Promissory Note Arbitrations

What A Promissory Note Arbitration Lawyer Does

A promissory note arbitration attorney adeptly negotiates, on behalf of brokers, with brokerage firms which seek to collect on promissory notes. Further, if a forgivable loan dispute cannot be settled, a promissory note arbitration lawyer zealously defends the brokers in promissory note arbitrations before The Financial Industry Regulatory Authority, Inc. (“FINRA”).

Such disputes, concerning “transitional compensation” payments to brokers whom the firms have fired within a predetermined period of time, are called up-front bonus, recruiting bonus, forgivable loan, or employee forgivable loan (“EFL”) cases. At the Law Offices of David S. Rich, LLC, our Manhattan Promissory Note Arbitration Attorney has extensive experience representing professionals in the securities industry whose former employers demand that the professionals repay monies owed under promissory notes.

How Promissory Note Arbitrations Arise

In the securities industry, brokerage firms frequently offer account executives transitional compensation to ease the account executives’ lateral moves to those firms. A firm means for such compensation both to entice the account executive to join the firm and to make sure that the executive won’t receive a windfall if he exits the new firm soon after arriving.

Therefore, the recruiting bonus or forgivable loan provision of a broker’s employment contract typically provides that if the firm terminates the broker’s employment within a specified period for any reason, or if the broker chooses to leave the firm, the remaining monies outstanding on the loan immediately become payable to the firm.

The up-front bonus provision of a broker’s employment agreement usually states that the brokerage firm will forgive the loan in equal annual installments over a specified period. That period is typically somewhere from five years to seven years.

The repayment obligation contained in a broker’s employment contracted is secured by a promissory note. For years, brokerage firms’ lawyers have drawn up, revised, and sterngthened these promissory notes such that the notes are very difficult to nullify.

Usually, the amount of the forgivable loan is equivalent to 100% or more of the broker’s trailing 12 month gross commissions. (Recently, at least one brokerage firm has offered, to brokers making lateral moves to the firm, forgivable loans equal to 50 basis points on assets under management which the broker transfers to the firm.)

If the terminated broker does not immediately repay the loan, the firm may elect to bring a FINRA arbitration against the broker to collect the monies due.

It is not easy, but it is by no means impossible, for a broker who has been harmed by his brokerage firm to defeat, or at minimum to win counterclaims offsetting in whole or in part, a brokerage firm’s claim to recover, from the broker, monies owed on a promissory note.

At the Law Offices of David S. Rich, LLC, we have substantial experience defending brokers in promissory note arbitrations before FINRA.

FINRA Arbitration Of Promissory Note Disputes

FINRA arbitration panels decide the vast majority of promissory note disputes that are not settled. A considerable number of FINRA panels have rejected brokerage firm’s claims against respondent brokers for monies assertedly owed under forgivable loans. So, too, in promissory note arbitrations, a substantial number of FINRA panels have ruled for the respondent brokers on counterclaims that offset, in whole or in part, awards to the brokerage firms. If you are a broker who has been discharged by, or has voluntarily left, your brokerage firm before the firm forgave, in its entirety, your promissory note, contact the Law Offices of David S. Rich, LLC. We assist employees seeking to defeat, or to offset in whole or in part, promissory note claims, including:

• Retail brokers
• Investment managers
• Financial advisors
• Managing directors, vice presidents, and senior vice presidents
• Account executives
• Other financial services employees

You May Have A Defense To, Or Counterlaims Offseting In Whole Or In Part, Your Former Employer’s Promissory Note Claim Against You

In promissory note cases, the best defense is a good offense. That is, the broker may have a meritorious counterclaim which can offset all or a portion of any award to the brokerage firm.

That said, there is at least one defense (to the collection of a forgivable loan) which has prevailed, in part, in a number of instances. Specifically, at least one FINRA arbitration panel appears to have ruled that where a brokerage firm fires a broker for the purpose of precluding the firm from being required to make a payment to the broker representing a portion of the balance owed by the broker to the firm under a promissory note, the arbitration panel (i) may cancel the broker’s debt under the promissory note and (ii), despite the panel’s cancellation of the note, may require the firm to make the precluded payment.

Counterclaims In Forgivable Loan Cases

In promissory note cases, some of the counterclaims may offset, in whole or in part, any award to the brokerage firm are as follows. At the Law Offfices of David S. Rich, LLC, we have substantial experience prosecuting, on behalf of brokers, many of these counterclaims and various others.

Fraudulent Inducement To Accept Employment. Absent any contractual disclaimers, when a brokerage firm makes to a broker, at the outset of the employment relationship between them, oral representations which the firm, at the time it makes the promises, knows that it does not intend to fulfill, that broker may well have a meritorious claim against the firm for fraudulently inducing him to accept employment with the firm. 

For example, during the job interview process, supervisors at the claimant brokerage firm may have orally promised the respondent broker that, if he left his then-employer and joined the claimant firm, (1) the claimant firm would make him part of a particular team of brokers or would allocate support staff to him, (2) the claimant firm would permit him to sell, to his customers, securities which the respondent broker had purchased in the market at favorable prices, rather than requiring him to sell, to his customers, higher-priced securities which the claimant firm held in its inventory, or (3) the firm’s investment bankers would introduce the respondent broker to many of the bankers’ wealthy individual clients so that the broker could pitch these high net worth individuals on allowing him to manage their assets.

Further, the claimant brokerage firm, through its managerial employees, may have made these oral promises to the respondent broker with a preconceived and undisclosed intention of not performing them. It may well be that, because the claimant brokerage firm breached these oral promises, the broker was unable to bring in enough customers at the claimant firm, to retain a sufficient number of clients upon joining the claimant firm, or to persuade his customers at the claimant firm to engage in enough fee-generating transactions.

In circumstances such as these, the broker may well have a winning claim against the brokerage firm for fraudulently inducing him to accept employment with the firm.

Unpaid Overtime Compensation. Many brokers in New York State work substantially in excess of 40 hours per workweek. If a broker at a brokerage firm in City Of Manhattan works more than 40 hours per workweek, but is not paid, each workweek and regardless of the quantity or quality of his work, at a certain minimum salary level per week, that broker may have a (counter)claim against his brokerage firm for unpaid overtime compensation.

Defamation. In New Jersey and in some other states, a broker or other registered employee may successfully sue a brokerage firm or other former employer in the securities industry, for defaming the broker or other registered employee on a Form U-5 (Uniform Termination Notice for Securities Industry Registration), by proving the usual elements of defamation, plus that the former employer acted with malice.

Unpaid Wages, Unpaid Bonuses, or Unpaid, Deferred Compensation. Other counterclaims that may offset, in whole or in part, any award to the brokerage firm in a promissory note case include, without limitation, unpaid wages claims, unpaid bonus claims, and causes of action for unpaid, deferred compensation.

Contact the Law Offices of David S. Rich, LLC to consult with a skilled employment and securities litigation and arbitration attorney about your promissory note dispute.