Punitive damages are appropriate. The harm was not achieved by a mere accident. When the ‘defendant knew or should have known that, in light of surrounding circumstances, its conduct would naturally and probably result in injury and that it continued the conduct in reckless disregard of the circumstances, from which malice may be inferred,’” the decision read.
The majority of the arbitration panel called for these final determinations:
· Respondents are jointly and severally liable for and shall pay to Claimant the sum of $10,970,000.00 in compensatory damages.
· BFE is liable for and shall pay to Claimant the sum of $2,000,000.00 in punitive damages.
· Edwards is liable for and shall pay to Claimant the sum of $2,000,000.00 in punitive damages.
· Peeler is liable for and shall pay to Claimant the sum of $1,000,000.00 in punitive damages.
· Respondents are jointly and severally liable for and shall pay to Claimant the sum of $2,205,373.00 in attorneys’ fees.
· Respondents’ Counterclaim is denied.
· Any and all claims for relief not specifically addressed herein are denied.
The dissenting opinion in the arbitration cast doubt on the findings of the panel’s two-person majority. Public Arbitrator Linda Nettles Harris said:
“I find that most of Claimant’s contentions were based on unreliable evidence, speculation and conjecture, and that a review of the hearing testimony and exhibits, revealed financial advisors who terminated their employment with Claimant and went to work for BFE based on real or perceived best self-interest and better working conditions.
“In sum, I find that Claimant failed to produce sufficient credible and reliable evidence that Fitzgerald, Green, Peeler and Erwin pre-solicited clients and took impermissible information, or impermissible business assets with them to BFE, and that BFE, Edwards, and the Respondent FAs were unjustly enriched, engaged in unfair competition, converted confidential information and trade secrets, or violated the Broker Protocol. I further find that Claimant has continued to have variable profits subsequent to the Respondent FAs departure from Claimant.”
Link here to read the arbitration report in its entirety.