A case brought by Oppenheimer & Co. failed to prove allegations that Citigroup Global Markets Inc. unlawfully raided its firm of nine high producing brokers, a Financial Industry Regulatory Authority panel has ruled.
FINRA’s dispute resolution came after almost eight years of consideration, beginning when Oppenheimer first filed the claim seeking $18.6 million in April 2003. The issue arose after Oppenheimer’s retail brokerage business was acquired by Fahnestock & Co. Inc. from Canadian Imperial Bank in 2002. That sparked a competition among firms like Citigroup, Bank of America, Bear Stearns and Paine Weber for Oppenheimer’s best producers, FINRA’s report said.
The crux of the dispute was whether Citigroup unfairly used a competitive advantage to lure those nine advisors away. In its Jan. 3 decision, the FINRA panel said it could not find evidence that that had occurred.
At the time, Citigroup’s efforts to lure those advisors from Oppenheimer’s California office were led by then in house recruiter Jeffrey Bischoff, who previously served in that same role at CIBC Oppenheimer. At CIBC Oppenheimer, Bischoff worked under Rick Wisely, who was responsible for trying to retain those advisors after the Fahnestock acquisition.
Respondents named in the case included Citigroup, formerly known as Salomon Smith Barney and two advisors who left Oppenheimer to join Citigroup, Andrew B. Basch and Howard A. Blitz.
In the claim, Oppenheimer alleges that Citigroup engaged in misconduct and/or wrongdoing. Specifically, Oppenheimer claimed that Citigroup allowed management to act directly in the recruitment process, knew of ill will between Bischoff and Wisely and used information about CIBC Oppenheimer from when Bischoff worked there.
In addition, the claim said, Citigroup intentionally worked to hurt Oppenheimer’s business by recruiting advisors it would not ordinarily have targeted and paying them higher hiring bonuses than it ordinarily would have. Those higher rates included hiring 30% of the total production of CIBC Oppenheimer, Oppenheimer’s claim said. In addition, Oppenheimer claims that Bischoff, Basch and Blitz were fiduciaries and violated their duties during the recruiting process.
The FINRA dispute resolution found that all of those claims, which also said that Blitz operated as a mole to Citigroup during the recruitment process, could not be proved.
“Having searched the record, there is no evidence that any of the conduct identified above, at least that occurred during the recruiting process, and before any of the [financial consultants] joined Citigroup, violated any established rules or standards of trade,” FINRA’s ruling said.
The only somewhat defined trade standard that arose in the case, FINRA said, was that hiring more than 30% production might be considered a raid. Citigroup hired 28.6% of Oppenheimer’s production.
In addition, the panel found from all of Oppenheimer’s financial consultants who testified that they did not intend to stay at the firm after Fahnestock’s acquisition. Their perception of the firm, FINRA’s report said, was that it was too small or not sophisticated or well capitalized enough to support high net worth clients with services including investment banking, municipal bond trading and research.
“We are disappointed by this arbitration decision and still believe that our firm was harmed by the actions of Citigroup,” Oppenheimer Spokesman Brian Maddox said. “Further, we believe the arbitrators either ignored or disregarded important and dispositive evidence and testimony.”
With FINRA’s decision, Oppenheimer will have to pay $100,000 in fees for the hearing sessions. Oppenheimer had been seeking $18.6 million related to damages against Citigroup, Basch and Blitz; pre- and post-award interest on all damages; punitive damages against Citigroup and reimbursement for all costs and expenses related to the action.
“We’re pleased with the panel’s decision that our actions were appropriate,” Alex Samuelson, a spokesman for Citi.
A call to Basch and Blitz, who now work at the Wingfield Group at Morgan Stanley Smith Barney, was deferred to an in-house counsel.
“It was nothing more than business. It was professional recruiting,” said Bischoff, who also denied personally having bad feelings for Wisely. “Rick Wisely was really like a mentor and somebody I looked up to, as did a lot of people out there.”
Separately, a FINRA panel handed down a $2.8 million award decision in favor of Bischoff on Dec. 29 related to a dispute from when he was employed at UBS Financial Services Inc.