Home Banking & Finance Gabelli and mutual fund executive fight over proper arbitration forum on $6.5M...

Gabelli and mutual fund executive fight over proper arbitration forum on $6.5M claim

GAMCO Investors, the Rye wealth management and mutual fund firm founded by Mario J. Gabelli, wants to compel an executive to arbitrate a compensation dispute before an industry regulator.

The executive, James C. Scanlon of Hopkinton, Massachusetts, has filed a $6.5 million claim with the American Arbitration Association.

gabelli GAMCO arbitrationThe Gabelli company has sued Scanlon in federal court in White Plains to block him from using the association and to require him to take the dispute to the Financial Industry Regulatory Authority.

Gabelli claims Scanlon agreed to use the financial industry’s arbitrator when he was hired and now he is sidestepping the deal in a “blatant attempt to avoid FINRA as a forum.”

Mario Gabelli founded the financial services firm in 1976. It includes Gabelli Mutual Funds and it manages about $40 billion in assets.

Gabelli & Co. hired Scanlon in 2006 as director of mutual fund marketing and distribution. Previously, according to his FINRA broker registration, Scanlon worked for Merrill Lynch and Putnam Retail Management.

Gabelli said Scanlon had agreed to use the National Association of Securities Dealers (NASD) to arbitrate compensation disputes, and to do so no more than 180 days after a dispute arose.

FINRA, a new financial industry self-regulatory organization, took over NASD’s role in 2007.

Last September, an attorney for Scanlon sent a letter to Mario Gabelli, the CEO and chairman, claiming that GAMCO had illegally withheld commissions.

Gabelli had “clawed back” more than $100,000 in commissions in 2011, attorney David T. Harmon said, and had never paid hundreds of thousands of dollars annually in commissions on large accounts that Scanlon brought in from Wells Fargo and UBS.

Additionally, Harmon wrote, the company had illegally forced Scanlon to pay up to $50,000 a year out of his own pay for his sales team’s travel and entertainment expenses.

Harmon threatened legal action if the matter were not resolved by Oct. 6. On Jan. 30, Scanlon filed a demand for arbitration with the American Arbitration Association.

Scanlon argues that, despite his title of senior vice president, he was not a supervisor, manager or executive. He was to be paid $200,000 a year plus at least $300,000 annually in commissions on his sales team’s business.

He claims that commissions on the Wells Fargo and UBS deals, landed in 2009 and 2010, are worth $400,000 to $500,000 a year.

When he complained to Mario Gabelli, he alleges, Gabelli threatened that if he pressed his claims he would “never work in this business again.”

Scanlon accuses GAMCO of violating New York labor law and of breach of contract, in the American Arbitration Association case.

G.distributors, an affiliate formed out of Gabelli & Co., has taken the dispute to FINRA.

Scanlon was generously compensated, the company said. He has been paid $6.8 million in 12 years, averaging more than $566,000 a year, according to W2 forms filed in the federal lawsuit.

Gabelli said Scanlon is violating his hiring agreement by asserting claims in the wrong forum and doing so more than 180 days after the problems arose. Some of the claims go back more than eight years.

Even without the deadline and jurisdictional requirements, the company said, Scanlon’s claims are meritless.

The company said it recouped erroneous payments in 2012 on commissions that Scanlon had received on sales made outside of his team’s territory.

In the Wells Fargo and UBS sales, Gabelli claims, Scanlon was trying to deprive his team of their commissions and divert payments to himself.

The portion of the team’s travel and entertainment expenses that Scanlon paid were worked into a new commission formula that netted the appropriate percentage of reimbursements, the company said.

Gabelli is asking federal court to stop the American Arbitration Association case and to compel Scanlon to take his claims to FINRA. It has asked FINRA to declare itself as the proper forum and to reject Scanlon’s claims.

The American Arbitration Association has taken the position that Scanlon has met its filing requirements.

Absent a court order stopping the case, the arbitrator declared in a Feb. 23 letter to Gabelli’s attorney, “the AAA will proceed with the administration of this arbitration.”


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