Mesirow Financial Wins $1.9 Million FINRA Award from Former Employees and New Company

The Wall Street Journal is reporting that two financial advisers have been ordered to pay nearly $1.9 million to the advisers' former employer, Chicago-based Mesirow Financial Holdings, Inc., and two of its divisions that alleged breach of contract and theft of trade secrets.

The award by an arbitration panel of the Financial Industry Regulatory Authority included a rare dissent by the three-person panel's chairman. The dissent appears to be regarding the panel's conclusion that "tombstone announcement" mailings constituted improper solicitation in violation of the financial advisors' employment agreements with Mesirow Financial.

Mesirow filed the case after David Copeland and Neal Price left in 2008 to form Strategic Wealth Partners, LLC, a registered investment adviser in Deerfield, Ill., according to a 2009 order in a related court proceeding.

The company accused Copeland, Price and their firm of breaching their employment contracts and fiduciary duty, stealing trade secrets, taking its staff, and other misdeeds, according to the arbitration award. It said Copeland and Price also used confidential information to transfer away business.

In an unusual one-sentence dissent, panel chairman Richard Belmonte said the award was "grossly contrary to the manifest weight of the evidence and the applicable Illinois law." As is typical in securities arbitration, the award didn't provide any reasoning for the decision by the panel's other two members.

Copeland and Price's counterclaim against Mesirow in the case, seeking $615,000 for deferred compensation and unpaid wages, was rejected.

The award highlights the diverging outcomes that can occur in a case that is heard by both an arbitration panel and in court.

An Illinois state court judge, in a related proceeding between the parties, ruled in 2009 that "information contacts," such as announcement cards and follow-up telephone calls to Mesirow clients that the advisers serviced, "do not constitute solicitation," according to a 23-page decision. Mesirow's attempt to portray the advisers' organized approach to contacting the individuals as evidence of solicitation wasn't "persuasive," according to that ruling.

The Illinois court declined to temporarily bar the advisers from continuing to contact clients and certain other activities while the Finra arbitration was pending. It ordered the advisers, however, to return certain confidential information to Mesirow, and for a computer forensic expert to be allowed to search the advisers' computer systems.

Dissenting opinions in securities arbitration cases are "uncommon but not unheard of," says Thomas K. Potter III, a securities arbitration lawyer in Nashville, Tenn. An arbitrator's dissent can be used to provide a basis for the losing party to ask a state court to overturn an award. Arbitration is typically binding, but courts can overturn the awards in limited circumstances, such as when arbitrators don't properly apply the law.

A Finra spokesman said that arbitration panels rule unanimously in about 95% to 98% of cases.
Gene Ullrich, a spokesman for Strategic Wealth Partners, says the company and two advisers "strongly disagree with the outcome" and will continue to evaluate their legal rights and possible options. The dissenting arbitrator's view and conclusions of the state court judge, he says, are significant. Two Mesirow employees now work at Strategic but in administrative positions, he said.

The award, said Ullrich, is a fraction of the amount sought by Mesirow. Ullrich declined to specify that amount.

A Mesirow spokeswoman said the company is "very pleased with the result." She declined further comment on other specifics of the case or ruling.