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Lo And Behold: Wells Fargo Claws Back Manager Compensation
October 5, 2016
Lo and behold, Wells Fargo sued a former Private
Client Group manager for repayment of an
advanced performance award. Sort of
looks like a clawback to me. Whatever it is, Wells Fargo comes out the victor in this
settled FINRA arbitration. Funny thing about victories, however, you gloat
today, you may bloat tomorrow. See how the BrokeAndBroker.com
Blog puts its own ironic twist on this
case.Case In
PointAccording to a Financial Industry Regulatory
Authority ("FINRA") Arbitration Stipulated Award,
Claimant Wells Fargo Advisors filed a Statement of Claim in
March 2016
asserting::
[B]reach of manager compensation summary dated August 5, 2014. The cause of action relates to a quarterly advanced Performance Award due and owing during Respondent's employment with Claimant.
Claimant Wells
Fargo sought $33,468.23 in principal balance due and
owing under former employee Respondent Fahey's Manager Compensation Summary
and PCG 2014 Manager Compensation Plan. In the Matter of
the FINRA Arbitration Between Wells Fargo
Advisors, LLC , Claimants, vs. David John
Fahey , Respondent (Stipulated Award, FINRA Arbitration 16-00722, September 16,
2016).
Respondent Fahey represented
himself pro se and did not file a Statement of
Answer.
Settlement
In July 2016, the
parties advised FINRA that they had entered into a Settlement Agreement and Release (the
"Settlement Agreement") and a Stipulation to Enter FINRA
Award (the "Stipulation").
Award
As set forth in
the FINRA Arbitration Stipulated
Award:
On or about July 6, 2016, the parties filed with FINRA Office of Dispute Resolution aSettlement Agreement and Release and a Stipulation to Enter FINRA Award pursuantto Settlement Agreement (the "Stipulation"). The parties entered into a confidentialSettlement Agreement wherein the parties agreed to sign the Stipulation. Pursuant tothe Stipulation, the parties stipulated and agreed that Claimant will not enforce theStipulated Award unless and until Respondent defaults under the SettlementAgreement.
In accordance with the the terms
of the Stipulation, the FINRA Stipulated
Award rendered the following:
[I]n lieu of a hearing and upon motion of the parties for an entry of an award, and the written stipulation thereto, the Arbitrator grants the motion and enters this award granting the following relief:
1. Respondent is liable for and shall pay Claimant the amount of $50,000.00, plus interest at a rate of 10% per annum from the date of the Stipulated Award until it is fully satisfied.2. Any amounts paid by Respondent to Claimant pursuant to the Settlement Agreement shall be applied to, and credited toward, the amount set forth in the Stipulated Award.
Bill Singer's
Comment
Attached to the Stipulated
Award is an "Exhibit
A," which is the "STIPULATION TO ENTER FINRA AWARD PURSUANT TO
SETTLEMENT AGREEMENT," which we have referred to as the
Stipulation. As set forth in the Stipulation,
Claimant Wells Fargo and Respondent Fahey agreed to submit to FINRA Dispute
Resolution jurisdiction and to enter into the underlying Settlement
Agreement. The Stipulation
states that in order to secure Respondent's performance of the Settlement
Agreement:
[T]he Arbitrator(s) shall render and sign an Award in Favor of CLAIMANT and against RESPONDENT for $50,000, plus interest at a rate of 10% per annum from the date of the Award until it is fully satisfied. The Parties further agree that such Stipulated Award may be immediately signed by the appointed FINRA Arbitrator(s) and entered by FINRA.
The
parties further stipulated and agreed that:
CLAIMANT will not enforce the Stipulated Award unless and until RESPONDENT defaults under the Settlement Agreement. Any amounts paid by RESPONDENT to CLAIMANT pursuant to the Settlement Agreement shall be applied to, and credited toward, the amount set forth in the Award.
Most of you probably think that
you understand what happened in this case. Many of you may well be correct;
however, I suspect that many of you will soon realize that you didn't quite
catch all the nuances of this Stipulated
Award.
Let's slowly walk
through what transpired with this dispute and take an inventory of the various
documents:
Statement of
Claim
We start off with Claimant Wells
Fargo suing its former employee Respondent Fahey via a FINRA Arbitration
Statement of Claim. Respondent Fahey, who represented
himself, did not file a FINRA Statement of Answer.
Settlement
Agreement
At some point, the parties negotiated a settlement, the terms of which were
memorialized in a Settlement Agreement.
Stipulation
and Stipulated Award
With the Settlement
Agreement in hand, the parties prepared the Stipulation via
which they informed the sole FINRA Arbitrator that they had come to terms and
wanted that Arbitrator to enter a Stipulated
Award for $50,000 plus 10% interest against
Respondent Fahey.
Recall that Claimant Wells
Fargo's initial demand for damages in this dispute was for $33,468.23 in
principal balance due and owing. It may seem that pro se Respondent Fahey
got snookered by his former firm and its legal team because he settled the case
for $50,000 plus interest -- at least that's the impression created by the
Stipulated Award.
Confidential Settlement
Agreement
Go online and read the FINRA
Stipulated
Award and scroll down to the end of it and read "Exhibit A," which is the Stipulation.
Next, go read the terms of the
Settlement Agreement. How about I give
you ten minutes to read that agreement and we all circle back and meet
here?
Wattsamatta? Couldn't find the Settlement Agreement online? Couldn't find
any reference to any of its specific terms in the online Stipulation or in the
Stipulated Award? Okay, let me explain. Consider this sentence in the Stipulated
Award:
The parties entered into a confidential Settlement Agreement wherein the parties agreed to sign the Stipulation.
