Brokers

J.P. Morgan Securities loses $3M FINRA arbitration claim

Three former Chase branch-based financial advisors won a full rejection of the company’s FINRA arbitration claim seeking more than $3 million several years after they left the firm.

J.P. Morgan Securities’ allegations that Barry A. Krumwiede, Bryan L. Schneider and Christopher J. Bowman breached their employment agreements by soliciting the firm’s clients were “denied in their entirety” in a May 31 decision by a Chicago-based arbitration panel. The unanimous award also tossed out their motion for sanctions and attorney fees to be paid by J.P. Morgan, but the panel ordered the firm to pay all $17,650 of the hearing session costs.

Just as in some similar cases involving brokers and their prior firms, the parties didn’t agree to a so-called reasoned award that would have included more details about the nature of the company’s claims and the rationale for the arbitrators’ decision. However, the case follows a February decision requiring J.P. Morgan to pay $1.4 million in damages to a different ex-advisor and a client award in December that cost the firm another $4 million.

The hearing fees, including those assessed against J.P. Morgan for postponements and late cancellations, stood out to AdvisorLaw attorney Dochtor Kennedy, who often represents brokers in FINRA arbitration but didn’t participate in this case.

“To me, that’s the most meaningful part of the award,” Kennedy said. “That says they were sympathetic to the respective brokers and, potentially, they were fed up with, annoyed with the claimant broker-dealer.”

Those hearing fees show that “the panel was upset,” attorney Jenice Malecki of Malecki Law agreed. Another attorney representing financial advisors who wasn’t part of the case, Malecki views the proceeding as “nonsensical litigation” ignoring the common understanding in the industry that clients are “the advisor’s book of business” rather than a brokerage’s, she said. 

“Brokerage firms compensate advisors on the way in for bringing clients from another firm and seek to punish them on the way out,” she said. “We don’t know that much from the decision because it’s not reasoned in any way.”

Representatives for J.P. Morgan declined to comment on the case.

Reached at their current independent practices with a firm called Professional Wealth Advisors under brokerage and RIA affiliations with LPL Financial, the advisors referred questions to their attorney, James Garvey of the Vedder Price law firm. Citing the confidential nature of FINRA arbitration cases, Garvey declined to provide many details beyond what’s available in the award.

Krumwiede, Schneider and Bowman “have no ill will or malice toward anyone. They just want to move forward,” Garvey said in an interview.

“They believe they did the things in the right way,” Garvey said. “They feel like their positions have been vindicated, that the system can work when all of the facts are presented to a panel that pays close attention to the evidence. They’re very relieved to have it behind them.”

Still, Garvey acknowledged that the arbitration case imposed a financial and emotional cost on three advisors who still have many friends and acquaintances at their prior firm. Krumwiede and Schneider had each spent about 15 years with J.P. Morgan and Chase Investment Services, while Bowman had been with the firm for four years before his September 2020 departure, according to FINRA BrokerCheck. The three advisors operate their practices separately.

J.P. Morgan filed the February 2021 claim about 15 months after Krumwiede’s independent move, six months after Bowman’s exit and three months following Schneider’s departure. The firm accused them of breaches of contract and duty of loyalty, intentional interference with economic advantage and unfair competition, the award states. At the hearing, the firm ultimately sought damages of $3.09 million, the document shows.

“The causes of action relate to claimant’s allegations that upon their separation from employment, respondents breached employment agreements by soliciting claimant’s clients to move their accounts to an independent wealth management firm and a competitor of claimant,” according to the decision.

In their response to J.P. Morgan’s filing, the advisors asked for the panel to find for an award in their favor and to assign the firm to pay the hearing fees “exclusively,” the document states. The arbitrators did so in the decision, although they stopped short of accepting any other claims for relief as part of the award. The advisors had left J.P. Morgan because they were “just ready to make a change to a different business model,” according to their attorney. 

“They did their level best to leave in a respectful and compliant way, and we attempted to show the panel that they did just that,” Garvey said.

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