Sterne Agee v Mohs

{10765-001 CMP A0373117}

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

In re: Chapter 7 ROBERT W. MOHS, Case No. 13 B 46366 Debtor. Hon. Jack B. Schmetterer

STERNE AGEE & LEACH, INC., Plaintiff, v. ROBERT W. MOHS, Defendant.

Adv. Pro. No. 13 AP _____

ADVERSARY COMPLAINT

Sterne Agee & Leach, Inc. (“Sterne Agee”) hereby complains against defendant Robert W.

Mohs (“Mohs”) pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (B) and seeks a judgment determining

that the debt owed to Sterne Agee is a nondischargeable debt.

Introduction

1. Sterne Agee recruited Mohs in 2012 to become an investment broker at the firm.

During the recruitment, Mohs intentionally misrepresented his performance at his previous

employer to induce Sterne Agee to hire him and obtain more lucrative compensation. In December

2012, Sterne Agee hired Mohs to become a broker and, as part of his compensation, provided

Mohs a loan in the amount of $432,000. Sterne Agee relied on the materially false and fraudulently

inflated figures provided by Mohs in deciding to make the loan.

Case 14-00288 Doc 1 Filed 04/30/14 Entered 04/30/14 11:56:26 Desc Main Document Page 1 of 26

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2. One month after he received the loan, Mohs deposited half of the proceeds into a

trust. Five months later he resigned from Sterne Agee, and six months later he filed bankruptcy.

He has never repaid the loan. The fraud and intentional misrepresentations committed by Mohs

render the loan nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (B).

Parties and Jurisdiction

3. Sterne Agee is a regional, full service, investment banking and brokerage firm

headquartered in Birmingham, Alabama. Sterne Agee is a creditor of Mohs by virtue of the Note

and Employment Agreement (as those terms are defined herein).

4. Upon information and belief, Mohs is an individual residing at 3270 North Lake

Shore Drive, Unit 14A, Chicago, IL 60657, in Cook County.

5. On December 2, 2013, Mohs filed a chapter 7 bankruptcy petition commencing the

above-captioned bankruptcy case (the “Petition Date”).

6. The claims in this adversary proceeding arise under the Bankruptcy Code.

Accordingly, the Court has jurisdiction pursuant to 28 U.S.C. § 1334.

7. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).

8. Venue of this adversary proceeding in this district is proper pursuant to 28 U.S.C.

§§ 1408 and 1409.

Background

A. Recruitment of Mohs

9. In 2012, Sterne Agee recruited Mohs to join its firm as an investment broker while

he was working as an investment broker at Raymond James & Associates (“Raymond James”).


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10. During the recruitment, Mohs gave Sterne Agee a statement that purported to

provide certain critical financial information about his recent performance as an investment broker

at Raymond James (the “Payout Statement”).

11. Specifically, the Payout Statement stated that Mohs’ production at Raymond James

during Raymond James’ 2011 fiscal year, i.e. October 2010 through September 2011, had been

over $720,000, and that he had assets under management in excess of $71,000,000 as of September

30, 2011. A true and correct copy of the Payout Statement that Mohs provided to Sterne Agee is

attached hereto as Exhibit A.

12. In reliance on the representations made by Mohs through the Payout Statement,

Sterne Agee decided to offer Mohs a position as an investment broker. Sterne Agee prepared an

Employment Agreement (as defined below) to memorialize the representations being relied upon

by Sterne Agee and the terms of the parties’ employment agreement. To induce Sterne Agee to

hire him, Mohs represented in the Employment Agreement that, as of May 31, 2012, his gross

commissions for the “trailing twelve months” at Raymond James were “at least $720,000.”

13. As Mohs well knew, not only did this level of commissions make Mohs an

attractive candidate for hire, this type of “trailing 12” months’ commission would provide Sterne

Agee a basis to formulate and negotiate the appropriate level of advance compensation for Mohs,

if any.

14. In fact, Mohs had intentionally falsified the Payout Statement to overstate his

“trailing 12” production at Raymond James in 2011 while working at Raymond James. The actual

amount of his production was not $722,701.47, but was instead $122,701.47—$600,000 less than

what Mohs’ represented to Sterne Agee in the Payout Statement.


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15. In addition, through the Employment Agreement, Mohs intentionally

misrepresented the amount of commissions he had generated in the 12 months preceding May 31,

2012. The actual amount of commissions he had generated over this period was approximately

$136,727.77, or approximately 19% of the amount represented by Mohs in the Employment

Agreement.

B. The Employment Agreement and Loan

16. On December 3, 2012, Mohs executed the Employment Agreement, pursuant to

which he became employed at Sterne Agee. A true and correct copy of the Employment

Agreement is attached hereto as Exhibit B.

17. As part of his compensation, Sterne Agee lent Mohs $432,000 (the “Loan”)

pursuant to a Cash Promissory Note (the “Note”), which was executed by Mohs on or about

December 4, 2012. A true and correct copy of the Note is attached hereto as Exhibit C.

