What was a source of pride for the Wichita office of Robert W. Baird & Co. in 2015 is now a more than $23.5 million headache – and it’s one that a lot of people will be paying attention to nationally.
The firm started an office here in June 2015 in part by hiring six financial advisers from Wells Fargo Advisors who brought clients worth $1.1 billion in business with them.
In October of that year, Wells Fargo filed a claim with the Financial Industry Regulatory Authority that Baird raided its Wichita office. On Friday, FINRA ruled that Baird must pay Wells Fargo $21.8 million in compensatory and punitive damages plus almost $1.8 million in attorneys’ fees, other costs and interest.
“It’s very rare to see an eight-figure punitive damage award like you saw in the case,” says Chicago securities attorney Andrew Stoltmann, who is not involved in the case.
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What also makes the case unique, Stoltmann says, is that individual advisers were fined, too.
According to FINRA claim documents, Don Barry is liable for $542,632 plus interest; Jill Docking is liable for $181,112 plus interest; Docking’s son, Brian, is liable for $161,314 plus interest; and Kevin McWhorter is liable for $114,942 plus interest.
“We strongly disagree with what is asserted in this situation and with the findings and are extremely disappointed in the size of the award,” Baird president and CEO Steven Booth said in an e-mailed statement.
Advisers Phillip Garrison and Suzanne Marshall were named in the original claim, but Wells Fargo dismissed its claim against them prior to the hearing.
Booth called the former Wells Fargo advisers, who all had been with A.G. Edwards at one time, a veteran group that helps give the Milwaukee-based Baird a strong Wichita presence.
“They made a business decision to move to Baird because they felt their clients would be better served here,” Booth said in the statement.
A Wells Fargo spokeswoman would not comment on Wednesday.
Ohio attorney Marnie Lambert, who also is president of the Public Investors Arbitration Bar Association, says she doesn’t think fines for brokers are so unusual.
She says the fees “send a signal to other brokers that you shouldn’t leave en masse.”
Regardless, Lambert says, “This will be looked upon and talked about. … What was it that really seemed to be the problem?”
That’s a question that’s unanswered, at least for now.
There are regulations that stipulate how security firms can hire people away from other companies and what those employees can take with them. When there are disputes, firms go through FINRA for binding arbitration instead of filing lawsuits.
FINRA pleadings aren’t public documents, though, so it’s not clear what Baird may have violated.
Stoltmann, who says he’s been involved with about 1,000 FINRA arbitration claims, says raiding claims are common with most mass transfers.
“Usually raiding claims are filed when a firm takes brokers that account for 30, 40 percent of the production of a branch office.”
“There is no nastier, cattier fight in the entire securities industry than a raiding case between two brokerage firms because they’ve got the money to fight tooth and nail. … The raided firm is so upset that it’s trench warfare times 10.”
Though Wells Fargo prevailed in this case, Stoltmann says, “Wells Fargo is one of the biggest raiders out there. Now all of a sudden when Baird does it to Wells Fargo, Wells Fargo goes crazy.”
It’s not clear whether Baird will file a motion to vacate the arbitration award, which is FINRA’s version of an appeal.
“There’s a pretty good chance Baird may do that,” Stoltmann says. However, he adds, “Unlike court, it’s really, really hard to get a motion to be successful.”
Booth would not address whether his firm will file a motion to vacate.
From his e-mailed comments, though, it appears the company will be fine financially regardless.
“In terms of potential impact on our financial results, we will have record revenues for 2016 and expect operating income in 2016 to be in line with 2015, which was a record year,” Booth said in the Baird statement.