You see that reference to
"a confidential Settlement Agreement?" That's confidential
as in the parties haven't attached it to the Stipulated
Award and haven't referenced its terms in the Stipulation. Ahhhh . . . so that's why you couldn't find it.
Respondent Fahey may have agreed to settle the lawsuit for a
$500,000 lump-sum payment due next week or for $500,000 payable at the rate of
$1 a year for 500,000 years.
Respondent Fahey may have agreed to settle for $5,000 or
for no cash whatsoever.
Claimant Wells Fargo may have fully forgiven all repayment by Respondent Fahey provided he agreed to keep his mouth shut about the case and maintained the utmost confidentiality.
Whatever were the terms of the confidential settlement
agreement that the parties shook hands on, we sure as hell don't know and they
ain't telling us.
The Mechanics of a Stipulated
Award
As to the
mechanics of the Stipulated Award, consider this:
[C]LAIMANT will not enforce the Stipulated Award unless and until RESPONDENT defaults under the Settlement Agreement. Any amounts paid by RESPONDENT to CLAIMANT pursuant to the Settlement Agreement shall be applied to, and credited toward, the amount set forth in the Award.
In theory, a Stipulated
Award often presents a financial obligation that is larger than what
the parties agreed to in the confidential Settlement; and as
long as a given respondent honors the terms (typically for repayment of $X over
a period of X months/years), then the case settles on the confidential terms in the settlement rather than the more onerous ones in the Stipulated Award.
If a respondent fails to honor the terms of the confidential
Settlement, then the "unless and until" aspect of the award set forth in the
Stipulated Award would come into
play:
Lo and Behold![T]he parties stipulated and agreed that Claimant will not enforce the Stipulated Award unless and until Respondent defaults under the Settlement Agreement.
I'm not sure how many of you
have realized but, lo and behold, Fahey is a lawsuit in which Wells Fargo sued one of its former managers for the recovery of previously paid
compensation. Should I dare to characterize this lawsuit as an arbitration
demanding a clawback?
Recent weeks have not
been kind to Wells Fargo Bank and its subsidiaries. The firm paid $185 million
in fines and penalties to settle a Consumer Financial Protection Bureau
investigation that uncovered some 2 million in unauthorized accounts. The
"relevant period" cited in the CFPB Consent Order
was from January 1, 2011, to September 2016. READ the CFPB Wells Fargo Consent Order
Following the revelations in the CFPB Consent Order, Wells Fargo has been subjected to blistering Congressional hearings and the firm fired about 5,300 employees, who it says are responsible for the firm's account-opening transgressions (yeah, sure they are -- as if a fish doesn't stink from the head down).
Lo and behold, Respondent Fahey's clawed back compensation was related to his 2014 Manager Compensation Plan, which would be that date smack dab in the middle of the relevant period cited by the CFPB. Lo and behold indeed!!
"In
2014, carrot and stick for advisers at Wells Fargo
/Wirehouse
will require more revenue, set new targets but give advisers more ways to top
the hurdle" (InvestmentNews, by Trevor Hunnicutt, Dec 19, 2013), we
are reminded that for the then upcoming year of
2014:
Next year marks a changing of the guard for Wells Fargo Advisors as its long-time chief, Danny Ludeman, plans to retire on Jan. 1. Mr. Ludeman is being replaced by Mary Mack, the first woman to lead a brokerage since Sallie L. Krawcheck was dismissed from Merrill Lynch in 2011, and advisers are closely watching whether Ms. Mack will steer the brokerage in a new direction, recruiters said."Everybody's going to be watching Mary Mack at Wells to see how she does," said recruiter Rick Peterson. "She's going to be under the gun to not do anything radical."Wells Fargo Advisors, which is owned by a bank that is the country's largest mortgage lender, is placing an increasing premium on cross sales of nontraditional products, such as loans. And Ms. Mack has indicated in interviews since her appointment that she is willing to shift more clients away from stock-picking to the firm's managed-account platform.Wells Fargo employed 15,285 financial advisers at the end of its fourth quarter Sept. 30, according to their earnings report. Most of those advisers work in the Private Client Group, a network of brokerage branches around the country.
I wonder how Respondent Fahey fit into the shifting of more Wells Fargo "clients away from stock-picking to the firm's managed-account platform"? Indeed, everyone should have
been watching new retail head Mary Mack and her steering of the brokerage in a new direction. I wonder who was holding that gun under which she was threatened to "not do anything radical?" Seems like the C-Suites and the Board were pleased with Mack's non-radical steering because in July 2016, Mack replaced Carrie
Tolstedt as Wells Fargo's Head of
Community Banking. READ: "Wells Fargo's Stumpf Stumbles And FINRA Fumbles"(BrokeAndBroker.com Blog, September 21, 2016).
Some of you may
wonder why I connect Fahey's arbitration with Wells Fargo's
new-account debacle. I do so
for a very simple reason: If and when Wells Fargo dares to put up a fight about
how it shouldn't "claw back" compensation earned by its senior
executives as a result of the 2 million bogus account openings, let's remember
that this same firm had no problem going after a relatively lower-level manager
in the form of Respondent Fahey and entering a Stipulated Award
for $50,000 plus 10% per annum versus an original demand for $33,468.23. Lo and behold, we have a precedent for a Wells
Fargo clawback!
Lo and
behold!
Show me what I should have
known
Lo and behold!
Show me what I should have known
I gave you everything I
had
You didn't give a
damn
Lo and
behold!