JP Morgan Securities loses $3 million FINRA arbitration claim

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

JP Morgan Securities’ allegations that Barry A. Krumwiede, Bryan L. Schneider and Christopher J. Bowman violated their employment contracts by soliciting the firm’s clients were “denied in full” in a May 31 investigation . decision by a Chicago-based arbitration panel. The unanimous decision also denied their motion for penalties and attorneys’ fees to be paid by JP Morgan, but the panel ordered the company to pay the $17,650 hearing fee.

As in some similar cases involving brokers and their predecessor companies, the parties did not 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 ruling requiring JP Morgan pay $1.4 million in damages to another former adviser and a customer price in December it cost the company an additional $4 million.

Hearing fees, including those levied against JP Morgan for postponements and late cancellations, stood out AdvisorLaw attorney Dochtor Kennedy, who often represents brokers in FINRA arbitration but was not involved in this case.

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

These hearing costs show that “the panel was upset”, lawyer Jenice Malecki of Malecki Law agreed. Another lawyer representing financial advisers who was not part of the case, Malecki calls the proceeding a “nonsensical dispute” ignoring the common understanding in the industry that clients are “the adviser’s volume of business” rather than that of a brokerage, she said.

“Brokerage firms compensate advisers on entry for bringing in clients from another firm and seek to punish them on exit,” she said. “We don’t know much about the decision as it is in no way reasoned.”

Representatives for JP Morgan declined to comment on the matter.

Achieved their current independent practices with a firm called Professional Wealth Advisors under brokerage and RIA affiliations with LPL Financial, the advisers asked their lawyer, James Garvey of the Vedder Price law office. Citing the confidential nature of FINRA arbitration cases, Garvey declined to provide many details beyond what is available in the award.

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

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

Still, Garvey acknowledged that the arbitration case has imposed a financial and emotional cost on three advisers who still have many friends and acquaintances at their former firm. Krumwiede and Schneider had each spent about 15 years with JP Morgan and Chase Investment Services, while Bowman had been with the company for four years before he left in September 2020, according to FINRA BrokerCheck. The three advisers operate their firms separately.

JP Morgan filed the February 2021 claim approximately 15 months after Krumwiede’s freelance move, six months after Bowman’s exit and three months after Schneider’s departure. The company accused them of breach of contract and duty of loyalty, intentional interference with economic advantage and unfair competition, the price says. At the hearing, the company ultimately sought damages of $3.09 million, the document says.

“The causes of action relate to Plaintiff’s allegations that, upon termination, Defendants breached employment contracts by soliciting Plaintiff’s clients to transfer their accounts to an independent wealth management firm and a plaintiff’s competitor”, according to the decision.

In their response to JP Morgan’s filing, advisers asked the panel to find an award in their favor and instruct the company to pay hearing costs “exclusively,” the document said. The arbitrators did so in the decision, although they refrained from accepting any further claims for relief as part of the award. The advisers had left JP Morgan because they were “just ready to change their business model”, according to their attorney.

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