Prudential Securities has been plagued by claims over its deferred compensation plan, known as MasterShare. A number of former representatives have filed claims and recovered damages.
Started in 1999, MasterShare allowed Pru employees to deduct up to 25 percent of their gross pay to purchase discounted shares of a stock index fund. This discount had the effect of a company match of the funds deducted. Yet, the plan also provided that if the employee left the firm early he or she not only forfeited the company’s “match” but also the portion withheld from his or her check!
With the threat of forfeiture of a substantial portion of the employee’s pay, some representatives claim they became hostages of Prudential. One former broker trainee says the firm promoted the plan as a pension plan and that he was “strongly encouraged” to join with the further suggestion that those not participating were perceived as “transients”.
Pru faced a number of claims by ex-employees over the MasterShare program but was at first successful in fighting these. The firm relied on New York Labor Law which stated that employers can make deductions from employees’ wages that “are expressly authorized in writing by the employee and are for the benefit of the employee.” It also avoided claims under ERISA while noting that “the existence of the identical forfeiture provision did not stop six judges on the New York Court of Appeals from unanimously holding” the plan is valid under New York Labor Law.
But in late 2005 the tables began to turn when a panel of three securities arbitrators awarded almost $2 million to Robert J. Ostrowski, a former retail broker who had worked for over 41 years for Prudential Securities. The arbitrators also ordered Mr. Ostrowski’s Form U-5 to be amended to state that he was terminated “without cause on July 25, 2001,” while also ordering Prudential to pay the hearing costs of $15,000.00.
The following year, an arbitration panel ruled in favor of another former Prudential broker, Charles J. Hazlett. The arbitration Award states that “Prudential breached the MasterShare Agreement and shall pay to [Hazlett] compensatory damages in the amount of $243,045.22, plus interest …”
That same year, other arbitrators considered a claim by former agent Frederick J. O’Meally against Prudential and Wachovia Securities, which had merged. Included in the claim was $2 million of assets allegedly forfeited in O”Meally’s MasterShare account, plus $1.3 million in damages for other claims. Prudential never officially submitted to the arbitration and was dismissed by agreement, but the arbitrators ordered Wachovia, Prudential’s sister firm, to pay O’Meally the entire $3.3 million.
Since 1990, the securities law firm of Shepherd Smith Edwards & Kantas LTD LLP has represented clients, including registered persons, in claims against securities brokerage firms. Those who have dispute with their firm or former firm can call for a free confidential consultation with one of our attorneys. (Note: Law firms that represent investment firms are usually prevented by conflict from representing others in disputes against those firms.)