Rochelle Cohen was fired from her job as a portfolio officer at Bank of New York Mellon on September 20, 2010. So were 9 other women. And one man.She sued the bank and went to trial in Federal Court in New York on July 23. After less than a day of deliberating, the jury ruled for the bank. Here’s my story about the case for The New York Times.
Don’t believe everything you read – or don’t read — when you check up on your stockbroker.
Brokers and Wall Street executives with black marks on their public records are working hard to get those blemishes deleted, a topic I got into in my story for The New York Times last week.
In “A Rise in Requests From Brokers to Wipe the Slate Clean,” I summed up some of the more egregious examples of Wall Street employees persuading arbitrators at the Financial Industry Regulatory Authority (Finra) to recommend expungement of their peccadilloes.
Kimon P. Daifotis, for example, managed to get arbitrators in eight different cases against him to recommend expungement since last August – a remarkable feat considering that on July 16, the former Charles Schwab executive had agreed in a settlement with the Securities and Exchange Commission to be barred from the business and to pay $325,000 in penalties and forfeited profits related to his role the Schwab Yield Plus fund, in which investors had lost millions of dollars.
He didn’t admit or deny wrongdoing in that case and will be allowed to reapply for Finra membership in 2015.
Brokers have to take their expungement recommendations to court to be approved once an arbitration panel has recommended deletion, and Pasadena, California broker Debra Reda-Cappos will be doing exactly that on August 15. Investors Howard and Karen Snyder accused Reda-Cappos of breach of fiduciary duty and fraud in a complaint filed with Finra on October 12, 2010, and the two sides told the panel on October 3, 2012 that they had settled.
Neither Reda-Cappos nor her lawyer Kasumi Takahashi responded to my email queries. But in granting a recommendation that the Snyder case be expunged, the arbitrators noted that the claim was “false” and that the couple “did not prove their claim.”
It’s a no-brainer that they would not have proven their claim: There was no hearing to prove or disprove it. So it’s more than a little weird that the arbitrators would use that as a way to justify cleaning up a broker’s record.
The Snyder case settled for $116,000, according to Reda-Cappos’ Finra records.
Before those arbitrators recommended the expungement, a lawyer for the investors, Leonard Steiner, told the panel that his clients were willing to say under oath that everything in their claim was true, according to the arbitrators’ award. But the panel didn’t ask the Snyders to do that, and gave the go-ahead on the expungement anyway, Steiner says.
Plaintiffs lawyers have been getting steamed that brokers are strong-arming investors to endorse expungements before they’ll settle. There’s a “disturbing trend” of firms routinely asking investors to agree that they won’t oppose expungement, says lawyer Brett Alcata of San Mateo California.
Those arrangements put the plaintiff’s lawyer in a box. They have an obligation to get the best settlement possible for their clients, but cringe at the idea that the next investor who comes along won’t get the full story on the errant broker. Finra shouldn’t allow settlements to include provisions that the customer won’t oppose expungement, says Steiner.
Sometime this summer, Finra will propose new rules that will make it even easier for brokers to expunge their records. Brokers have been irritated by a Finra rule enacted in 2009 that forces them to reveal complaints even when they are not named in a lawsuit. So if John Smith’s firm is sued because of fraud that Smith allegedly committed, the broker now has to list that on his BrokerCheck even if he isn’t a defendant.
Under pressure from the industry, Finra is expected to propose a new “expedited” process to clean up black marks: The broker would be able to ask a panel for expungement at the end of an arbitration hearing, and the arbitrators would have the power to approve – but not deny – the request. Should that not work, the broker could take another stab at getting an expungement in a separate proceeding.
The proposals were mapped out in a Dec. 6 Finra memo to members of its National Arbitration and Mediation Committee. “We cannot comment on Board deliberations or confidential memos to Finra committees,” Finra spokeswoman Michelle Ong told me in an email.
In my Bloomberg View column earlier this week, I wrote about the disconnect between image and reality when it comes to Deutsche Bank’s record on diversity. The Frankfurt-based global bank wins all those warm-and-fuzzy prizes for “Best Company” for working mothers, for example, but is the target of lawsuits brought by women who say are treated with nasty little barbs at work such as “Maybe I should get pregnant so I can work from home.”
