Securities Fraud Attorney Blog
Cantor Fitzgerald has a practice of awarding its FINRA registered employees compensation in the form of partnership units in an associated entity called Cantor Fitzgerald, L.P. (CFLP), which is not a member of FINRA. The employees are often employed by or registered with Cantor Fitzgerald & Co. (CF&Co.), the main Cantor FINRA-registered broker dealer. Many Cantor employees have employment agreements with CF&Co. which provide for payment in CFLP partnership units. The compensation in the form of CFLP partnership units can only be for the employees’ work as FINRA-registered representatives for CF&Co since the employees don’t work for CFLP.
As Bloomberg reported. Cantor recently announced layoffs. https://www.bloomberg.com/news/articles/2020-04-16/cantor-to-cut-hundreds-of-jobs-in-break-from-wall-street-pledge
Many employees who are laid off may own significant amounts of CFLP partnership units. If an employee believes he or she is not being compensated fairly with respect to the partnership units, what can an employee do? Our firm has handled this issue with Cantor before. The answer, if the employee is a FINRA registered representative, is he or she can bring a FINRA arbitration against CF&Co. to recover the value of the partnership units.
Our firm won a FINRA award against Cantor in 2019 on behalf of our wonderful client Jim Smyth related to partnership units. Here is the award: https://www.finra.org/sites/default/files/aao_documents/17-02315.pdf
We filed a claim against CF&Co. for hundreds of thousands of dollars in CFLP partnership units owed to Jim (amongst other claims). While the award does not specify how the final number was calculated, Jim won almost $1 million in damages, interest, attorneys’ fees and costs.
FINRA rules are very clear that a broker-dealer cannot force a registered representative to waive his or her right to file an arbitration against his or her employer. FINRA Rule 13200 unambiguously requires Member firms and Associated Persons to arbitrate their disputes at FINRA:
Except as otherwise provided in the Code, a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among:
- Members;
- Members and Associated Persons; or
- Associated Persons
The plain language of Rule 13200 does not permit contractual waiver or modification of this requirement. Indeed, it is a violation of Rule 2010 “for a member to require associated persons to waive the arbitration of disputes contrary to the provisions of the Code of Arbitration Procedure.” FINRA IM-13000.
In July 2016, in response to letters signed by our firm and others who represent employees, FINRA specifically addressed the propriety of Member firms including in pre-dispute agreements with associated persons provisions that “have the effect of waiving the associated person’s right to obtain FINRA arbitration of any disputes arising out of that agreement.” Regulatory Notice 16-25, at 6 (July 2016). https://www.finra.org/rules-guidance/notices/16-25
FINRA made clear that the Rules do not allow for waiver of the Code provision requirement to arbitrate industry disputes at FINRA:
FINRA’s arbitration rules are not default rules. FINRA Rule 13200 specifically states that industry disputes must be arbitrated at FINRA . . . . Thus, any attempt to override this requirement of FINRA Rule 13200 in a predispute agreement by more specific contractual terms would violate FINRA rules.
Any attempt to compel a waiver of a registered employee’s rights and obligations to arbitrate disputes before FINRA is in direct contravention of FINRA Rules 13200, 2010 and IM-13000. FINRA Dispute Resolution prides itself in providing a fair, efficient, transparent, and economical forum to resolve disputes between firms, brokers, and investors. The purpose of FINRA Rule 13200 is to ensure market participants, both Members and their Associated Person employees, take advantage of it. The basis of mandatory FINRA arbitration is that FINRA not only can but should resolve intra-industry disputes, as it has what no state court has: The authority, expertise, and Congressional mandate to resolve intra-industry disputes in a manner that fairly and efficiently protects the markets, market participants, and the public. FINRA has for decades promulgated rules and procedures, selected arbitrators, and developed materials that promote these goals.
If you want to talk about your rights as a former FINRA registered representative employee of Cantor, feel free to contact us.