Legend-ary Retirement Plan Embroils Cetera and First Allied in Federal Lawsuit

SIDE BAR: Online FINRA BrokerCheck records as of May 26, 2020, disclose that Claimant Oppedisano was registered with Legend Capital Corporation from June 1981 to January 1994; and, thereafter by Legend Equities Corporation until January 2017; and, thereafter by Lincoln Investment until February 2019. Cecchini's BrokerCheck registration records largely track the dates and affiliations on Oppedisano's.

This case concerns two former employees, Plaintiffs James Cecchini and Albert Oppedisano, of Legend Group Holdings, LLC ("Legend"), a financial investment firm. Legend hired Plaintiffs to help establish the firm's 403(b) retirement savings plan market in New York. [DE 118 at ¶ 9]. Legend recruited Plaintiffs by allowing them to establish their own branch offices under a Legend program called the Legend Advisor Financial Security Program ("LAFSP" or "the Program"). [DE 118 at ¶¶ 11-16]. The Program also permitted participants to "retire on active duty" which allowed them to maintain their active securities licenses and entitled them to certain payments called "override percentages," albeit at a reduced rate, but required the "retired" employees to retire their books of business and not pursue additional clients. Id. Plaintiffs both chose to retire on active duty from Legend in 2001 and began receiving their override payments. [DE 118 at ¶¶ 18-19]. Legend's ownership changed hands in 1999 and 2012, but it continued to pay out override payments to Plaintiffs. [DE 118 at ¶¶16, 21-23]. However, shortly thereafter, Legend was again sold for a third time, this time to Defendant First Allied Holdings, Inc. ("First Allied"). [DE 118 at ¶ 23]. First Allied is owned and controlled by Defendant Cetera Financial Group ("Cetera"). [DE 118 at ¶ 24]. 

On September 12, 2016, Legend notified Program participants that it was terminating the LAFSP, effectively immediately, because Legend determined that the LAFSP was "no longer supported by regulatory guidance."[DE 118 at ¶ 26; DE 118-2]. Legend's notice stated that "[t]o the extent you are receiving overrides on any such accounts, be assured that you will continue to receive these overrides as long as you remain appropriately licensed." Id. The notice was drafted by non-party Adam Antoniades, an officer of Cetera and First Allied, along with Cetera's counsel and others, and allegedly sent at Cetera's and/or First Allied's direction. [DE 118 at ¶¶ 27-29]. Plaintiffs maintained active securities licenses and continued to receive overrides. [DE 118 at ¶¶ 18, 31]. 

Legend was then sold yet again in January 2017, this time by Defendants to Lincoln Investment Capital Holdings, LLC ("Lincoln"). [DE 118 at ¶ 30]. Nonetheless, from September 2016 to approximately July 2017, Plaintiffs continued to receive the override payments. However, on July 14, 2017, Lincoln notified Plaintiffs that "after due consideration," it determined that "there was no basis for past or ongoing payments to [LAFSP participants] of overrides," thus, "effective immediately, no further payments of these overrides will be made." [DE 118 at ¶ 31] 

Plaintiffs brought the matter to arbitration against Lincoln only, [DE 129-1], where Lincoln's President, Mr. Ed Forst, testified that the LAFSP "had been cancelled before Lincoln closed on the transaction to purchase Legend" from Defendants First Allied and Cetera, and further, that the September 12, 21016 [sic] letter "was completely at Cetera's direction" and that Cetera had required Legend to terminate the Program prior to closing. [DE 118 ¶ 33]. This litigation followed.

SIDE BAR: There's a lot going on in that brief recitation of the background leading up to the SDFL Complaint. Let's try and bullet-point the key events so as to make things a tad clearer:

• Legend hired Cecchini and Oppedisano subject to the terms of the Legend Adviosr Financial Security Program ("LAFSP").
  
  
• In 2001, Cecchini and Oppdeisano "retired on active duty" from Legend, at which time they were paid "override percentages" per the LAFSP.
  
  
• In 2016 Legend notified LAFSP participants that the program was terminated subject to the proviso that Plaintiffs would "continue to received overrides . . . as long as you remain appropriately licensed." The 2016 Notice was drafted by Adam Antoniades, who was an officer of Cetera Financial Group and First Allied Holdings, Inc., the latter of which is owned and controlled by the former.
  
  
• In 2017, Legend was sold by Defendants Cetera and First Allied to Lincoln Investment Capital Holdings, which notified Plaintiffs that on July 14, 2017, further payments of overrides was terminated.
  
  
• At the FINRA Arbitration, Lincoln's President, Mr. Ed Forst, testified that the LAFSP had been cancelled before Lincoln closed on its purchase of Legend from Cetera/First Allied and he asserted that the the September 12, 2016 letter was prepared at Cetera's direction and that Cetera required Legend to terminate the LAFSP prior to closing.