Those same women say they endured more than Neanderthal-style comments from the guys: They say lost their jobs when they became mothers, too. Deutsche Bank dodged a bullet big-time when two women who were considering a class-action pregnancy discrimination suit settled with the bank earlier this year. In a court filing, the bank denied one of the pregnancy claims against it, and its spokeswoman Michele Allison declined to comment on the others.
Discrimination against women on Wall Street is a persistent problem that hasn’t been fixed despite an assortment of programs that purport to address it. Deutsche Bank, in fact, takes a deep bow for its programs around the world for women in finance. The bank says that 5,000 women from Deutsche and other firms attended their conferences for women last year alone.
Despite all the woman programs, diversity training and new “heads of diversity” jobs at financial firms, the lawsuits and internal investigations around gender discrimination just keep on coming.
Deutsche Bank is far from the only problematic bank out there — they all are. But it does have some history that illustrates how hard financial firms work to keep the public from knowing how bad things are for their female employees. In a splashy lawsuit filed more than a decade ago, Virginia Gambale, a partner in Deutsche Bank’s Capital partners unit, said she was passed over for a promotion because of gender discrimination and that the bank’s work environment was hostile to women. She would wind up with a “multi-million dollar settlement,” according to a transcript of a court conference in her case.
Gambale’s lawsuit described a September 1999 business meeting she was required to attend in Cannes, France where approximately 100 men and 5 women had to walk past “a welcoming committee of ‘sex goddesses’ who were wearing revealing clothing that was highly inappropriate for a business meeting.” The complaint said that entertainment at the meeting included “a scantily clad Marilyn Monroe look-alike, who publicly fondled several male executives.”
The most interesting part of her lawsuit, though, were the lengths Deutsche Bank went to to avoid having information about the gender breakdown of salary and promotion at the bank become public. In an August 2, 2004 ruling by the U.S. Court of Appeals for the second circuit, Judge Robert D. Sack described some of the history around efforts by the bank to lock up documents.
During discovery, Deutsche Bank had produced compensation planning charts “and four pages of an internal Bank study of diversity at the Bank, which contained information about the gender composition of the Bank’s employees,” Sack wrote. The judge added that the bank had said the settlement was “motivated significantly by its desire to avoid public disclosure at trial of the temporarily sealed documents.”
Sack wrote that Harold Baer, the district judge in the case had “wondered aloud why the public should not know about discrimination at a major banking institution.” Baer told the bank that he’d disclose the contents of the settlement agreement unless Deutsche Bank agreed to hire a third party to do a global gender review and provide the results to the court. No way, said the bank, cooking up a stipulation of dismissal with Gambale to get the case out of Baer’s jurisdiction.
Over the years, I’ve spoken to a number of women who’ve taken settlements after years of emotional and expensive litigation. They get worn out, and often wind up feeling guilty that they didn’t fight to the bitter end in court so that the ugly details of gender differences in pay and promotion would be exposed. Those who can’t sue in court because of mandatory arbitration agreements don’t even get satisfaction when they win: Men who lose a discrimination or harassment case do not have to reveal that in their public “BrokerCheck” records. Is there any wonder the problems go on and on?
What we really need is a system that forces employers to report how many internal complaints they’re getting that allege discrimination, and how much men and women are being paid for doing similar jobs. We’ve got an Equal Employment Opportunity Commission, after all, and it’s time that agency’s mandate was expanded to demand those statistics. The way things work now, there are too many ways for banks and brokers to keep evidence of their discrimination under lock and key.
A bit of welcome news in all this: It turns out that six years after Gambale’s 2003 settlement, some of those Deutsche Bank documents were unsealed. They are not available electronically, but I’ve put in a request with a document service to get them. Look for another post when I’ve got them in hand.
The headline-grabbing sex-harassment charges against Wall Street firms in the 1990s are a thing of the past, but not necessarily because things are better for women at financial firms.
In my story today for The New York Times, I discuss the progress — and lack of progress — since “The Boom-Boom Room” lawsuit against Smith Barney became synonymous with lurid behavior at brokerage firms.
Fast-forward 17 years, and such landmark cases are not as prevalent. Wall Street’s women are more aware of their rights and are not so timid anymore, says Linda D. Friedman, a partner at Stowell & Friedman. Still, she says her firm does a lot of work these days behind the scenes, assisting women who face discrimination but are reluctant to pursue litigation because of the repercussions it would have on their careers.
