WASHINGTON — In a ruling that could spell trouble for Wedbush Securities Inc., a municipal securities trader snagged a $3.5 million arbitration award from the firm, based on its failure to pay him incentive-based compensation.
Stephen Kelleher, who left Wedbush after the arbitration hearing and has not registered with another firm, won the award late last month from a three-member panel of the Financial Industry Regulatory Authority in San Francisco. The panel cited Wedbush’s “morally reprehensible failure and refusal” to compensate Kelleher, who originally sought more than $7 million in damages from the firm.
According to the panel, a main cause of the dispute was a “poorly written and ambigious employment contract.” The panel also cited Wedbush’s majority shareholder, Edward Wedbush, who personally approved all incentive payments to senior employees — approval he “routinely withheld,” the panel noted.
Wedbush testified at the arbitration hearing by telephone from his home in Southern California, the seven-page award said.
Two other witnesses, including Wedbush’s son, Gary Wedbush, Executive Vice President, Head of Capital Markets, and Jack Luikart, former chair of Wedbush’s board, testified in person. They confirmed that Edward Wedbush routinely made the final decisions about incentive payments to senior employees, including Kelleher, as well as decisions about withholding such payments.
Kelleher filed his claim in April 2010, alleging breach of contract, violation of California labor laws, fraud, and unfair business practices.
An attorney for Wedbush, John Stenson, declined to comment on the award, saying the firm is in the process of appealing.
Kelleher’s attorney, Kit Knudsen of Commins & Knudsen PC in San Francisco, said Wedbush would have to appeal the award to state court, which would apply a narrow scope of review.
A source said another employee also did not receive all the incentive compensation Wedbush owed him under his employment agreement.
Wedbush is a financial services and investment firm that provides private and institutional brokerage, investment banking, research, clearing and execution, private capital, commercial banking, and asset management to individual, institutional and issuing clients, according to information on the firm’s web site.
