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Why Ex-Legend Advisors Are Suing Cetera

By Mrinalini Krishna June 14, 2019

When Cetera Financial Group sold Legend Financial Group to Lincoln Investment Capital Holding in January 2017, the transaction left some advisors — both retired and some on the brink of retirement — in the lurch, according to multiple lawsuits.

The issue is a now-terminated program that paid these advisors so-called “overrides” — typically a percentage of the compensation for clients they helped solicit and business they helped establish for other advisors at the branch.

Under the ‘Legend Financial Security Program’ (LFS program), after the advisors retired with their books serviced by another advisor in the Legend fold, they remained licensed but were not allowed to work for another firm or solicit any clients from Legend. In return, the retirees received fee income on their own books, which were now serviced by another advisor at the rate of 75% of the compensation schedule and 75% of the overrides due to them.

But that program was terminated in 2016, just prior to the sale of Legend, and the override payments stopped a few months later, according to a lawsuit against Cetera and its subsidiary First Allied Holdings filed by Palm Beach County, Fla.-based former Legend advisors James Cecchini and Albert Oppedisano.

Recent court documents show the two advisors agreed to drop Legend and Lincoln as defendants from their lawsuit filed in the West Palm Beach federal court. In early May both Lincoln and Legend argued the case didn’t belong in federal court.

A Cetera spokesperson said the company would not comment on legal matters.

Cetera and First Allied argue that the two advisors’ complaint “fails to state a plausible claim” against them in a motion to dismiss filed before the court. The firms further argue that this case should be dismissed since the claims arise “from the same questions of fact and law that were adjudicated by a Finra arbitration panel.”

A Lincoln Investment spokesperson told FA-IQ via email prior to Lincoln’s dismissal from the lawsuit: “In December 2018, a Finra arbitration panel ruled in Lincoln Investment Planning, LLC’s favor in an arbitration brought by these same former registered representatives involving the same claims regarding the Legend Financial Security Program. The arbitration award speaks for itself.”

FA-IQ has found at least three cases pertaining to the LFS program — one of which has been settled.

Cecchini and Oppedisano had worked with Legend since 1979 and 1981 respectively. According to their complaint, they both retired their books around 2001.

Their “overrides were to continue” for their “lifetimes and their beneficiary (spouse’s) lifetime,” up to a maximum of 20 years after they passed away, Cecchini and Oppedisano allege in their complaint. “This lifetime override was a key component of the Agreement and it had the desired effect insofar as both [FAs] built substantial businesses and turned that business over to Legend to manage.”

Jason Haselkorn of Haselkorn & Thibaut, who represents the two retired advisors, says the provisions for the program were updated in 2014 when all concerned parties signed a new contract.

A 2014 version of the LFS program states that “Legend may unilaterally alter the Program and/or the Program compliance Parameters at any time, with no further liability to Financial Advisor or anyone claiming by or through him/her, in order to comply with applicable industry laws, rules, regulations, or other requirements and official guidance by any regulatory body or SRO.”

On September 12, 2016 the two advisors received an email informing them the program had been terminated. That email — included among documents filed by Cecchini and Oppedisano — states that after a review of the program, Legend decided the program was “no longer supported by regulatory guidance” and that “effective immediately, it is necessary to terminate all past and current versions of the Program.”

Retired advisors were assured their payments would continue. Then they were taken away.

SEC records show there was a change in regulation but it is unclear if the change had any bearing on Legend’s decision to terminate the program, according to people who have reviewed the matter.

In a 2014 Legend description of the program, attached as an exhibit to Cecchini and Oppedisano’s lawsuit, the LFS program’s provisions were intended to comply with Finra rule (IM—2420-2) — a provision superseded by Finra Rule 2040, which the SEC approved in August 2015.

“To the extent you are receiving overrides on any such accounts, please be assured that you will continue to receive these overrides as long as you remain appropriately licensed,” that same email adds.

For the younger advisors inheriting the retired advisors’ books under the program, the email instructs that there would be further communication “setting forth a plan to transition your arrangement to a fixed price buyout between you and the retired advisor.”

The sale of Legend Financial was completed on January 3, 2017, and Cecchini and Oppedisano continued to receive payments for about six months until around July 2017, according to their complaint.

On July 14, 2017, both advisors received an email — which they also filed as an exhibit among their court documents — from Lincoln Investment Planning president and CEO Ed Forst which states, “there was no basis for past or ongoing payments to you of overrides,” and that “effective immediately, no further payments of these overrides will be made.”

Legend breached the 2014 contract by terminating the program, according to the claims in Cecchini and Oppedisano’s pending compliant which the two have not yet amended since dropping Legend and Lincoln as defendants. The advisors further claim that the September 2016 email “contained an offer of continued payment” which Lincoln breached once the overrides stopped. Cecchini and Oppedisano say all assets and liabilities of Legend were transferred to Lincoln, and so the firm was obligated both for the payments and the breach of contract. The advisors allege Cetera and First Allied were aware of Legend’s obligations yet decided to terminate the program, causing them damages.