Plaintiffs seem to have retired subject to Legend's LAFSP, which provided for payments to them of overrides; however, in 2017, the overrides were terminated. Plaintiffs sued Lincoln in a FINRA Arbitration but the arbitrators denied their claims. Perhaps seeking a second bite of the apple, Plaintiffs sued Defendants Cetera and First Allied in SDFL. Why? Perhaps the FINRA arbitration was based on the arbitration Claimants' theory that the termination of overrides was all Lincoln's fault -- which Lincoln's President Forst seems to have asserted during his arbitration testimony. The FINRA Respondent pointed the old finger at two unnamed parties -- so . . . will SDFL allow the Plaintiffs to go after the unnamed (Cetera and First Allied) in federal court? 

[T]he Second Amended Complaint alleges that Plaintiffs were notified that the LAFSP, the program that authorized the override payments, would be terminated by letter dated September 12, 2016. [DE 118 ¶ 26]. Plaintiffs allege that the September 12, 2016 letter was produced at the behest of Defendants, and thus Defendants caused Lincoln not to perform. The allegation is well-pleaded, and the Court credits it as true for purposes of this motion. [DE 118 ¶ 29]. Additionally, regarding the July 2017 letter, Plaintiffs allege that "[t]he purported reason basis (sic) to stop payment of the overrides was Legend's termination of the [LAFSP] at the direction of Defendants prior to the sale to Lincoln[.]" [DE 118 ¶ 32]. Thus, while the September 2016 letter did not terminate the Plaintiffs' override payments, the allegations, viewed in the aggregate, allow the Court to draw an inference that the cancellation of the LAFSP on September 12, 2016, laid the groundwork for the cancellation of the override payments and the subsequent July 2017 letter.

In this case, the Court declines to consider the extraneous documents at this early juncture. First, it is not clear to the Court whether the contents of the documents are, or are not, in dispute. Second, Plaintiffs made no allegation related to the FINRA Statement of Claim or the FINRA award. Accordingly, those documents will not be considered on a motion to dismiss. While Plaintiffs briefly referenced the Forst testimony, that testimony appears to be cited to bolster the allegation that Defendants caused the LAFSP to be terminated, which ultimately terminated the payments due to Plaintiffs under that program. The Court finds such testimony does not qualify as an exception to the general rule that the Court is limited to the Complaint and the documents attached thereto when considering a motion to dismiss. Plaintiffs' reference to the Forst testimony was that the "President of Lincoln Investment Planning, LLC has testified under oath that [the LAFSP was terminated at the behest of Defendants.]" [DE 118 ¶ 33]. This is somewhat cumulative of other allegations in the Complaint, such as, for example, that contained in the preceding paragraph: "[t]he purported reason basis (sic) to stop payment of the overrides was Legend's termination of the [LAFSP] at the direction of Defendants prior to the sale to Lincoln[.]" [DE 118 ¶ 32]

The Court finds that the issue of collateral estoppel is best dealt with on a full record at the time of summary judgment or trial. See Cope v. Bankamerica Hous. Serv., Inc., 2000 WL 1639590, at *4 (M.D.Ala. Oct.10, 2000) (discussing Concordia v. Bendekovic, 693 F.2d 1073, 1075 (11th Cir.1982)) (collateral estoppel is an affirmative defense that typically should be raised in an answer pursuant to Rule 8(c), rather than in a motion to dismiss pursuant to Rule 12(b)(6)). Accordingly, the Court rejects Defendants' collateral estoppel argument at this early stage of the litigation

(b) Retiring Representatives

(1) A member may pay continuing commissions to a retiring registered representative of the member, after he or she ceases to be associated with such member, that are derived from accounts held for continuing customers of the retiring registered representative regardless of whether customer funds or securities are added to the accounts during the period of retirement, provided that:

(A) a bona fide contract between the member and the retiring registered representative providing for the payments was entered into in good faith while the person was a registered representative of the member and such contract, among other things, prohibits the retiring registered representative from soliciting new business, opening new accounts, or servicing the accounts generating the continuing commission payments; and

(B) the arrangement complies with applicable federal securities laws, SEA rules and regulations.

(2) The term "retiring registered representative," as used in this Rule shall mean an individual who retires from a member (including as a result of a total disability) and leaves the securities industry. In the case of death of the retiring registered representative, the retiring registered representative's beneficiary designated in the written contract or the retiring registered representative's estate if no beneficiary is so designated may be the beneficiary of the respective member's agreement with the deceased representative.

• FINRA
• Arbitration
• Cetera
• First Allied
• Legend
• LAFSP
• Override
• Rule 2040
• SDFL
• Motion to Dismiss
• BrokeAndBroker
• Bill Singer