A group of former United Capital advisers is taking their former employer to court over its attempt to move ongoing arbitration proceedings against those advisers outside of FINRA, arguing that “the very essence of arbitration” could be at risk.

In the complaint filed in New York State Court, the nine advisers in the case take Goldman Sachs to task for its hasty sale of United Capital last year, arguing the decision to fire the firm after just four years left the advisers at an unstable position.

“This frantic announcement, delivered in the context of four tumultuous years of Goldman's mismanagement of United Capital, created a miasmic cloud of uncertainty and unanswered questions that stifled (advisors') ability to advise their clients,” the lawsuit said. .

Nine former councilors filed suit, including Michael Scott Duncan, Dwayne Grady, Caroline Girgis, Alan McClain and Amanda Pilkerton. All were advisors with Ayco Company and United Capital under Goldman Sachs Personal Financial Management.

The advisers live and work across the country, including some in Maryland and Texas, as well as Virginia, North Carolina, South Carolina and North Dakota, according to the lawsuit and filings with FINRA and the SEC.

In 2020, Goldman Sachs bought United Capital for $750 million in cash to increase its presence in the retail space, rebranding as Goldman Sachs Personal Financial Management. But by 2023, the bloom disappeared from the rose; Goldman Sachs issued the bailout for a buyer last August.

WealthManagement.com previously reported that the independent-minded advisers at United Capital never found a home at Goldman Sachs. Cary Carbonaro, a former senior adviser at United Capital, left in May 2022 and said the TV office “killed the firm,” claiming Goldman Sachs placed so many restrictions around advisers that they couldn't function.

The nine advisers in the lawsuit against United Capital were equally unsparing, saying they left Goldman after the TV office “said it was trying” to find a buyer for United Capital (Creative Planning acquired United Capital by Goldman last August).

According to the complaint, Goldman's stewardship of United Capital was “fraught with problems” before the sale. Advisers said Goldman failed to hire support staff to replace individuals who left and that the wire had applied “flawed” fit analyzes with adviser clients. According to the suit, Goldman also improperly withheld or changed the adviser's compensation.

Advisers claimed that after the sale, there was “a well-publicised parade of advisers and their clients” out the door, including advisers acting as plaintiff in the appeal. All nine plaintiffs in the suit ended up at the same firm, Prime Capital Investment Advisors.

After the advisers left Goldman, the firm (and Mercer Advisors, which had previously employed some of the representatives) filed termination notices against several of the former representatives.

Ultimately, the standoff between the advisers and United Capital, Goldman and Mercer ended in FINRA arbitration.

Goldman and United Capital initially sued the advisers at FINRA for allegedly violating restrictive covenants by going to work for Prime Capital after leaving Goldman. The advisers counterclaimed, alleging that the restrictive covenants were “unenforceable” and that Goldman and Mercer had made “false and defamatory statements” on some of the advisers' U5 forms in describing their resignations.

However, the advisers' lawsuit centers on United Capital's attempt to move the proxy arbitration battle outside of FINRA and under the auspices of the American Arbitration Association (AAA), another arbitration forum.

United Capital claimed the move was necessary because the firm is not a member of FINRA. However, the plaintiffs argued that United Capital had previously filed (and withdrawn) claims against advisers through FINRA arbitration, indicating that they could arbitrate within that system. Only after those claims were withdrawn did United Capital pick up AAA, which advisers called an example of “capricious forum shopping.”

Indeed, the plaintiff group argued that FINRA was the only forum “capable of arbitrating all claims” asserted by Goldman and United Capital, as well as the advisers' counterclaims, and that they had prior agreements with the former firms that they mandated it. any claim to be argued in FINRA arbitration.

Separating them could leave advisers discussing the same issues in two places “with the potential for inconsistent decisions and proceedings,” according to the suit.

“So it's pure gamesmanship — or a divide-and-conquer strategy, United Capital created with Goldman — to try to force the plaintiffs to litigate their claims against United Capital in another forum, but this artifice of game would deprive claimants of effectively rebutting their claims.” the suit read.

Goldman Sachs did not respond to requests for comment, nor did lawyers representing Duncan and the other advisers. United Capital did not respond by press time.

But if United Capital can arbitrate FINRA proceedings, why would the firm want to move its claims against former advisers out of that country?

AAA arbitration can be costly compared to FINRA proceedings, which can make it difficult for cash-strapped plaintiffs to prosecute their claims, according to Joe Peiffer, a founding partner with the law firm New Orleans-based Peiffer Wolf Carr Kane Conway & Wise and current president of the Public Investors Bar Association (PIABA).

Peiffer agreed with counsel that splitting the cases would make it more difficult for them to spend time, energy and money fighting to stay out of AAA. If they lose, it can be expensive to arbitrate within the AAA compared to FINRA, and they will have to litigate their claims twice (in the AAA and FINRA proceedings) on the same underlying facts, according to Peiffer.

“This does double duty for the defendants,” Peiffer said. “This is contrary to judicial propriety.”

Prime Capital advisers are not the only cadre of former United Capital representatives trying to hold the firm to FINRA arbitration.

The same week Duncan and Prime Capital's advisers filed their lawsuit, Robert Davenport and eight others sued United Capital in New York State Court. Like the Prime Capital group, these advisers want the state court to stop United Capital from trying to move its ongoing arbitration claims against their former representatives to the AAA and keep them with FINRA.

Like the other case, Davenport and the other plaintiffs claim they had an agreement with their former firm that the claims would be arbitrated before FINRA. Counsel argued that United Capital initially entered into FINRA arbitration, only to withdraw their claims and pursue them in AAA.

“Despite the clear language of the Agreements, (United Capital) has taken the opportunistic position that its claims are not arbitrable before FINRA because it refuses to agree to arbitrate under FINRA's rules and procedures,” the petition said. .

Both cases are ongoing.