18. Under the terms of the Employment Agreement, Sterne Agee agreed that it would

forgive portions of the outstanding balance of the Loan in specified installments spanning over a

period of 84 months, i.e. 7 years.

19. Specifically, the Employment Agreement provided that “the loan shall be

forgivable in eighty-three (83) equal monthly installments of . . . $5,142.85 . . . and one (1) final

installment of . . . $5,143.45.”

20. The Employment Agreement terminated upon, among other events, voluntary

resignation from Sterne Agee by Mohs. In the event of termination, the unforgiven principal

balance of the Loan became immediately due and payable. Interest accrued on the outstanding

balance at 18% per annum beginning ten days after the date of termination.


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21. Sterne Agee provided the Loan based on the falsified Payout Statement and

representations made by Mohs in the Employment Agreement, as well as Mohs’ oral

misrepresentations about his success, the size of his book of business, and his intent to continue

doing this level of business at Sterne Agee.

22. In January 2013, Mohs deposited $200,000 of the proceeds from the Loan into the

Robert W. Mohs Trust. Upon information and belief, the entire sum of $200,000 remains in the

Robert W. Mohs Trust as of the date of the filing of this Complaint.

C. Resignation from Sterne Agee

23. Once employed with Sterne Agee, it became clear that Mohs had misrepresented

the level of commissions he could generate, as well as the size of his book that he would seek to

transfer once employed at Sterne Agee.

24. For the period December 2012 through June 7, 2013 (the date of his resignation),

Mohs generated only $36,918.19 in gross commissions while employed with Sterne Agee.

25. As of the date of resignation, he had transferred customer assets totaling only

$5,052,941 to Sterne Agee, an amount that was far less than the $75,000,000 that he claimed was

under his management.

26. On June 7, 2013, only six months after the $432,000 loan payment was made to

Mohs (and long before the seven year term of employment required for forgiveness of the loan),

Mohs voluntarily resigned from Sterne Agee, terminating the Employment Agreement.

27. On the date of resignation, the unforgiven principal balance of the Loan was

$401,142.90. Sterne Agee made demand upon Mohs to pay the unforgiven principal balance due

and owing pursuant to the Loan. To date, Mohs has not responded to these demands.


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28. The current outstanding balance of the Loan is $401,142.90, plus interest accruing

at 18% per annum from June 17, 2013.

Count I – 11 U.S.C. § 523(a)(2)(A)

29. Sterne Agee restates paragraph numbers 1 through 28 as if specifically alleged

herein.

30. Mohs intentionally made false representations and committed actual fraud with

respect to the amount of commissions he had generated while working at Raymond James and his

book of business.

31. Mohs made such misrepresentations and committed such fraud to deceive Sterne

Agee and induce Sterne Agee to hire him and enter into the Employment Agreement and make the

Loan to Mohs.

32. Sterne Agee reasonably relied on Mohs’ representations about the commissions he

had generated while working at Raymond James and his book of business when Sterne Agee

decided to enter into the Employment Agreement and make the Loan to Mohs.

33. Sterne Agee has been damaged in the amount of $401,142.90, plus interest accruing


34. Accordingly, Sterne Agee requests that the Court determine the Loan to be

nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).

Count II – 11 U.S.C. § 523(a)(2)(B)

35. Sterne Agee restates paragraph numbers 1 through 28 as if specifically alleged

herein.

36. In the alternative, Mohs contends that the Loan is nondischargeable under 11

U.S.C. § 523(a)(2)(B).


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37. Mohs used the Payout Statement, which he knew to be materially false and which

related to his financial condition, to deceive Sterne Agee and induce Sterne Agee to enter into the

Loan.

38. The Payout Statement was materially false, because it overstated the commissions

Mohs had generated at Raymond James by almost 600%.

39. The amount of commissions on the Payout Statement related to Mohs’ financial

condition.

40. Sterne Agee reasonably relied on Mohs’ representations about the commissions he

had generated while working at Raymond James when Sterne Agee decided to enter into the Loan.

41. Sterne Agee has been damaged in the amount of $401,142.90, plus interest accruing


42. Accordingly, Sterne Agee requests that the Court determine the Loan to be

nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B).

Conclusion

43. For these reasons, Sterne Agee respectfully requests that the Court enter a

judgment: (i) declaring that the Loan is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A)

(Count I); (ii) declaring that the Loan is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B)

(Count II); and (iii) granting such other just and appropriate relief.


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Respectfully submitted, DATED: April 30, 2014 STERNE AGEE & LEACH, INC. By: /s/ Richard A. Saldinger One of its attorneys Robert W. Glantz (#6201207) Richard A. Saldinger (#6209930) David R. Doyle (#6303215) Shaw Fishman Glantz & Towbin LLC 321 N. Clark Street, Suite 800 Chicago, Illinois 60654 (312) 541-0151


EXHIBIT A



EXHIBIT B










EXHIBIT C








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Sterne Agee v Mohs

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