Wells Fargo Advisors, LLC wins FINRA Award sum of $15,300,000.00+ in Damage

     On February 2, 2023, a FINRA arbitration panel awarded the Claimant, Wells Fargo Advisors, LLC a sum of 15,300,000.00 in Compensatory Damages and over $4,000,000.00 in additional costs and attorney fees.

Case Summary:

            In October 2018, Kent Jackson Rhoades left his job at Wells Fargo Advisors, LLC in Mountain Home, Arkansas to start an independent financial consulting firm with Raymond James Financial Services, Inc. Rhoades not only left the corporate company to venture out on his own but also hired on a 12- person team, all of which worked under Rhoades at Wells Fargo, and named them the Financial Services and Investment Strategies Group. It is important to note that the Wells Fargo branch is no longer in business. 

            In August of 2020, Wells Fargo filed a complaint alleging Raymond James Financial Services and Kent Jackson Rhoades led a “coordinated raid.” What is a raid you might ask? A raid is poaching another financial advisor’s team or clients with the intent of harming that firm’s business. One might not see a case regarding “coordinated raids’ because they don’t happen frequently and are difficult to prove. FINRA rule 2010 states, “A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.” While a little vague, under this rule, a financial firm cannot ethically poach a significant portion of another firm’s team and/or clients, and in October 2018, Raymond James Financial Services did just that. 

Wells Fargo claimed Raymond James took the entire financial advisor team, as well as clients that Rhoades had been working with over the 20 years he worked at Wells Fargo. Wells Fargo sought damages, costs and fees against Raymond James Financial Services, Kent Jackson Rhoades and the 12-person team that collectively moved from Wells Fargo to Raymond James Financial Services. Rhoades claimed that the clients at Wells Fargo moved to his firm due to the “untruths and/or deception [which] caused clients to sever their relationships.” Rhoades and the 12 pursued a counterclaim award against Wells Fargo as well. However, on August 25,2022, Wells Fargo dropped the claim against the 12, and the 12 dropped the counterclaim against Wells Fargo, leaving just Rhoades and Raymond James Financial. 

After multiple hearings, FINRA awarded Wells Fargo Inc. $15.3M in compensatory damages (with a 6% annual interest rate), $3.5M in attorneys’ fee, $847,000 in costs, $1M in punitive damages, a $500 non-refundable claim filing fee, and $53,775 in hearing session fees totalling over $20M. The counterclaim was completely dismissed and all claims for relief for Raymond James Financial Services were denied. 

 

+ Awards are rendered by independent arbitrators who are chosen by the parties to issue final, binding decisions. FINRA makes available an arbitration forum—pursuant to rules approved by the SEC—but has no part in deciding the award.

Additional sources:

https://www.advisorhub.com/wells-fargo-advisors-wins-nearly-20m-in-raiding-claim-against-raymond-james/

https://www.advisorhub.com/wp-content/uploads/2019/08/Good-Moves-Bad-Moves-Bad-Move-Being-part-of-a-raid-1.pdf

Missouri Legislature Proposes Investment Adviser Disclosure of Social Objectives

On January 8, 2023, Representative O’Donnell introduced a bill to the 102^nd General Assembly that adds to the disclosure obligations of Missouri-registered investment advisers. If enacted, Missouri House Bill No. 824 will amend Chapter 409 (Regulation of Securities) of the Missouri Revised Statutes to require these investment advisers and investment adviser representatives to disclose any socially responsible criteria included in any recommendation to a client or solicitation of a prospective client. Then, before acting on any such social objective, the proposed law would require client written consent, such as:

“I, (NAME OF CLIENT), consent to my adviser or adviser’s representative incorporating a social objective or nonfinancial objective into any discretionary investment decision my adviser or adviser’s representative makes for my account; any recommendation or advice my adviser or adviser’s representative makes to me for the purchase or sale of a security or commodity; or the selection my adviser or my adviser’s representative makes, or recommendation or advice my adviser or my adviser’s representative makes to me regarding the selection, of a third-party manager or subadvisor to manage the investments in my account.  Also, I acknowledge and understand that incorporating a social objective or nonfinancial objective into investment decisions, recommendations, advice, and/or the selection of third-party manager or subadvisor to manage the investments in my account will result in investments and recommendations/advice that are not solely focused on maximizing a financial return on my account.”

This bill’s proposed effective date is August 28, 2023, which is very timely considering the U.S. Securities and Exchange Commission’s similar recently proposed amendments to rules and reporting forms that would establish disclosure requirements for funds and investment advisers that market themselves as having environmental, social, and governance (ESG) strategies.

Since matters such as investment adviser client disclosures are complicated, it can be helpful to hire an attorney that specializes in such areas. Cosgrove Law Group has experience dealing with these questions. If you are a client or a prospective client of a Missouri-registered investment adviser that has questions about these or other investment adviser disclosure obligations and would like to speak with one of our Missouri-licensed attorneys, call 314-563-2490.