By Erwin J. Shustak, Esq. of Shustak Reynolds & Partners, P.C. posted on Wednesday, January 30, 2019.

Erwin J. Shustak

Managing Partner

Location: San Diego, California
New York, New York
Phone: (619) 696-9500 (Ext. 109)
(800) 496-5900 (Ext. 109)
Email: [email protected]

Over three years ago, on October 20, 2015, Credit Suisse abruptly announced it was exiting the U.S. wealth management business and closing its U.S. private banking group.  At the time, Credit Suisse had over 300 registered brokers in its U.S. private banking unit.  Rather than close the business or sell the division, however, Credit Suisse entered into an “exclusive recruiting arrangement” with Wells Fargo, ostensibly “to provide relationship managers to transition to Wells Fargo’s brokerage business, Wells Fargo Advisors”.  At the time, Credit Suisse issued a press release announcing, “we have taken the decision to transition our current Private Banking brokerage business model”, explaining in a press release “the economics for Credit Suisse do not yet meet profitability criteria and, therefore, cannot achieve optimal returns for our shareholders relative to our alternatives”.  Reading between the lines, Credit Suisse’s foray into the U.S. private wealth management business never got the traction the firm anticipated and was a money losing proposition.

So, what was the “exclusive recruiting arrangement” with Wells Fargo?  Simply stated, Credit Suisse allowed Wells Fargo to “cherry pick” the brokers it wanted from the Credit Suisse minions and take on those producers worth taking who were willing to work under the Wells Fargo platform and name.  And, to ameliorate the pain of shutting down, Wells Fargo even agreed to pay CS a recruiting payment for each former CS broker who successfully transitioned to Wells Fargo.  Some moved to Wells Fargo; many did not.  Of course, it was only a few years later that the Wells Fargo name became indelibly tarnished and trashed when it was revealed the firm had opened hundreds and thousands of accounts, credit cards, loans and other banking facilities without the approval or knowledge of the customers for whom those accounts were opened.  So, many of the former Credit Suisse brokers who did transition to Wells Fargo soon regretted their choice.

The major financial consequence for those brokers who chose not do transition to Wells Fargo, or who were not invited to the party, was the loss of their non-vested deferred compensation.  One of the ways the former Credit Suisse brokers were compensated, a method used by most of the major wire-houses, was to take a portion of the brokers’ compensation and pay it as deferred compensation, earned down the road.  Many of the Credit Suisse brokers had accumulated a substantial amount of non-vested deferred compensation; compensation earned but not yet vested for many reasons, primarily the fact the brokers had not worked long enough at Credit Suisse to have that deferred comp actually vest.  Of course, by essentially shutting its doors and letting its 275 brokers know they had to move to Wells Fargo or another firm since CS was shutting its doors, Credit Suisse guaranteed that non-vested deferred compensation would never vest.

The Credit Suisse Deferred Compensation plans had a number of names including the ISWAP Share Award; the PB USA Equity Share Award, the Growth Phantom Share Award; and the PB RM Contingent Capital Award.  All different named plans but all essentially the same.  Each of the plans provided the financial adviser would forfeit any unvested plan benefits if he or she resigned from Credit Suisse before being at the firm the required number of years to actually vest those benefits.

By closing its business, however, and allowing its brokers to “transition” to Wells Fargo, Credit Suisse effectively and completely prevented those brokers who had earned, but as yet unvested deferred compensation from ever having that deferred comp vest.  Credit Suisse, in turn, took the position that if a former Credit Suisse broker left CS to join another firm, that rep had resigned and forfeited what was estimated to be in totality over $300 million of accumulated, earned but as yet unvested deferred compensation.  Understandably, many of the brokers who had worked for, and earned that deferred compensation felt ripped off.  And they were!  So, what happened over the past three years and what can a former Credit Suisse broker do about that loss?

 The Unsuccessful Class Action-

After Credit Suisse announced the shut down, and brokers who had accumulated earned but as yet unvested deferred compensation realized they would never be paid that money, a former CS broker, Christopher Laver, found a well-known class action firm that initiated a class action in Federal Court in San Francisco on behalf of him and all other similarly situated CS former brokers who, like Laver, lost all of their earned but unvested deferred compensation.  CS, in turn, moved to dismiss the class action successfully arguing that Laver, like all of his fellow former CS brokers, had agreed to arbitrate any and all claims against CS in mandatory FINRA arbitration and not in court and not by way of a class action.

In June, 2018, the federal judge before whom the case was pending dismissed the class action against Credit Suisse Group AG ruling that Laver, and those he purported to represent, were bound by the agreement each of them signed to arbitrate employment-related disputes and could not bundle those claims together in a court class action.

But, Individual FINRA Arbitrations Have Been Successful-

Most lawyers know that class actions are great for lawyers; not so great for class members.  We all have read the stories about the settled class actions where the lawyers get millions of dollars in fees, while each class member receives $1.99 or, worse, a coupon for free French fries (so long as the fries are purchased along with 10 Big Macs, only on a Monday and only between noon and 1 pm, or some nonsense like that).  Well, the Credit Suisse class action never got anywhere, and nothing came of it.

But a number of brokers who turned to experienced FINRA lawyers have been very successful in recovering their lost deferred compensation.  First, in November, 2018, former Credit Suisse broker Brian Chilton was awarded $844,621.00 in unvested, deferred compensation he lost when the firm notified him it was closing its operation.

The next month, November 2018, another former Credit Suisse employee, Nicolas Finn, was awarded $975,530.00 in lost deferred compensation by another FINRA panel for the same reasons Chilton got his award the month earlier.  Two cases that went to hearings; two very good outcomes for the brokers.

The defense that Credit Suisse asserted in both cases- which failed each time- was an argument that the brokers were trying to recover the same dollars twice. Credit Suisse argued that the brokers ultimately went to work for other firms and received up-front recruiting loans or advances and, therefore, they already were compensated for the deferred comp they lost when they were forced to leave Credit Suisse.  Obviously, neither FINRA arbitration panel found the argument very compelling.

In late January of this year, and facing substantial, individual claims from other, former CS brokers, Credit Suisse filed a court action to vacate the most successful win by former broker Finn.  In the Finn case, Credit Suisse filed pleadings in New York State Supreme Court (where the Finn arbitration took place) seeking to vacate the award arguing the three arbitrators in the Finn case showed a “manifest disregard of the law” by refusing to reschedule a hearing to accommodate testimony from Philip Vasan, the former head of the Credit Suisse U.S. brokerage business and by prohibiting “evidence of [Finn’s] negotiations with potential employers”.

While that challenge has yet to be heard of determined, the fact is that it is extremely difficult to overturn a FINRA (or other) arbitration award.  Credit Suisse did not challenge the Chilton award which was issued by a Boston based FINRA arbitration panel.  Some observers have noted Credit Suisse’s recent effort to vacate the Finn award is intended to send a message to other former CS brokers that the firm will fight tooth and nail and make it expensive and difficult to collect.  But that’s what good lawyers are for and many experienced attorneys know that a request to a panel to allow interest to accumulate on any arbitration award at a specified interest rate until paid more than makes up for any delay. 

In California, interest on a broken promise (breach of contract) accrues at the statutory rate of 10% from the date of the breach until paid.

Our firm has extensive experience with intra-industry disputes and are interested in speaking to any former Credit Suisse brokers- or brokers from any other firm- who feel they have not been paid something they should have been by their former firms.

Shustak Reynolds & Partners, P.C.  focuses its practice on securities and financial services law and complex business disputes.  We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner [email protected], or call 800.496.5900 ext. 109.

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