Commonwealth Financial Network must pay a former broker $175,000 over a FINRA arbitration case involving a financial advisor’s medical condition and the breakup of a practice.
The independent wealth manager owes James “Jay” A. Womack compensatory damages of $125,000 and punitive damages of $50,000 for “willful or wanton conduct” in the “defamatory” Form U5 filing about his departure from the firm,
The case follows two others in February in which FINRA arbitration panels awarded brokers more than $1 million in damages in connection with respective cases against
“As we often say on Wall Street, there are certain cases that you just can't afford to lose once,” Singer said. “Once you lose a case like this, now it becomes the legend of the watercooler. This case is going to become somewhat famous in the industry. … That emboldens the respondent or the stockbroker to take a harder line with the brokerage firm.”
McKelvy didn’t respond to requests for comment to his Asheville, North Carolina-based practice, Groth & McKelvy.
“Although we are disappointed and disagree with the panel’s findings, we will abide by the arbitrators’ decision,” Commonwealth Associate General Counsel Ellen Rosenberg said in a statement. “We have put this matter behind us.”
Womack, who left Commonwealth for Cambridge Investment Research in July 2020, declined to discuss the case when reached at his current office. He’s currently operating the North Carolina location of Summit Financial Solutions.
Case against former partner
Besides the disclosure that’s eligible for removal pending a review by FINRA’s Credentialing, Registration, Education and Disclosure Department, Womack’s
McKelvy denied the allegations and made a counterclaim, accusing Womack of breach of contract, fraud, negligent misrepresentation, computer trespassing or conversion, and other allegations. He sought damages above $1 million in the counterclaim, while Womack requested more than $10 million.
In the Aug. 26 decision by the other panel in Charlotte, the arbitrators denied McKelvy’s counterclaim and ordered him to pay Womack $5,000 in compensatory damages for defamation. However, they also assessed a sanction of $10,000 for Womack to pay to McKelvy.
Womack and his attorney “represented to the panel that claimant was not using a script or notes while testifying during the evidentiary hearing, which was later determined to be untrue,” the arbitrators wrote. “Though the panel does not have jurisdiction to award sanctions against counsel, the panel believes that claimant's counsel was largely responsible for this misconduct.”
Case against Commonwealth
It’s not immediately clear what caused the split between the business partners in 2020, though Commonwealth’s “employment separation after allegations” comment on Womack’s record provides some hints. The firm permitted him to resign after Womack “made false representations to the state of NC while seeking unemployment benefits, failed to follow the firm's procedures regarding the use of hosted email and text messaging and misrepresented the credit quality of bonds held by an elderly client,” according to BrokerCheck.
In a comment replying to the firm, Womack responded to each aspect of the allegations.
“I was not the servicing advisor to the client whom I misspoke to about the bond issue and I had not spoken to the client in approximately two years before that time,” Womack said. “I had a medical condition that Commonwealth did not know about until after I disclosed it, which gave me basis for the unemployment claim, which was never finalized or received. Partner at that time was responsible for providing all secure technology and security apparatus per contract that I had with him.”
Womack filed the defamation claim against Commonwealth in September 2020, and he ultimately sought compensatory damages of $1.26 million and an unspecified amount of punitive damages. Commonwealth denied the allegations and filed its own counterclaim requesting more than $100,000 based on allegations of breach of contract in Womack’s March 2017 independent contractor agreement, promissory note and loan agreement.
In the decision, the arbitration panel called for the reason for Womack’s termination to be changed to “voluntary” and for the termination explanation to be left blank. The arbitrators denied any requests for attorney fees or treble damages, but they granted the punitive damages based on North Carolina state law.
“Punitive damages may be awarded only if the claimant proves that the defendant is liable for compensatory damages and that one of the following aggravating factors was present and was related to the injury for which compensatory damages were awarded: (1) fraud. (2) malice. (3) willful or wanton conduct,” the award states. “The panel finds the aggravating factor to be willful or wanton conduct based upon respondent’s placement of defamatory information on [the] claimant’s U5 records.”
