April 18, 2013 / 5:32 PM / 5 years ago

RPT-COMPLY-Why hostile goodbyes can stir brokers' fears

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By Suzanne Barlyn

April 18 (Reuters) - 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 comment.

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.

DAMAGED GOODS

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.

BATTLE BREWING

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 complaint.

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.

HIGH-PRICED REPAIR

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)

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