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4 UBS advisors win $2M deferred comp battle against Credit Suisse

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In another win for former Credit Suisse advisors, a FINRA arbitration panel ordered the bank to pay roughly $2 million to four individuals over claims the company wrongly withheld their deferred compensation following its exit from the U.S. wealth management business in 2016.

It’s the latest in a series of long-running legal battles pitting the firm against its former advisors. So far, Credit Suisse has lost more than half a dozen arbitration cases, at least, involving deferred compensation, with awards adding up to millions.

Whether advisors are owed the deferred comp depends on how their employment ended at Credit Suisse. The firm has maintained advisors resigned, thus giving up their deferred compensation per their employment agreements; advisors counter that they were effectively laid off when the firm closed shop.

In the latest case to reach an arbitration award, earlier this month the Boston-based panel of three arbitrators sided with the advisors.

It awarded $407,590 in compensatory damages to Jonathan Galli; $563,332 to Paul Connolly; $125,316 to Alexander Martinelli; and $506,370 to Christopher Herlihy, according to a copy of the award. None could be reached for immediate comment.

The arbitrators did not grant the full $4.5 million originally requested, and it only granted interest on the award to Herlihy (12% per annum from June 8, 2017 until the award is paid in full). They also did not grant the advisors’ request to change their Form U5 records. Other arbitration panels ruling over similar cases have granted such requests, changing the reason for the advisors’ termination listed on their Form U5 to “termination without cause” from “other.” As is usual in arbitration cases, the panel did not explain its ruling on the different requests.

However, the panel did award approximately $500,000 in costs and attorneys’ fees.

In a statement, a Credit Suisse spokesman noted the panel awarded the advisors less than they originally sought, adding that the firm sees “several errors in the panel’s decision to award any damages, since the claimants experienced none. Credit Suisse will vigorously defend any case that seeks unjust double compensation or otherwise seeks to paint individuals who ‘hit the lottery’ as ‘victims.’”

Attorney Barry Lax, who represented the advisors, acknowledges that his clients would have liked to receive the full amount requested, but notes they still won a hefty sum.

“A win is a win,” Lax says.

His New York-based law firm represents more than two dozen former Credit Suisse advisors in ongoing litigation with the firm over deferred comp issues. At least two other attorneys are representing an unknown number of advisors in similar cases. So far, advisors have won seven arbitration awards against Credit Suisse.

When an unusual recruiting deal between Credit Suisse and Wells Fargo went awry, years of broker frustration, severe attrition and litigation followed. Also at stake: Up to $245 million in back pay.

When Credit Suisse announced its departure from the U.S. wealth management business, it entered into a recruiting arrangement with Wells Fargo, giving the wirehouse the inside track on recruiting its advisors — right before Wells’ fake accounts scandal broke into public view in September 2016. Of the firm’s nearly 300 advisors, only one-third took the deal. The rest went to competitors such as UBS and J.P. Morgan Securities.

Galli, Connolly, Martinelli and Herlihy went to UBS, where all but Herlihy had started their advisory careers.

They filed their arbitration claims in 2017. After 45 hearing sessions stretching over more than two years, the panel reached its ruling earlier this month.

Though Credit Suisse has lost related arbitration cases, it’s notched wins elsewhere. The firm successfully knocked down a lawsuit seeking class action status over the deferred comp issue. And Credit Suisse filed and won an arbitration case against UBS, which it accused of raiding, given the large number of ex-Credit Suisse advisors that the wirehouse hired. A panel granted Credit Suisse about $9 million in damages in September.

Credit Suisse also hasn’t given up the fight on the deferred compensation issue. It’s currently asking state courts to vacate arbitration awards it claims were unfairly decided. In one case, a New York state judge denied the firm’s request. It’s appealing that decision.

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