James Eccleston

Jim Eccleston: Panel Orders First Command to Pay $1.1M to Former Advisors

From the Desk of Jim Eccleston at Eccleston Law Offices:

A FINRA arbitration panel has ordered First Command Financial Planning (“First Command”) to pay $1.1 million in deferred compensation to a group of eight advisors and staff who left the firm back in May 2012. According to the arbitration award, First Command “switched back to a commissions sales model, hurting their business.” In addition, the panel reprimanded First Command for filing U5 termination forms saying the reps were let go for wrongdoing, and ordered their disciplinary records to be expunged to indicate they left voluntarily. The dispute occurred in 2012, when a branch manager left First Command with his team to form an independent hybrid firm clearing through LPL Financial (“LPL”).

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

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Jim Eccleston: Non-Solicitation Agreements: What Can You Say Without Crossing the Line?

From the Desk of Jim Eccleston at Eccleston Law:

John Lindsey, a former Edward Jones broker, found himself in hot water after accusations that he violated his non-solicitation agreement.  In March 2012, Mr. Lindsey left Edward Jones to go independent, taking with him about half his clients.  In response, Edward Jones promptly filed a request for an injunction and temporary restraining order.  Edward Jones claimed Mr. Lindsey had violated his one-year non-solicitation agreement by misappropriating client information and wrongly soliciting clients.  Specifically, Edward Jones’ non-solicitation agreement prohibits an advisor from soliciting clients of the firm for one year after the advisor’s departure.

In May 2012, the Ventura County Superior Court in Ventura, California granted the injunction, upholding Edward Jones’ non-solicitation agreement.  However, Judge Tari Cody’s also found that nothing in that agreement prohibited Mr. Lindsey from servicing Edward Jones clients who reached out to him directly.  Subsequent to the ruling, Edward Jones asked a FINRA arbitration panel to make the injunction permanent and requested $5 million in compensatory damages.  Both of those requests were denied.

The arbitrators’ decision reaffirmed previous guidance given by FINRA’s predecessor, the National Association of Securities Dealers, which had issued a notice stating “that obtaining temporary restraining orders to prevent customers from following a registered representative to a different firm may be similar to the unfair practice of delaying transfers” of clients to a new advisor.

FINRA’s position has been that firms cannot do anything to stop clients from going to a broker of their choice.  The court’s ruling reflects a similar position, stating that “[n]othing herein [the non-solicitation agreement] shall prohibit [Mr. Lindsey] or anyone else from: (a) continuing to provide services to [Mr. Lindsey’s] clients who have already moved business away from Edward Jones; (b) providing services to persons who have indicated that they wish to transfer their accounts from Edward Jones to permit [Mr. Lindsey] to continue as their financial advisor.”

The attorneys of Eccleston Law represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

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Jim Eccleston: FINRA’s Proposed Procedure for Reps Not Named in Arbitration to Obtain Expungement of U-4 and U-5 Filings

From the Desk of Jim Eccleston at Eccleston Law:

FINRA has proposed new rules that would permit unnamed financial advisers who are the “subject of” allegations of sales practice violations made in investment-related customer-initiated arbitration claims, but who are not named as parties to the arbitration, to seek expungement relief by initiated In reexpungement proceedings at the conclusion of the underlying customer-initiated arbitration case.  Specifically, the following are the new proposed FINRA rules:  Rule 12100(z) (“Unnamed Person”); Rule 12806 (“Expungement of Customer Dispute Information by Persons Named as Parties); Rule 13100(cc) (“Unnamed Person”); Rule 13806 (“Expungement of Customer Dispute Information by Persons Named as Parties); and Rule 13807 (“Expungement of Customer Dispute Information by an Unnamed Person”).

The current Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes do not provide unnamed persons with express procedures to seek expungement of those types of allegations.  The SEC is expected to set an approval date of early 2014.

There are several benefits for brokers.  First, the new rules would allow unnamed brokers to use this explicit procedure instead of having to intervene in the arbitration filed by the investor or initiate a new arbitration case in which the broker requests expungement relief and names the investor or firm as the respondent.  Another benefit is that the expungement proceedings would commence only after the underlying customer arbitration is concluded.  Another benefit is the possibility that the arbitrator reviewing the In reexpungement proceedings will already be familiar with the case.  Under the proposed rules, the public chairperson of the underlying arbitration would handle the In reexpungement proceedings.

While our adviser clients currently do have avenues for expungement, FINRA’s new rule proposals greatly would expedite and simplify the entire process.

The attorneys of Eccleston Law represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

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Jim Eccleston: Ponzi Scheme Perpetrated by Richard Schwartz Leads Indiana Officials to Freeze Assets | Investor

From the Desk of Jim Eccleston at Eccleston Law:

The State of Indiana has sought to freeze the assets of the estate of a former Kokomo investment adviser in order to provide possible, partial restitution to victims of a Ponzi Scheme.  At the time, Mr. Schwartz was employed by and under the supervision of a major brokerage firm still in existence.  According to Indiana Secretary of State Connie Lawson, this Ponzi scheme allegedly includes former National Football League players.  Specifically, the Indiana Attorney General’s office filed the lawsuit in Howard Superior Court in Kokomo against the estate of Richard Schwartz, whom Lawson alleges deceived clients across the country out of $5 million to $10 million.

The attorneys of Eccleston Law represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

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Jim Eccleston: Increase in Actions Against RIAs Inevitable as Industry Shifts | Investor

From the Desk of Jim Eccleston at Eccleston Law:

State finance regulators see an uptick in actions against registered investment advisers (RIAs) since states took on the oversight of advisers with $100 million or less in assets.  This increase has exposed flaws in the RIA compliance functions.

RIAs now account for 23.9% of regulatory actions by states, while broker-dealers account for 29.2%.  In particular, individuals who are not licensed to sell securities account for the most actions by the states, which is 42.5%.  The increase in state actions against investment advisers is also inevitable due to the fact that many broker-dealer reps have left their broker-dealer firms to open investment advisory firms.

The attorneys of Eccleston Law represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

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