You may not be reading about these problems in your favorite newspaper or blog, but they’re still part of life for women who work in finance. You can read my story here.
A San Francisco Superior Court judge said this afternoon that he didn’t buy arguments by Kleiner Perkins Caufield & Byers that a sex discrimination case against it should be heard in private arbitration. The venture capital firm was sued in May by Ellen Pao, who said she was pressured into sex by a junior partner and then retaliated against when she complained.
Judge Harold Kahn had already told Kleiner that he wasn’t persuaded by its argument that Pao had no legal right to be in open court, but gave the firm a chance to file a revised motion. Today, Kahn told Kleiner “I thought your papers were terrific,” adding, “and I disagree with all of them.”
Here’s a story by the Mercury News about the action in court today.
I wrote about the Pao case in my Bloomberg column last month; Pao had said in her complaint that the top guys at Kleiner didn’t invite women to power dinners with big clients because women would “kill the buzz.” Kleiner denied her allegations.
Kleiner said today that it will appeal the judge’s decision. Companies fight hard to keep sex discrimination and other cases out of the public eye, and nothing serves that goal better than forcing cases into private arbitration. Here’s a story I wrote describing how the public has suffered from 25 years of business forcing litigants into closed-door arbitration hearings.
Here’s a great example of how hard a company will work to keep its dirty laundry out of the public eye. Ellen Pao, a junior partner at the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers, sued the firm for sex discrimination in May. Kleiner filed its response yesterday, denying Pao’s allegations. Along with its denials, Kleiner also said that Pao shouldn’t be in court at all — she signed documents agreeing to arbitration in the event of a dispute, according to Kleiner. If the firm prevails on that, there will be no public record of the dispute after these initial filings.
And it gets worse, according to the Mercury News, which has reported on documents that aren’t yet available on the San Francisco Superior Court website. Not only does Kleiner say that Pao’s case doesn’t belong in court. It also says that the documents that support that argument should be kept under wraps.
Take a look at my Bloomberg column marking the recent 25th anniversary of an important Supreme Court decision that let brokerage firms force customers to use industry-run arbitration instead of court. It’s only gotten worse for investors, consumers, and employees since that June 8, 1987 decision. It’s too early to make a judgment on either side’s arguments in Pao v Kleiner. But the push to keep things quiet is part of a long, worrisome trend.
I’m always happy to hear from readers. To get in touch with me about my articles, email me at susan.antilla15@gmail. com, or, if you’d prefer, send me a message @antillaview.
It’s happy 25th anniversary to somebody today, but not to you if you’re an investor, a consumer, or an employee who toils outside of the executive suite. On June 8, 1987, the Supreme Court said it was OK for brokerage firms to require customers to give up their rights to court in the event that a broker ripped them off. Instead of open court with public records and annoying reporters who could chronicle the sordid details of abuse of the little guy, investors since then have been stuck in “mandatory arbitration” that’s run by — guess who? — the brokerage industry. Continue reading
Sex discrimination isn’t the iPad, folks. It’s more like
the electric typewriter.
When you see the words “tech” or “venture capital,” you think of brilliant geeks coming up with cool new stuff you’d never heard of before, right? Well tech types are in the 1980s when it comes to sex discrimination cases. Ellen Pao, who sued the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers last month, is claiming that the guys she worked with excluded her from meetings and held fancy dinners with big clients and left the women out. One of her partners said it would “kill the buzz” to have women at one power dinner, according to her suit. We didn’t fix that leaving-the-girls-out thing a couple decades ago?
Kleiner has said the suit is “without merit,” and its star general partner, John Doerr, said in a letter posted on the firm’s website on May 30 that it all amounted to “false allegations against his firm, which boasts “the most” women of any leading venture capital firm. As luck would have it, Kleiner’s woman numbers rose by one the next day, when the firm announced a new partner to focus on investments in consumer internet business, Megan Quinn, would begin in late June.
