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Advisor's $2.2M recruiting deal dissolved into $1.8M arbitration loss (plus interest)

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Imagine this: You’re an advisor with a T12 of $1.9 million. A competitor offers you a $2.2 million recruiting deal to switch firms. You take it. A year later, your new employer declares they are shuttering their wealth management business. And, oh, by the way, you need to repay that recruiting deal.

That in a nutshell is what advisor Neal Carlson says happened to him after he left Goldman Sachs for Credit Suisse in March 2014.

Carlson has been fighting a nearly three-year legal battle to rebut Credit Suisse claims he now owes the firm for breach of contract. So far, he’s losing.

The Houston-based advisor suffered his latest setback earlier this month when a federal judge denied his request to vacate a FINRA arbitration award in Credit Suisse’s favor.

For Credit Suisse, it’s the latest twist in a series of legal battles it has fought since announcing in October 2015 it would shutter its U.S. wealth management business.

The bank’s exit has been a contentious issue among some of the nearly 300 advisors who once worked there. Dozens have filed arbitration claims against their former employer over what they say is millions in deferred compensation owed to them (Credit Suisse has denied these claims).

In Carlson’s case, the roles were reversed; it was Credit Suisse that claimed he owed it money.

When the U.S. Army veteran-turned advisor joined Credit Suisse from Goldman Sachs, the Swiss bank offered him a $2.2 million recruiting deal structured as a promissory note forgiven over nine years, according to court documents.

Roughly 18 months later, Carlson’s production had not returned to its pre-Credit Suisse level of $1.9 million and he was faced with another career decision when Credit Suisse announced it was closing the wealth business, according to court documents.

Advisors had two options: join Wells Fargo under an exclusive recruiting arrangement that Credit Suisse arranged or look for employment elsewhere. Those who took the deal got a signing bonus from Wells Fargo and an onboarding award from Credit Suisse, which separately received a referral fee from Wells for each advisor who made the move.

Carlson took the Wells Fargo deal — but, crucially, Wells’ recruiting bonus fell well short of the outstanding balance remaining on the promissory note he had signed when he joined Credit Suisse.

Carlson got approximately $1.3 million from Wells Fargo. He owed $1.8 million on the promissory note, according to court documents. And Credit Suisse’s onboarding award of $26,000 did not come close to making up the difference. Without specifying why in court documents, Carlson rejected this award.

This hefty sum came due when Carlson’s resigned from Credit Suisse as part of the firm’s recruiting deal with Wells Fargo. (Credit Suisse earned about $175,000 as its referral fee for his transition, according to court documents filed by Carlson’s attorneys).

In 2017, Carlson initiated a FINRA arbitration case against Credit Suisse, alleging that that bank “fraudulently induced him into joining the firm’s private wealth management division” and failed “to disclose it was in the process of eliminating the division and intended to direct employees to seek employment with other brokerage firms,” according to a copy of the arbitration award.

Had Carlson knew that Credit Suisse would sell the wealth management unit, he would never have joined it, according to arbitration records. He sought damages of $2.2 million from the firm for breach of contract and fraud by nondisclosure.

Credit Suisse denied the allegations and a Houston-based panel of three arbitrators rejected the advisor’s arguments. The arbitrators ordered Carlson to pay his former employer approximately $1.8 for the outstanding promissory note plus interest of 5.82% per annum from May 29, 2016, through March 4, 2019, according to the award.

One round lost, but the fight wasn’t over — yet.

Last year, Carlson’s attorneys filed a motion in a federal court in Texas to vacate the arbitration award. They argued the arbitration proceedings were “host to a legion of problems,” and singled out the chair of the panel, Brian Tagtmeier, as their chief source, according to court documents.

Chairman Tagtmeier allegedly failed to disclose a key conflict of interest and issued rulings that handicapped their ability to present their case, the attorneys say. In the middle of the arbitration case, Carlson’s attorneys switched employers to HooverSlovacek. Tagtmeier, a practicing attorney outside FINRA arbitration, was involved in a separate litigation against that same law firm— a fact that he had an obligation to disclose under FINRA rules, Carlson’s attorneys say.

They further claim that Tagtmeier unfairly denied them discovery opportunities and unfairly limited scope of testimony. They asked a federal court to vacate the arbitration award for these reasons, according to court documents.

It was not clear from court records when Carlson’s attorneys learned of Tagtmeier’s alleged conflict of interest.

Tagtmeier did not respond to a request for comment. A FINRA spokeswoman declined to comment.

The grounds for overturning an arbitration award are very narrow.

“You have to show that you were denied a fair trial, that the arbitrator was biased against you or that the panel ruled against you in an erroneous faction,” says Bill Singer, author of the Broke and Broker blog and an attorney not affiliated with the case.

In court, Credit Suisse rejected these arguments, pointing to Tagtmeier’s experience as an arbitrator and that he was just one of three panel members. The firm also argued that he had not demonstrated evident partiality, a basis for vacating an arbitration award.

Earlier this month, U.S. District Judge Gary Miller ruled that Tagtmeier’s nondisclosure was “troubling” and presented “an appearance of bias,” but not enough to overturn the arbitration’s outcome. Miller confirmed the award and ordered additional costs be paid to Credit Suisse in an amount to be determined at a later date, according to his Jan. 2 ruling.

Singer questions the ruling, noting that the rules on disclosure are clear. “The fact is that Tagtmeier had an obligation to disclose,” he says.

Leonard Meyer, Carlson’s attorney, declined to comment on behalf of his client on the case and whether they would attempt to appeal the ruling.

In a statement, a Credit Suisse spokesman pointed to the scope of the firm’s victory. “All of the plaintiff’s allegations regarding widespread misconduct by Credit Suisse and alleged damages of over $3.5 million were denied, while the plaintiff was ordered to repay to Credit Suisse the full amount of the $1.8 million note plus interest that he owes and had refused to repay.”

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