FINRA Panel Orders Wedbush to Pay Former Broker $3.5M in a Scathing Award

A Financial Industry Regulatory Authority (FINRA) arbitration panel in San Francisco has ordered Wedbush Securities Incorporated to pay one of its former brokers $3.5 million for failing to pay him several years worth of incentive based compensation that was due him pursuant to his employment contract, according to Investment News.

The Claimant in the case was Stephen Kelleher, a former municipal sales trader who joined the firm in 2007, had requested $5.7 million in damages. At the close of the evidentiary hearing that amount was reduced to $4.1 million. He asserted various causes of action including breach of contract, fraud, failure to pay amount conceded due under the Labor Code, violation of the Labor Code and unfair business practices, among others.

During the three day evidentiary hearing, various witnesses testified that Mr. Edward W. Wedbush himself routinely made the final decisions about incentive payments to senior employees or withholding them. Another Wedbush employee testified that he had gone two years without receiving any incentive based compensation that he was due. Following the hearing, the panel examined all of the oral and documentary evidence and concluded that Wedbush Securities was liable to Mr. Kelleher and ordered them to pay him $3.5 million in damages. The panel also ordered Wedbush to grant Kelleher the vested option to buy 3,750 shares of Wedbush Morgan stock at a strike price of $20 per share and the vested option to buy 375 additional shares at the strike price of $26 per share. Finally, the panel ordered Wedbush to reimburse Kelleher $200 for his non-refundable portion of the filing fee, in addition to assessing them the entire $8,400 in forum fees for the arbitration.

According to the arbitration award, the panel was obviously incensed by the way Wedbush had handled the situation with Mr. Kelleher and making him have to file an arbitration claim to get what was rightfully his. Recently there have been several cases similar to this where brokerage firms have attempted to withhold compensation from its own brokers and the message being sent to the Wall Street firms is that arbitrators are sick and tired of these shenanigans and ordering them to pay up. The panel concluded that "the major cause of this dispute is a poorly written and ambiguous employment contract and a corporate management structure that required personal approval from the majority shareholder of Wedbush's stock, Mr. Edward W. Wedbush, for all incentive payments to senior employees - which approval was routinely withheld." The panel went on to say that the decision and damages were the result of "Wedbush Morgan's morally reprehensible failure and refusal to compensate Mr. Kelleher in a timely fashion." (FINRA# 10-01568; Stephen Kelleher v. Wedbush Securities Incorporated f/k/a Wedbush Morgan Securities Incorporated).

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