The controversy over Salomon Smith Barney's Capital Appreciation Plan (CAP) is heating up.
Four class-action suits have been served against the firm; the latest is a Jan. 4 filing in Florida. Former SSB reps have also filed in California, New Jersey and New York, although a judge in the New York case ordered claimants to seek damages through arbitration.
SSB's CAP plan allows brokers who produce more than 150,000 dollars annually to buy company stock (formerly Travelers, now Citigroup shares) at a discount with pretax earnings. However, if the employee leaves before a two-year vesting period, the company keeps the stock and any dividend income.
Although specific claims in the suits vary, the basic complaint is that the plan forces employees to forfeit earned compensation.
Here's a rundown of the cases:
In July, Los Angeles County Superior Court Judge Aurelio Munoz held that the plan was illegal under California law. Munoz's ruling allowed the case to go forward for a full hearing before an appeals court.
Los Angeles plaintiffs' attorney Kevin Roddy of Milberg Weiss Bershad Hynes & Lerach says, "The year 2000 will be consumed with discovery, documentation and depositions." At press time in January, the claimant, David Schachter, was set to give a deposition.
In New Jersey, attorneys for the three named plaintiffs are awaiting SSB's response to a complaint filed in December.
In New York, several individual cases are going before NASD or NYSE arbitration panels. "The New York courts took the position that unpaid wages and compensation lost through SSB's CAP plan are ... not recoverable in class-action suits," says attorney Jonathan Arfa of New York-based Roosevelt & Arfa, which filed the proposed class action in late 1997.
The latest to pile on is New Jersey attorney Bruce Nagel, who filed a class-action suit against SSB Jan. 4 in a Tampa, Fla., circuit court. Former SSB rep Jerrold Slutzky is the plaintiff.
Attorneys expect more suits to be filed as well.
A spokesperson for Salomon Smith Barney calls the suits baseless. "They voluntarily joined our employee stock incentive plan. They resigned and thereby gave up claims," she says. "We think the courts will agree with that."
Several brokers claim in the suits that they were pressured by the firm to participate in the CAP plan.
New Jersey attorney Andrew Bronsnick, who is representing former SSB brokers in the New Jersey class claim, says getting certification as a national class-action case has been considered.
"There are possibly thousands of brokers in similar situations," Bronsnick says. "We could have everybody covered in one class action rather than open up battles in any number of states."
But certifying a national class is difficult, Bronsnick admits. One problem would be determining which state employment laws to apply.