Northwestern Mutual's wealth management unit must pay three brokers damages of $8 million over their FINRA arbitration claim alleging wrongful termination and Form U5 defamation.
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Rosen said that, after an investigation based on false premises and an "incredibly defamatory" termination explanation on the former Northwestern brokers' Form U5, the firm seized large commission trails from their specialty consulting business in bank-owned life insurance by claiming that they hadn't disclosed and received approval for the outside business activity.
The brokers "feel vindicated" by the award, which came with an order from the Philadelphia-based arbitration panel for their records to be expunged of the allegation, he said.
"The larger part of the case, I think, was the personal impact it had on them," Rosen said, noting how Northwestern's conduct as part of the brokers' July 2020 discharge from the firm affected their standing among banks as prospective customers in the niche business. "They're going to check, and they see something devastating — how is a bank executive going to justify doing business with someone who has these terrible allegations against them? The expungement was a huge part of the decision, the biggest part to my clients."
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Representatives for the firm declined to comment on whether Northwestern will file a court case seeking to overturn the award, which
"We are surprised by the arbitration panel's decision, both as to the finding of liability and the amount of damages awarded to these former financial representatives," Northwestern spokesman Brendan Griffith said in a statement.
Most insurer-owned wealth management firms are "just not as sophisticated" as wirehouses and other large independent brokerages about advisor exits, according to recruiter Philip Waxelbaum of
"The firms have become more thoughtful in what they pursue. There was a time when there was a period of retention through litigation," Waxelbaum said. "FINRA's kind of had enough. If your claim doesn't merit, don't show up with it, because it's not going to be treated well."
Northwestern alleged nearly four years ago that Robert and William Galbreath, as well as Resch, had "engaged in undisclosed/unapproved outside business activities (consulting in exchange for customer-paid fees)" without providing the "documentation necessary to determine whether activities constituted undisclosed/unapproved private securities transaction and/or unregistered investment advisor activities" based on the claim that "contractual non-disclosure restrictions prohibited [them] from providing documentation to firm," according to the Form U5 amendments the firm attached to the advisors' FINRA BrokerCheck records.
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In response, the three each "vigorously disputed" those allegations in their own comments on BrokerCheck.
"The activities of the [bank-owned life insurance] consultants did not involve their sale of securities as alleged," they said. "No FINRA, industry or company rules were violated. The activity at issue was preapproved by [Northwestern Mutual Investment Services], and the [bank-owned life insurance] consultants disclosed all of their consulting activities with NMIS in real time, without objection. The BOLI consultants have instituted an arbitration claim against the employer seeking full and complete recourse."
In the discovery phase of the arbitration case, the three brokers and their lawyer displayed how Northwestern's allegations were false using about 8,000 pages of documents from the firm's own email systems. The documents showed that Northwestern had approved the outside business and the brokers had cooperated fully with the firm's review, according to Rosen.
They had received written permission from Northwestern nine years before the firm took notice of some "enormous" trails stemming from work the brokers performed on behalf of one bank whose policy has a life cycle over several decades, he said. A bank that had acquired another institution was trying to figure out how to proceed with the seller's policy and tapped the brokers' expertise in this highly specific type of corporate insurance, according to Rosen, who said that Northwestern took over the trails from the bank's business.
"It was very complex, and it was very challenging but they saved them a lot of money and they were paid for that," he said. "Their supervisor, their compliance officer was aware of what was going on. They decided it was a lot of money and they were going to do an investigation. They made up all these claims and they terminated them."
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The brokers — who have each been registered with brokerage J. Alden Associates since August 2021 — filed their claim against Northwestern about four months after their discharge. They accused the firm of wrongful termination, conversion and U5 defamation and asked for expungement of their records, the award document showed. And they requested $35 million in damages.
In the end, the panel ordered Northwestern to pay Robert Galbreath compensatory damages of $3.2 million, William Galbreath $2.6 million and Resch $2.2 million, along with a payment of $750 for the nonreimbursable portion of their filing fee.
The arbitrators dismissed all claims against Anthony R. Stanley, the general agent managing Northwestern's Philadelphia office at the time they worked for the firm. In addition, they approved the expungement of the company's allegations from BrokerCheck and ordered the termination explanation in the Central Registration Depository database to be revised to: "The company elected to end the at-will employee's contract." To complete the expunction of their records, the brokers must send a copy of the award to FINRA's Credentialing, Registration, Education and Disclosure Department for review.
