Ameriprise's bid to claw back stock awards from two advisors not only failed, but it produced a costly blow back for the firm.
Last month two FINRA arbitration panels ordered the brokerage firm to pay more than $500,000 to the advisors for alleged misconduct, including unfair trade practices and breach of the Broker Protocol, a legal framework governing how advisors can switch firms.
The spat between the firm and the ex-Ameriprise advisors began after they left the firm to join Janney Montgomery Scott in January 2014, according to FINRA BrokerCheck records. John Chapman and Jack W. Griffiths worked in the same office, but are not a team, according to Amy L. B. Hill, an attorney at Columbia, S.C.-based law firm Gallivan, White & Boyd.
Prior to Amerprise, the advisors had been employed by H&R Block, which sold its advisory unit to Ameriprise in 2008. Ameriprise Financial, the parent company of Ameriprise's brokerage unit, issued a stock award to the advisors as an incentive to stay with the firm, according to a copy of one of the arbitration awards. The award had a five year vesting period that ended January 2, 2014. Griffith, who at one time served as an Ameriprise branch manager according to Hill, sold his shares four days later, and then resigned from Ameriprise on January 27.
The parent company then tried to reclaim the stock awards in cases filed with the American Arbitration Association, saying that, unlike its brokerage unit, it was not a member of the Broker Protocol and therefore did not have to through FINRA arbitration. It was an unusual move as employment disputes between advisors and firms are often resolved in FINRA's arbitration process.
Had the advisors lost, it might have created a precedent for firms to skirt the protocol, Hill says. "This is a way for them to get around the Broker Protocol. It lets them have their cake and eat it too."
But the advisors' W2 forms show that the stock award came from Ameriprise's brokerage unit, which is a member of the Broker Protocol, Hill says.
"What happened was that they got a demand from Ameriprise Financial, the parent company demanding that they repay the award because they broke the contract and were competing against Ameriprise Financial Services [the brokerage unit]," she says.
Arbitrators in these AAA cases ruled against the company, saying that its claims had no basis.
In the decision for the Griffith case, arbitrator H. Landis Wade said that Ameriprise "failed to carry its burden of proof to demonstrate that it suffered an actual loss due to the transfer of the stock to [Griffith]."
Ameriprise Financial representatives did not return requests for comment.
It appears from arbitration documents that there were also some irregularities with the case. Originally, Ameriprise sought to claw back about $567,000 from Griffith in the AAA case, according a copy of the award. But when the firm arrived at the hearings, it revised its claim upward to $873,000.
This cast the firm in an unfavorable light for the arbitrator on the case.
"If the [long term incentive award] is as clear as [Ameriprise Financial, Inc.] contended it was throughout the arbitration process leading up to the hearing, it is baffling how AFI was mistaken about the damages it says it is entitled to recover under the LTIA. AFI's effort to ratchet up the damages against Respondent by a significant amount for the first time at the hearing, and its contentions that it was justified in doing so in the face of AFI's filings in the case, affected the credibility of AFI's claim," the arbitrator said in his ruling.
In parallel cases filed FINRA, the two advisors sought damages against Ameriprise for unfair trade practice, breach of the Broker Protocol and other damages. Chapman won his case in early March, receiving $117,000 in damages and $6,000 in attorney's fees and costs. Griffith won later that month, winning $350,000 in damages plus $32,000 in attorney's fees.
As is customary, the FINRA arbitration panels did not explain their decisions.
"There are many firms out there and many brokers out there who work hard to follow the Broker Protocol. It benefits every when it's followed," Hill says.