We’ll see if Pao can even get to court. Kleiner spokeswoman Amanda Duckworth told me in an email that the firm believes Pao’s claims “are covered by an arbitration agreement.” Alan Exelrod, Pao’s lawyer, declined to comment when I asked him if she’d signed anything obligating her to arbitration. Kleiner hasn’t filed any request to have the complaint kicked out of court, but companies in employment disputes usually love the idea of getting a case out of the public eye. Here’s my Bloomberg column on the Pao case and its striking resemblance to lawsuits 20 years past. Read article
American business entered its Teflon era on a spring day 25 years ago.
Lawyer Madelaine Eppenstein had taken the morning off from work for a parent-teacher event at her 5-year-old’s elementary school on June 8, 1987, when she was summoned to the principal’s office for an urgent call. Her husband and law partner, Theodore Eppenstein, told her they lost the Supreme Court case he had argued two months before on behalf of a couple trying to sue their stockbroker for fraud.
“I felt like I got punched in the face,” she told me in an interview late last month.
If Eppenstein was punched, the investing public was mauled. The case known as Shearson v. McMahon would wind up locking investors out of U.S. courts any time they tried to sue a broker. A tiny clause in customer agreements turned out to be Wall Street’s magic formula to keep its transgressions out of sight. The agreement that Eugene and Julia McMahon signed said that any dispute between them and their broker at Shearson/American Express Inc. — a trusted fellow parishioner at their church –“shall be settled by arbitration” in a Wall Street forum. Investors since then have either had to agree to similar terms, or forget about having a securities account.
“If you get screwed,” Theodore Eppenstein says, “now you have no place to go.”
Looking for Luxuries
No place to go, that is, if you’re looking for luxuries like publicly filed documents, juries that hear the facts and judges that preside over open proceedings.
The McMahon decision was damaging enough for the impact it had on individual brokerage customers, who tell their stories about fraud, misrepresentation and churning behind closed doors where the public — including reporters — isn’t welcome. Perhaps worse is what happens when a powerful industry gets accustomed to keeping its squabbles quiet: Wrongdoers are inclined to relax, sending ethics to ever-lower lows.
“It means that all sorts of scams against individuals, however large, are very unlikely to come to the attention of the media and the public,” says F. Paul Bland Jr., a senior attorney at the public-interest law firm Public Justice in Washington.
Wall Street may have been first to catch on to the benefits of mandatory arbitration, but Bland worries that the closed-door trials are spreading to industries from retailing to homebuilding. “The silence and secrecy that surrounds arbitration is extremely harmful to the country,” he says.
These days, employers — Manpower Inc. and Nordstrom Inc. among them — require new hires to give up their rights to court before a fresh-faced recruit can check in for orientation. And consumers can forget about opening a Netflix account, signing a mobile-phone contract, or putting a loved one into most big-name nursing homes unless they are willing to give up their rights to go to court. Buying a Starbucks gift card? You are agreeing to mandatory arbitration of any fraud or misrepresentation by the company.
The results can be chilling. After watching his father die from sepsis of the blood caused by infections from 13 bedsores in 2005, David W. Kurth of Burlington, Wisconsin, tried to sue the nursing home whose staff he claimed had left his father’s wounds covered in excrement and urine for days at a time. Though the death of his father would have been shocking enough, Kurth told a Congressional subcommittee in 2008 that the “most shocking” part of his family’s ordeal was this: They wouldn’t be able to sue for the alleged neglect because the deceased man’s wife had signed admissions documents that had a mandatory-arbitration agreement.
“How can anyone in good conscience argue that it should be perfectly legal to trick frail, elderly, infirm senior citizens experiencing the most stressful time in their lives into waiving their legal rights?” Kurth asked.
Conscience, of course, plays no role when companies demand arbitration. But Supreme Court decisions do. In April 2011, the court dealt a new blow to consumers and employees in a case known as AT&T Mobility v. Concepcion. AT&T had pitched a deal to woo new mobile-phone customers by offering free phones, but it turned out the freebie came with a $30.22 bill for “taxes.” Vincent and Liza Concepcion tried to bring a class-action lawsuit on behalf of all the other consumers who took AT&T’s deal. But the court said that when the couple signed the customer agreement, they gave up their right not only to sue, but also to a class action even in arbitration.
In the year since the Concepcion decision, lower courts have trashed dozens of cases in which consumers or employees were trying to sue as a group. The National Labor Relations Board pushed back against the impact the Concepcion decision might have on employment class actions, ruling in January that it’s a violation of federal labor law to make workers give up the right to pursue group claims. That decision probably will be challenged in court.