The advisors’ complaint also cites previous instances where the sale of Legend had no impact on the program. In March 2000, Waddell and Reed completed the acquisition of Legend, subsequently selling it to First Allied in 2012; all the while, the LFS program continued.

The two advisors initially took the arbitration route in 2017, where the sole respondent was Lincoln Investment Planning LLC — a Finra-registered broker-dealer and a subsidiary of the holding company that acquired Legend. The Finra arbitration panel denied the two advisors’ claims last year.

According to Cecchini and Oppedisano’s federal complaint, during the arbitration proceedings the president of Lincoln Investment Planning LLC testified that the LFS program had been canceled before Lincoln closed on the transaction to purchase Legend.

One FA was asked to sign away rights worth $15 million to him for $25,000 and “other valuable consideration.”

“The termination email-letter of September 12, 2016 was completely at Cetera’s direction, that Cetera was in charge [in fact, Cetera President Adam Antoniades, with Cetera counsel, drafted the termination letter],” he testified according to the complaint. “It was Antoniades’ requirement that the Program (the Agreement) be cancelled prior to closing [the transcation].”

As a part of the LFS program the advisors were supposed to maintain their licenses and ‘retire on active duty.’ According to BrokerCheck, Oppedisano is no longer a registered person as of Februrary 2019, while Cecchini is now registered with Palm Beach Gardens, Fla.-based Peak Brokerage Services.

“Lincoln’s going to keep their clients, keep their accounts, keep everything that they built,” says Haselkorn. “Lincoln’s decided it was going to keep that for itself and fire these individuals.”

While Haselkorn does not provide the exact figures his clients seek in damages, he does say “it’s a substantial figure that may very well exceed $10 million.”

Another lawsuit has been filed against Cetera Financial and Cetera president Adam Antoniades by a father-son duo, John and James Drewes, who formerly worked with Legend’s St. Petersburg, Fla. branch.

According to BrokerCheck, John Drewes started working with Legend in 1995 and has not been registered with Finra since June 2018. Their complaint alleges one of the obligations Legend undertook was maintaining licensure for its representatives.

According to their complaint, in January 2016 Legend stopped paying John Drewes overrides on his book, stating his Series 65 license had lapsed 10 years prior. The payments were made to a corporate branch entity instead. John Drewes attempted to restore his license by appearing for the exam but multiple attempts were unsuccessful. He suffered a stroke on September 2, 2016.

“He had nothing to provide for his financial security except that [LFS] program, which due to its cancellation has rendered him destitute and dependent on his family,” reads the Drewes’ complaint.

In 2014 the LFS program was “reformulated and clarified to the effect that its benefits were guaranteed unless there was a change of regulation that required its cancellation,” according to the Drewes’ complaint.

No regulatory changes justified the cancellation of the program and “the Legend representatives providing notice of the cancellation knew there was no such change of regulation,” the father and son’s lawyers argue in the complaint.

“The claim of a regulatory basis was naught but an act of fraud designed to persuade representatives to release of their rights under the program in exchange for small payments worth much less than the value of the program, and under threat of termination of their contracts,” reads the complaint.

According to the document, at the time of his stroke John Drewes’ compensation was based on $250 million assets under management which were growing at a rate of $30 million a year.

The defendants “demanded” that John Drewes sign an agreement to release his rights to the LFS program — worth over $15 million to him — in exchange for $25,000 and “other valuable consideration,” the complaint states. The $25,000 payment was for overrides that were already owed but had not yet been paid, the Drewes’ complaint alleges.

The “other valuable consideration” refers to arrangements made by John Drewes to assign the right to receive his overrides to his son James and have his son take over a Legend branch office as a principal. Within six months of Lincoln assuming control of Legend, the company stopped payments of overrides to James Drewes and terminated his contract, the lawsuit alleges.

This offer was made on a “take it or leave it basis,” and the Drewes’ complaint alleges the release agreement was “procured through the fraudulent representation by Defendants that the [LFS] program was terminated due to bona-fide and legitimate regulatory changes.”

The Drewes family, Cecchini and Oppedisano all allege the LFS program was used heavily as a recruitment instrument and served as an incentive for advisors to stay with Legend. The Drewes’ complaint states the program was “marketed as a viable substitute for retirement and/or disability insurance, and Legend never hesitated to remind its partners how prosperous and secure the Program made them.”

But the 2014 description of the program attached with the Cecchini and Oppedisano complaint states that the program was “not a retirement plan, qualified or otherwise, but rather is a commission and fee continuation program.”

Other advisors have filed lawsuits against Cetera and other Legend-related entities pertaining to the termination of the LFS program. In 2017, Renee Montenyohl, who worked as an advisor for Legend from 1989 to 2000 according to BrokerCheck, filed a lawsuit against Cetera, First Allied and Lincoln entities.

Court documents show Montenyohl claimed the corporate defendants “wrongfully terminated payments” owed based on the LFS program, claiming she was harmed as a result.

But Montenyohl settled her the claims against Cetera Financial Group, Inc. and Lincoln Investment Planning, LLC and her lawsuit was dismissed in September 2018.