LPL Financial must make a “very substantial” payment for the firings of an office of supervisory jurisdiction manager and a compliance delegate to settle their $20 million FINRA arbitration claim.
Brandon Marinelli and Meagan Donahue also won expungement of their records under a Feb. 16 decision by the Hartford, Connecticut-based panel, which noted LPL’s payout without disclosing the exact amount. The arbitrators rebuked the firm for “incorrect and defamatory” Form U5 filings.
The ruling followed the No. 1 independent broker-dealer’s victory in October in a case filed by a different
Marinelli and Donahue’s former practice, Northstar Wealth Partners, remains affiliated with LPL, and Marinelli’s onetime business partner testified in the case. The arbitrators found “considerable support” for Marinelli and Donahue’s argument that they were wrongfully terminated in March 2016, they wrote.
“The record (including LPL’s internal documents) are remarkable in the lack of credible evidence showing wrongdoing by Donahue,” according to an arbitrators’ report on the case, which was included in an unusually detailed and specific award filing.
“It appears that Marinelli’s actions were consistent with his obligations and in the few ambiguous instances explicitly approved by LPL,” the panel added. “At a minimum, LPL did not appear to engage with Marinelli to examine in good faith Marinelli’s actions in regard to the events causing concern.”
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A spokesman for LPL had no immediate comment on the case. The firm did not attend any of the hearings or contest the expungement of the former brokers’ Form U5 after entering into the December settlement, the arbitrators noted.
Marinelli, who is now head of a private client group in the Connecticut Complex of Raymond James & Associates, referred requests for comment on the case to his lawyer, David Cosgrove of the Cosgrove Law Group.
Efforts to reach Donahue, who is no longer registered with any firm, were not successful.
She couldn’t find another job in the industry due to the termination disclosure on her record, according to Cosgrove, who represented her as well. Cosgrove declined to discuss the size of LPL’s settlement, but he emailed a statement about the case.
“Proving that the reason for the termination is not the same as the allegation listed on the U5 is a difficult task,” Cosgrove said. “The key is to be persistent in getting all of the relevant documents from the BD. This public award and vindication is obviously important to my clients and their careers.”
In the U5 filings, LPL had cited Marinelli and Donahue over their supervision of certain Northstar registered representatives, according to FINRA BrokerCheck. Marinelli replied in a comment on the disclosure, saying the reasons for his termination were false and noting his legal case.
Donahue said the allegations related to improper activities by two representatives before her tenure with LPL, and the company never alerted her to any concerns about them. Northstar long ago fired the two reps in question, according to the West Hartford-based firm.
Marinelli and Donahue filed their claim for $16.4 million in compensatory damages and $3.6 million in punitive damages in November 2016. They accused LPL of reckless infliction of emotional distress, raiding, tortious interference, breach of fiduciary duty and false light, in addition to defamation.
The firm asserted that Marinelli and Donahue failed to detect or report problematic annuity transactions by a representative under their supervision, according to the arbitrators. Donahue testified, however, that the firm reviewed the transactions and found them acceptable after discussing them with the clients.
Similarly, evidence produced in the case showed LPL had itself found that two loans by Marinelli to a representative were not violations of its policies and approved a representative’s holdings of certain penny stocks, the arbitrators wrote. LPL had mentioned the two issues in explaining his firing.
LPL terminated Marinelli and Donahue “at least in part” in order “to impede Marinelli and his business partner from moving Northstar’s book of business elsewhere,” the panel concluded.
The firm’s executives knew Marinelli was exploring a sale of Northstar, so the firm planned a retention strategy, according to the arbitrators. LPL considered several scenarios, including firing both Marinelli and the business partner, they added.
Marinelli sold his interest in Northstar in the summer 2016 after building it up over the previous 12 years to five locations with 40 advisors and staff and nearly $2 billion in assets under management, according to his Raymond James
The award document did not identify Marinelli’s business partner by name, and Northstar founding partner Robert Laraia was traveling out of town and unavailable to discuss the case on Tuesday, according to the firm. The hybrid RIA listed $838.1 million in advisory assets in its latest Form ADV filing.
LPL’s settlement payment amounts to “well in excess of the reasonable likely costs of defense,” according to the award document. The arbitrators also assessed fees of $21,375 against LPL to pay fees for hearings, filings and discovery in the case.
The decision mandates that Marinelli and Donahue’s CRD termination disclosures for LPL be changed to “voluntary” with a blank explanation. Their Form U5 will also have “no” answers rather than “yes” to the question of whether they were ever cited for a failure to supervise.
The three arbitrators required the changes to their permanent records “based on the defamatory nature of the information,” they wrote.
The ruling also applies to any other disclosures on Marinelli’s U5 involving his discharge from LPL, including a U4 Amendment filed by Raymond James. Marinelli and Donahue must provide copies of the award to FINRA’s Registration and Disclosure Department for review before any changes can be made.
