In a case that's a cautionary tale for financial advisors amid the record volume of M&A deals, a Raymond James recruiter and her husband won a FINRA arbitration award of $6.8 million.
Theresa I. Stone, a business development consultant with the firm, and Shawn J. Waked, an advisor with a practice called Maestro Financial Partners, will collect millions in damages including payments for emotional distress under the July 25
It's not clear what transpired among the two sets of reps and the two giant wealth managers, but Stone and Waked had accused Kerr, Rivera, Terry and the Advisor Group-owned firm of civil conspiracy, misappropriation of trade secrets, fraud, breach of contract and other allegations. In a counterclaim, the three other reps accused Stone and Waked of a hostile work environment, with Kerr alleging but later withdrawing a claim of sexual harassment.
Beside the
The "substantial" award notably provides $1 million in punitive damages, $723,000 in attorney fees and an order for the respondents to return, in no fewer than two weeks, any confidential, proprietary or trade secret data belonging to Stone and Waked, said Robert Herskovits, an
"This award highlights the pitfalls of violating agreements with post-employments restraints," he said in an email. It also displays "the need for advisors to substantially protect themselves when being asked to sign an agreement containing post-employment restraints."
In addition, the emotional distress damages of $500,000 represent a rare victory for brokers in an arbitration case, where the claims must overcome a "high bar," according to Dochtor Kennedy of
"In order to get all the way to the end and prevail on the merits there, you need an expert who can speak to psychological disorders," he said. "If you really want to nail it down, it's a tough one — it really is."
No responses from parties
Reached at St. Petersburg, Florida-based Maestro Financial, Waked declined to comment on the case. Attorneys for him and his wife didn't respond to an email seeking comment.
Kerr and Rivera didn't return a phone call to their Santa Fe-based practice, Stonemark Investment Group. Efforts to reach Terry were unsuccessful, and the attorneys representing the three of them didn't reply to an email either.
Representatives for Advisor Group and Raymond James didn't respond to requests for comment.
The case involved another Raymond James executive, Central Division Director Kirk E. Bell. In a "third-party claim" included in the case, Terry had accused Bell and the firm of intentional and negligent misrepresentation. The panel never ruled on the claims, as the parties settled that case in June on undisclosed terms. Bell and Raymond James had denied the allegations in their official answer to Terry's separate filing.
Only certain snippets of the case become clear through the advisors' websites, disclosures on FINRA BrokerCheck and the typically vague language of the award document. Terry, Kerr and Rivera left Raymond James in 2019, with the 37-year veteran Terry not registering anywhere else,
For their parts,
A long, complex case
The statements of claim, responses to them and a long series of motions preceded 27 hearing sessions in the case this past June, according to the award.
In their initial January 2021 filing, Stone and Waked accused the other three reps of negligent misrepresentation, solicitation of clients and breaches of the covenant of good faith and fair dealing and the duty of loyalty. They accused the three reps and Securities America of interference with contractual relations, unjust enrichment and joint and several liability. The couple sought an injunction for the return of "confidential, proprietary, or trade secret data or information" and, at the hearings, $10.4 million in damages, attorney fees and other costs.
"The causes of action relate to the sale of a financial advisory practice in Santa Fe, New Mexico," the award document states.
Securities America and the three other reps denied their allegations. The three reps filed a further counterclaim accusing Waked and Stone of breach of contract and negligent misrepresentation. As extra causes of action, Terry added conversion and fraudulent misrepresentation, Kerr and Rivera accused the couple of intentional misrepresentation and constructive discharge, and Kerr alleged the couple sexually harassed her. They requested $580,000 in attorney fees plus unspecified damages for fraud and breach of contract.
The three of them will receive a payment of $8,000 from Waked and Stone in a sanction for the cost of their "abuse of the discovery process," the award shows. In September 2021, the chair of the panel ordered the payment and granted the defendants' motion to compel evidence.
However, the panel denied their second motion for sanctions in June against Waked and Stone over allegations that they attempted to intimidate a witness. Besides that ruling, they denied three requests by the defense to dismiss the case, including one from Securities America. Also, during the evidentiary hearings, Kerr withdrew her claim of sexual harassment.
"At the closing of the evidentiary hearing, counsel for all parties affirmed on the record that they believed their clients, claimants and respondents, had received a full and fair opportunity to present their cases in all respects to the panel," the ruling states.
Under the unanimous ruling last month, Waked and Stone will receive nearly $5.5 million in compensatory and punitive damages, plus the payments for emotional distress, the outlay of $100,000 from Securities America and interest on the compensatory portion of the damages. Terry must pay roughly $2.6 million of the damages herself, while she and Kerr have to supply the emotional distress damages. The panel ordered the defendants to hand over the proprietary information to Waked and Stone as well, in "no more than 14 calendar days."
While the decision doesn't fully explain what happened, Kennedy said it signals the importance for advisors to "be as communicative and cooperative as you can" through an attorney when deciding to leave a firm or sell a practice. He acknowledges that "the gut wrenching idea of being even remotely transparent" seems difficult in that situation.
"The regulatory landscape is always evolving and shifting a little bit. You just want to be out in front of it," Kennedy said. "What it really comes down to is finding competent counsel who have done this recently and getting them to review everything."
