Credit Suisse closed its U.S. wealth management business earlier this year, but dozens of former advisers are still waiting for pay checks that may never come.
After signing an exclusive recruiting arrangement with Wells Fargo, Credit Suisse is withholding the money from advisers who passed on a deal to move to the wirehouse. More than half of about 250 U.S.-based advisers went to firms other than Wells Fargo. Credit Suisse argues that these advisers quit voluntarily, and therefore gave up any right to their deferred comp.
The individual amounts at stake can be huge, ranging from $100,000 to several millions for some advisers, according to attorneys representing dozens of advisers.
"It's hard to explain how angry they are," says Barry Lax, an attorney at Lax & Neville representing former Credit Suisse advisers owed more than $20 million. "They really believe that someone is stealing money from them."
Lax adds that the whole point of deferred compensation is to incentivize brokers to stay on with their firms. Now Credit Suisse is turning that on its head, potentially reaping millions in savings by not having to pay the advisers, says the New York-based attorney.
"It's a cost savings mechanism and it’s to the detriment of the brokers who earned this compensation. These are real people, with real lives and real families. They're taking these brokers' earned wages away from them," Lax says.
These advisers are stuck in a kind of double limbo, unsure if they'll get millions in deferred pay or if their grievances will even get a fair hearing: Credit Suisse is insisting advisers take disputes to the firm's mediation and arbitration process rather than utilize FINRA's process, according to their attorneys.
Quote"It's hard to explain how angry they are. They really believe that someone is stealing money from them," says Barry Lax, an attorney at Lax & Neville representing former Credit Suisse advisers owed more than $20 million.
The lawyers argue their clients had no choice since Credit Suisse decided to close shop. Indeed, some advisers' resignation letters stated that their move was not voluntary, according to court documents filed in a recent case.
Credit Suisse insists advisers seeking to challenge its decision go through its mediation and arbitration program, which is operated by operated by JAMS.
Attorneys are balking at doing so, saying the process gives Credit Suisse unfair advantages because the firm essentially sets the rules for settling disputes. For example, because rulings aren't made public as they are in FINRA cases, it's difficult to impossible for advisers' attorneys to determine if a potential arbitrator rules fairly.
Think of it like jury selection, attorneys say.
"We spend a significant amount of time on that process [of selecting an arbitrator], doing as much due diligence as possible," says Lax, who adds that FINRA's forums are "the most transparent."
"One of the most important functions we have is to do the due diligence on the arbitrators because they will be doing the judging. There's really no more important function that an attorney has," he says.
Credit Suisse has run its program for about a decade, and could have exclusive access to years of back history on the arbitrators, attorneys say.
"Plus Credit Suisse paid for all of the arbitrators' fees and JAMS' fees in all of those cases," says Ross B. Intelisano, an attorney at Rich, Intelisano & Katz in New York who represents over a dozen former Credit Suisse advisers around the country. "The FINRA rules demand that registered representatives' disputes with registered broker-dealers be brought at FINRA where it provides all parties equal information about potential arbitrators."
And because the cases are private and therefore lack the transparency of the regulator's arbitration process, the firm is capable of hiding potential violations of FINRA rules, according to the attorneys.
WELLS FARGO OR NOTHING?
A spokeswoman for Credit Suisse declined comment.
According to a person familiar with the matter, the firm views advisers' bid to get their deferred comp as unfair double dipping because they presumably received recruiting bonuses to move to other firms.
Industry insiders note that advisers who moved to Wells Fargo also got bonuses to move and will receive their deferred compensation from Credit Suisse – which has not disclosed the terms of its deal with the wirehouse.
According to people familiar with the dispute, Wells Fargo offered Credit Suisse advisers bonuses of up to 300% of their annual production. (So many brokers opted to go to UBS stead of Wells Fargo that Credit Suisse filed a raiding claim suit in FINRA arbitration.)
A recruiter involved in some of the moves asked not to be named says withholding the comp is unconscionable as that pay was earned. Many brokers would never have left Credit Suisse had the firm not decided to close the door, the recruiter says, noting that some of the advisers he helped move had been with the firm for over a decade.
The Swiss firm also sees its dispute resolution program as a standard industry practice, according to a person familiar with the matter. Morgan Stanley operates a similar program, also in conjunction with JAMS, but the New York firm ignited a backlash when it attempted to expand the program last October.
WAITING FOR THE CAVALRY
Some ex-Credit Suisse advisers have sought to file claims in FINRA arbitration against their former employer. In February, the Swiss firm asked a New York court to stay an attempt by two brokers to press claims in FINRA's forums.
Attorneys representing advisers say Credit Suisse's moves violate FINRA rules, and they have asked the regulator to weigh in on the matter and permit advisers to take their cases to FINRA forums.
"FINRA is unquestionably the better and more appropriate forum," the advisers wrote in a letter to FINRA CEO Richard Ketchum and other senior officials.
In mid-March some of the attorneys presented their case to several top FINRA officials in Washington. It was a productive meeting, according to a participant who asked not to be named.
A FINRA spokeswoman says the regulator is carefully reviewing the matter but declined to comment further.
In the meantime, these advisers are left waiting, unsure if they should try their luck in Credit Suisse's forum or wait for an opportunity to present their case to FINRA arbitrators. Either way, they could be waiting months or even years before they see their last Credit Suisse paycheck.