A former star LPL Financial adviser is claiming that LPL stole his clients in the wake of a rigged audit of his branch in September 2014 that led to his being fired.
James "Jeb" Bashaw, a top-rated adviser by Barron's magazine, is seeking $30 million in an arbitration claim filed Tuesday with the Financial Industry Regulatory Authority Inc., naming both LPL and LPL's CEO Mark Casady as respondents.
Mr. Bashaw's branch in Houston controlled $750 million in assets.
LPL terminated Mr. Bashaw without notice “allegedly for violation of company policies,” according to the claim. “It did not disclose to him the policies that he allegedly violated nor how he violated them.”
At the time, his termination sparked a number of reports in InvestmentNews and other financial publications. The language on his termination notice, which was made public on BrokerCheck, along with the press reports “hampered and delayed Mr. Bashaw's ability to become registered with another broker-dealer and rendered him unable to earn an income,” the arbitration claim alleges. “In turn, it provided LPL more time and a greater opportunity — which it aggressively exploited — to steal Mr. Bashaw's clients, raid his employees and destroy his career.”
“LPL will vigorously defend against these claims,” according to a statement from company spokeswoman Lauren Hoyt-Williams.
According to his profile on BrokerCheck, Mr. Bashaw was an adviser in Houston for LPL from 2001 until September 2014. He then briefly was registered with Wunderlich Securities Inc. before landing at International Assets Advisory, where he is currently registered. He currently has $50 million in assets under management, according to the claim.
Mr. Bashaw declined to comment about the matter beyond what was in the claim, which he made available to InvestmentNews .
Mr. Bashaw was fired for three reasons, according to his BrokerCheck profile: for participating in private securities transactions without disclosing them and getting approval from LPL; borrowing from a client; and doing business that created a potential conflict of interest without disclosing it and getting approval from LPL.
There are no regulatory actions from Finra, the Securities and Exchange Commission or the Texas securities board related to Mr. Bashaw being fired from LPL on his BrokerCheck profile. Mr. Bashaw had two prior customer disputes, both settled on his BrokerCheck profile, one for $10,000 in 2012 and the other for $200,000 in 1990. His branch received 13 clean LPL audits, according to the claim.
Both LPL and Mr. Casady “had full knowledge of these matters, favored them as serving the LPL's interest, and never faulted Mr. Bashaw for them,” the claim alleges. For example, in 2008, Mr. Bashaw discussed plans to expand his business with Mr. Casady, fully disclosing his intentions to raise capital by accepting investments in his firm, JebCo.
Long-time friends made investments in, or loans to JebCo., according to the claim.
“Mr. Casady was enthusiastic about Mr. Bashaw's expansions plans and this financing method,” the claim alleges.
The suit also points to widespread compliance problems at LPL as the backdrop to the termination of Mr. Bashaw, who complained about LPL's supervision and compliance, according to the claim. LPL charged JebCo $1 million per year for supervisory services, including auditing email, according to the claim.
LPL has been plagued by compliance problems over the past few years and paid $70 million in fines and restitution in 2014 and 2015 alone.
In August 2014, a month before he was fired, “Mr. Casady invited Mr. Bashaw to stay at his home in Cape Cod,” according to the complaint. “During that visit, Mr. Casady told Mr. Bashaw that LPL was under review by Finra yet again.”
“Mr. Casady explained that Finra had 'caught us again' regarding email and remote supervision,” according to the complaint. “In response, Mr. Bashaw stressed to Mr. Casady that he had prior discussions with LPL's senior management team regarding the same issues. Mr. Bashaw concluded the conversation by stating, 'That's why I pay y'all the big bucks instead of starting my own' broker-dealer.”
A month later, Mr. Bashaw's branch was audited. The purpose of the audit, the claim states, "was to garner support for LPL's predetermined conclusion that [Mr. Bashaw] had engaged in some sort of misconduct that would justify his termination,” alleges the claim.