Credit Suisse Wins $3.5 Mln from U.S. Brokers Who Claimed Hiring Fraud

Three advisors who claimed Credit Suisse hired them in May 2015 without disclosing plans to imminently close its U.S. brokerage business lost their attempt to collect more than $15 million in damages, and have instead been ordered to pay the bank $3.5 million of promissory note balances.

In a Finra arbitration claim, Pouya Lavian, Scott Pedvis and Robert Decker had asserted that they were “fraudulently induced” to join Credit Suisse Securities (USA) five months before it announced plans to shutter its upscale brokerage unit and shuttle its 336 high-net-worth brokers to Wells Fargo Advisors.

The brokers alleged that Credit Suisse’s decision to close so soon after their arrival from JPMorgan Chase’s private bank cost them at least $15.2 million in losses (they initially sought $23.8 million) because of disruptions to their careers, client relationships and income, according to an award document published on Monday by a Finra arbitration panel in New York. (The brokers had produced $13.3 million on $2.2 billion of client assets at JPMorgan, according to a temporary restraining order request the New York bank had filed when they joined Credit Suisse.)

The arbitrators ordered each of the brokers to pay more than $1 million of principal and interest due on promissory notes that extended through April 30, 2020, according to Monday’s award. The interest, which continues to accumulate until the award is paid, was set at a default rate of more than 5%, according to a Credit Suisse official.

The arbitrators denied the brokers’ request for punitive damages and both sides’ requests for attorneys’ fees—which are customarily awarded to banks in contractual note cases, according to employment lawyer Kevin Hoffman, who initially represented the brokers—but ordered Lavian, Pedvis and Decker to jointly pay almost $98,000 of additional costs associated with the bank’s promissory note claims. The arbitration proceeded over almost four years.

As is customary, the arbitrators did not explain their decision.

Neither the brokers nor their lawyers at the Coral Gables, Fla. law firm of Rasco Klock Perez & Nieto  responded to requests for comment on the decision. A Credit Suisse spokesman said he could not immediately comment.

The decision follows about seven arbitration decisions in favor of former Credit Suisse brokers who left for firms other than Wells and alleged that they were owed deferred compensation that should have immediately vested because they were terminated involuntarily without cause. The Swiss bank, which has sought to vacate several multi-million-dollar awards, has argued that most of the brokers were unjustly seeking “double compensation” in violation of industry standards because their new employers compensated them for money left behind.

A New York appellate court in late April affirmed the bulk of a lower court’s confirmation of a $976,000 deferred compensation arbitration award to Nicholas Finn, a former Credit Suisse broker who joined UBS. (Credit Suisse last year won $9 million in a raiding suit in which it claimed UBS interfered with its Wells Fargo broker-transfer arrangement.)

Credit Suisse plans to further appeal the Finn decision, a company lawyer said.

Lavian, Pedvis and Decker, who now work at Wells Fargo Advisors, were not at Credit Suisse long enough to accumulate significant deferred compensation (though they sought  “repayment of any…deferred compensation”), and the fraudulent inducement claim was at the core of their argument, according to several lawyers familiar with the cases.

Credit Suisse has not won a deferred comp arbitration case, according to Finra’s database, but bank officials have said that dozens of former advisors have dropped claims. Plaintiffs’ lawyers have said several of their clients dropped claims because of the expense of the process while others received monetary settlements.

The Swiss bank also has won at least four promissory-note balance claims.