About 25 percent of U.S. employees are covered by mandatory-arbitration clauses, says Alexander J.S. Colvin, an associate professor of labor relations and conflict resolution at Cornell University. He figures the number will grow as a result of the Concepcion case.
If you are wondering just how bad arbitration can be, the examples are many. When I wrote my book about sexual harassment on Wall Street, “Tales From the Boom-Boom Room,” I was aghast at the things brokerage firms could do that would never be allowed in court. In the weeks before one woman’s arbitration hearing was set to begin, her former employer hired a psychiatrist who questioned about her sex life and her menstrual cycle. She had alleged that a man in the office had followed her into a stock room and grabbed her breasts. Another woman, who said the same man had accosted her, was directed by the consultant-shrink to sit in a chair in the middle of a room and recite the names of all the U.S. presidents — in reverse order.
Both women bailed out and settled, having seen enough of arbitration’s downside before the hearings even started.
Get There Early
In October, a doctor who was fired from her job by a physicians’ group in suburban Philadelphia told the tale of her arbitration to the Senate Judiciary Committee. Deborah Pierce would have preferred to sue the partnership (17 men, one woman at the time) that fired her, but her employment agreement tied her to arbitration run by the American Health Lawyers Association. One morning, she arrived early to her hearing at a law office in Wayne, Pennsylvania, to see one of her former bosses strolling out of the arbitrator’s office carrying a cup of coffee. That sort of encounter is known as an ex-parte meeting between a judge and a party to a case. It isn’t allowed in court proceedings.
To pay for her case, which included her half of the arbitrator’s $117,042 fee, Pierce took out a home-equity loan that she and her husband are still paying off three years later. Her consolation prize: the arbitrator at one point ordered her adversaries to pay her $1,000 in sanctions for destroying documents and delaying the proceedings. And then, he billed her $2,000 for the time he spent deciding whether he should impose the fine. She lost.
It’s an open secret in legal circles that arbitrators are more worried about alienating the corporations who give them regular business than they are about one-shot plaintiffs. “Arbitrators who ding a major firm know they’re going to be blackballed,” says Timothy J. Dennin, a New York lawyer who represents aggrieved investors.
There are upsides to arbitration, if only the public had a chance to consider it as an alternative to court instead of a mandate. Investors whose losses are too small to be attractive to lawyers, for example, can often navigate securities arbitration more easily than a court case. And arbitration can be faster than court.
“Do some cases fare better in arbitration? Definitely,” says Ryan K. Bakhtiari, the president of the Public Investors Arbitration Bar Association, a group of lawyers who represent investors. He says arbitration should be at the choice of the investor, not mandatory.
The more cases we relegate to arbitration, the more we fail to hold companies accountable for bad behavior.
Frank Partnoy, the author of “Infectious Greed: How Deceit and Risk Corrupted the Financial Markets,” says that even if an arbitrator decides a business is guilty of fraud, a company “can write a check and not worry about creating a dangerous precedent.”
That case by the McMahons never got to arbitration after the Supreme Court said the couple couldn’t go to court. Regulatory records for their former broker show they settled for $700,000. Christine Hines, the consumer and civil-justice counsel in Public Citizen’s Congress Watch unit, says groups such as hers would simply have no material to work with if bad products and practices were all relegated to private justice.
“There is no way we, as advocates, would know what’s going on,” she says.
Twenty-five years after the McMahons lost their fight for a public hearing, it’s hard not to conclude that’s precisely what business is counting on.
Buying a Starbucks gift card? You are agreeing to mandatory arbitration of any fraud or misrepresentation by the company.
American business entered its Teflon era on a spring day 25 years ago.
Lawyer Madelaine Eppenstein had taken the morning off from work for a parent-teacher event at her 5-year-old’s elementary school on June 8, 1987, when she was summoned to the principal’s office for an urgent call. Her husband and law partner, Theodore Eppenstein, told her they lost the Supreme Court case he had argued two months before on behalf of a couple trying to sue their stockbroker for fraud. [...] Read Article
Potential customers of Suze Orman’s new debit card should probably take her advice: “read the fine print.”
I appeared on Boston’s WRKO AM 680 to discuss Suze Orman’s latest product: