Opponents of a controversial Salomon Smith Barney Capital Accumulation Plan (CAP) are getting what they’ve yearned for: their day in court.
For the first time, a trial date has been set for a case that targets SSB’s plan. In April, a New Jersey court will hear arguments that the plan is in violation of wage law.
The plan in question is a deferred compensation plan that lets employees purchase restricted shares of SSB stock through payroll deductions. At issue is the schedule on which those deductions turn into shares, and the money employees lose when they leave the firm.
"This is a very big thing," says Bill Singer, a former in-house counsel at SSB who now specializes in suits on behalf of broker-dealers and reps. "Jersey is right in Salomon’s backyard. It’s not like it’s in Illinois, where they can just dismiss it as a certain judge not getting it. This is really starting to hit close now."
SSB's CAP has been under fire for quite some time. Every employee participates through fixed, company-determined deductions. The deductions are used to purchase restricted stock at a discount rate. After two years, the restricted shares turn into Citigroup common shares.
The problem lies with the restricted shares. If an employee leaves the company voluntarily or is fired with cause, he forfeits the restricted shares. The idea is to discourage employees from leaving the firm, but many construe the practice as holding employees’ money hostage.
Opponents of the plan got a boost in November when an Illinois judge ruled that the CAP violated state wage law. The New Jersey case could build on that success.
"[SSB] should have just settled that Illinois case when they had the chance," Singer says.
Former SSB brokers Melvin Rosen and James Fox are two plaintiffs in the New Jersey case. Each left the firm in the mid-1990s and is now trying to recoup wages. Their lawyer, Andrew Brosnick of Livingston, N.J.-based Nagel Rice Dreifuss & Mazie, says the class action suit includes nearly 170 plaintiffs. The suit was filed in October 1999.
Singer says the increasing number of CAP-related suits has much to do with the strain brokers find themselves under. "It used to be that this plan could be seen as a great thing for brokers, when [the economy] was humming," Singer says. "But brokers themselves don’t even see it as an investment anymore. Fact is they need that money."
A Salomon Smith Barney spokeswoman was unavailable for comment.
