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By Suzanne Barlyn
April 18 A Wall Street watchdog's complaint
against a New York-based brokerage spotlights a possible fate
that strikes fear among many brokers - being blackballed when
leaving their firms.
The Financial Industry Regulatory Authority (FINRA) civil
complaint, filed on Monday, charged John Thomas Financial, Inc.
and its chief executive, Anastasios "Tommy" Belesis, with a
string of alleged violations, including threats and intimidation
against brokers who disagreed with the firm's business practices
or said they would leave.
Among the alleged tactics: threats to end brokers' careers
by including false information about them in a form that
brokerages must file with FINRA when a broker leaves.
Central in the complaint is a charge that the firm allegedly
defrauded customers in trading stock of a coal mining company.
FINRA also charged four other employees in the case. They will
all have a chance to defend themselves against the allegations
at a hearing.
A lawyer for John Thomas Financial did not return calls
requesting comment. Belesis did not return a call requesting
While the allegations are unusual and extreme, they
highlight a concern on Wall Street, lawyers say. Brokers worry
that firms may file false or inaccurate information about them
with FINRA after they leave.
There is good reason for the anxiety. Serious allegations,
whether true or false, can make it difficult for brokers to find
work, said James Sallah, a lawyer in Boca Raton, Florida, who
defends brokers. The details can also spark interest from
regulators, who often want to investigate, Sallah said.
Industry rules require brokerages to file a document known
as Form U5 with FINRA whenever a broker leaves. Brokerages must
disclose in the document, among other things, if they fire a
broker and why.
To be sure, most brokerages - especially the biggest ones -
comply with FINRA's rules to be truthful in regulatory filings,
according to Brian Buckstein, a lawyer in Wellington, Florida,
who represents brokers in employment cases. There is a good
reason for the disclosure because it alerts regulators and other
firms to instances of broker wrongdoing, investor advocates say.
Nonetheless, it can be a vehicle for abuse, lawyers say.
There is no industry data that reveals the number of brokers
who say their firms disclosed false or inaccurate information
about them to FINRA. Arbitration decisions involving brokers who
requested changes to such disclosures do not typically include
reasons for the outcome. Arbitration complaints, in general, are
not publicly available.
While rare, the practice of using regulatory filings to
deliberately tarnish a broker's reputation is more likely to
occur at smaller firms than larger ones, said Thomas Lewis, a
lawyer for Stark & Stark in Lawrenceville, New Jersey, who
advises brokers switching firms. A brokerage, for example, may
threaten an unflattering disclosure to intimidate a broker from
leaving with some of the firm's clients, Lewis said.
The acrimony between one former John Thomas Financial broker
and Belesis came to a head in late 2012, according to FINRA's
complaint. In one instance, Belesis, who appeared in the movie
"Wall Street: Money Never Sleeps," allegedly threatened to run
over the broker, who had complained about the quality of people
making investment presentations to firms, FINRA said in its
The broker's battle over the allegedly false disclosures
began around the time he left in late 2012. Belesis told him,
" atch what I do to your U5. I am already going to the office
right now." Belesis made similar comments days later, according
to the FINRA complaint.
The brokerage ultimately filed a form for the broker and
four others, whose identities FINRA did not disclose, alleging
they were under an internal investigation for computer fraud,
misrepresenting facts to FINRA, and other misdeeds.
Richard Roth, a New York-based lawyer who represents those
brokers, said the disclosures are "malicious and vindictive."
Roth has asked John Thomas Financial to remove the disclosures
or he will file an arbitration case against the firm, he said.
The brokers are working at another firm, although Roth would
not say where. The disclosures will continue to follow them if
left unchallenged, he said.
Removing a firm's disclosure - a process known as
"expungement" - is often long and costly. Brokerages, in some
cases, may agree to change the disclosure, especially if it is
new or they made an error, said Patrick Burns, a lawyer in
Beverly Hills, California, who advises brokerages on regulatory
issues. Brokers involved in thorny cases typically file a FINRA
arbitration claim against the ex-brokerage, seeking to change or
completely strike the disclosure, Burns said.
The price tag is steep. Legal fees in a case that goes to
hearing can run between $25,000 and $50,000, lawyers say.
Brokers can be sidelined for up to a year while the case is
pending, giving the ex-firm plenty of time to lay claim to the
broker's clients, they say.
Brokers, in rare cases, may recoup some of those expenses,
especially if the firm's conduct was intentional. For example,
FINRA arbitrators last year ordered changes to a small New York
firm's disclosure about a broker's termination to reflect that
the company was laying off staff. They also awarded the broker
$120,000 in damages and $125,000 for legal fees.
(Editing by Lauren Young and Jan Paschal)