NASD to Ameriprise: Pay up or shut down

Mar 13, 2006 @ 12:01 am

By Bruce Kelly

NEW YORK - Ameriprise Financial Inc. faces the threat of being shut down by securities regulators because it has yet to pony up a $230,000 arbitration award to a former broker.

On March 1, NASD of Washington notified Ameriprise that it has until March 22 to pay a formerly affiliated registered representative, Frank P. Marzano, in its tussle for client information - or else face suspension.

As of press time Friday, Ameriprise still had the ability to stave off its suspension, including paying the award or filing a "motion to vacate," which is an appeal.

Minneapolis-based Ameriprise faces the dire consequences because of its "failure to comply with the award," according to a letter that was sent to the company and signed by Jennifer L. Kozielski, the NASD case administrator.

"You are hereby given notice of NASD's intent to suspend the firm's membership," because it has yet to comply with the arbitration ruling, she wrote.

Ameriprise, which was spun off from American Express Co. of New York in the fall, has 10,741 registered representatives under its umbrella in various business models and a market capitalization of nearly $11 billion.

'Outrageous,' 'foolhardy'

An Ameriprise spokesman, Steven Connolly, said he couldn't comment about the NASD arbitration award because the case, including the association's suspension threat, is before the U.S. District Court for the Eastern District of New York in Islip.

But Thomas Campbell, Mr. Marzano's attorney, said the suspension notice, known as a Rule 9554 notice, isn't a U.S. District Court matter. The only matter before a judge was a motion to confirm the award, he said, adding: "That doesn't have anything to do with 9554."

Industry attorneys, those who work for broker-dealer firms and who oppose them in arbitration, called Amerprise's failure to pay an arbitration award and risk the wrath of NASD "outrageous" and "foolhardy."

Broker-dealers need to play by the rules of arbitration, said one lawyer.

"If firms lose a case and can't write a check to a broker, they should be banned from the arbitration system and be put back in the court system," said Thomas Ajamie, a plaintiff's attorney in Houston. "The court system has teeth."

The majority of broker-dealers pay when they lose an arbitration case, he said. The Ameriprise case appeared to be an anomaly, Mr. Ajamie added, noting that it is more common for a small broker-dealer without the deep pockets of a major corporation or an individual registered rep not to pay an award and face an NASD ban from the industry.

Attorneys in the employ of broker-dealers asked that they not be identified.

Ameriprise of late has seen a steady flow of problems with regulators and compliance.

In October, NASD fined the firm $500,000 for failing to supervise properly the sale of Section 529 college savings plans. The firm also had to pay clients $750,000 in compensation.

And the New Hampshire Bureau of Securities Regulation in Concord tagged Ameriprise with a state record $7.4 million settlement over the firm's pressure on reps to sell house, or proprietary, funds.

Mr. Marzano left Ameriprise, then American Express Financial Advisors Inc., in March 2004. Based in Port Washington, N.Y., he became affiliated with another independent-contractor broker-dealer, Multi-Financial Securities Corp. of Denver, at the time.

A month later, Ameriprise filed an arbitration complaint with NASD, claiming that Mr. Marzano had breached his franchise agreement and stolen "trade secrets" or client information.

In his counterclaim, he said Ameriprise had wrongfully solicited his clients, broken his contract and defamed him, among other claims.

33 sessions

In January, after 33 arbitration sessions, a three-member NASD arbitration panel ordered Ameriprise to pay its former adviser $230,000 in compensatory damages. The panel didn't award any punitive damages.

Ameriprise didn't pay, said Mr. Campbell, a partner with Smith Campbell LLP of New York, so he contacted NASD at the end of last month.

The attorney said that over the past 20 years, he has had close to 100 clients who have either worked for or been affiliated with Ameriprise and its earlier incarnations.

Mr. Campbell said Mr. Marzano declined to comment, as the arbitration claim still is proceeding.

Along with the $230,000, Ameriprise still owes Mr. Marzano his client files, Mr. Campbell said.

The attorney is unaware of any similar arbitration cases. "This is a surprise," Mr. Campbell said.

After two years, Mr. Marzano is "very frustrated" and "perplexed," Mr. Campbell said. "He wonders when it will ever end."


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