Commentary from T. Sheridan O’Keefe
I have something in common with Stephen Sawtelle — a former broker from Waddell & Reed who was just awarded almost $28 million from an NASD arbitration panel (see the front page story in The Wall Street Journal, Aug. 29, 2001). You see, we both filed claims against our former employers based on retaliatory termination for whistle-blowing on a fellow employee who had committed a crime.
As I understand it, Sawtelle experienced many of the same delay tactics from Waddell & Reed as I did from my former employer (Piper Jaffray) before and during arbitration.
These delay tactics can cost a lot of money. I received a bill for $30,000 for the privilege of going through an NASD arbitration. Sawtelle went through 54 days of hearings, which ran the bill up to $110,000. Waddell & Reed was ordered to pay that, but the normal practice is for arbitrators to split the cost. Some pro-arbitration attorneys argue that arbitration still costs less than going through a civil court because one avoids costly, lengthy depositions. Unfortunately, when a broker draws a weak arbitration panel, the process can be as lengthy and even more costly than a civil suit.
Sawtelle alleged his former employer fired him in retaliation for his testimony before the SEC, which was investigating embezzlement by a colleague of Sawtelle’s. Waddell apparently denied firing Sawtelle for his testimony. Waddell Executive Vice President Tom Butch, quoted in The Wall Street Journal Aug. 9, 2001, said, “We obviously would not terminate any adviser without what we believed to be a compelling reason.”
So what was this compelling reason? Was it because Sawtelle was a loyal employee of Waddell & Reed for 17 years? Was it because he was their No. 1 producer earning more than $1 million a year prior to his termination? Or was it because, as Sawtelle claimed, Waddell terminated him in retaliation for his testimony before the SEC?
A critical advantage for Sawtelle was that his arbitration took place in Connecticut while his former employers were based in Kansas. What’s the difference you say? The three people on the Sawtelle arbitration panel most likely believed they would never again arbitrate a case involving Waddell & Reed. According to some academics who study arbitration, one of the main reasons arbitrators don’t give more awards to former employees (or bigger awards), is that they are afraid of not being picked by the brokerage firms again for future cases. This would be devastating for some of these arbitrators who depend on industry arbitrations as a source of income.
No doubt broker/dealers will institute future requirements that employees arbitrate employment disputes in the states in which the firms are based. There is only one way to stop this: Make predispute mandatory arbitration agreements unlawful.
The NAIP is attempting to get a law passed in the House of Representatives that will do just that. H.R. 2282 will make any agreement between an employer and an employee that requires arbitration as a condition of employment unenforceable. Having the option to have your claim heard in civil court versus arbitration would give us all a great deal more power in employment disputes.
If you would like to help us with our grass-roots effort to get this law passed, visit our Web site at www.naip.com. I will be addressing additional regulatory and legislative issues in upcoming columns.
T. Sheridan O’Keefe is a registered rep based in Minneapolis, and president of the National Association of Investment Professionals, a trade group for brokers and advisers. The NAIP can be reached at 952/322-6247. He can be contacted at tokeefe@naip.com.
© 2001, PRIMEDIA Business Magazines & Media Inc. All rights reserved. Provided under license to SECLaw.com. This article is protected by United States copyright and other intellectual property laws and may not be reproduced, rewritten, distributed, redisseminated, transmitted, displayed, published or broadcast, directly or indirectly, in any medium without the prior written permission of PRIMEDIA Business Magazines & Media Inc.. Registered Representative magazine is online at www.rrmag.com
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
Related Articles
- SEC Attempts to Expand Insider Trading Liability
- Doing Business Abroad
- Strategic Considerations for High Net Worth Individuals in Required Minimum Distributions
- SEC Argues against Liu Disgorgement Ruling
- SECLaw Tops The List of Securities Law Blogs
- Proposed Change to Accredited Investor Definition
- SEC Adds 23 Unregistered Soliciting Entities to its PAUSE List
- SEC Issues Two Whistleblower Awards for High-Quality Information Regarding Overseas Conduct
- Morgan Stanley Agrees to Pay $5 Million for Reg SHO Violations
- SEC Awards Almost $30 Million to Two Insider Whistleblowers
- SEC Whistleblower Program Ends Record-Setting Fiscal Year With Four Additional Awards
- SEC Charges Hospitality Company for Failing to Disclose Executive Perks
- Undisclosed Paid Promotions Result in SEC Charges
- Whistleblower Award for New Analysis, Not New Information
- Firm Fined For Lax Text Message Storage
Return to The Securities Law Home Page
Visit Beam & Astarita, LLC, securities arbitration, regulation and litigation attorneys
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
