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If you possess information about your company’s wrongdoing, or if you have suffered losses due to the action of your broker or brokerage firm, you may have certain legal rights that require your immediate attention. DON'T GO IT ALONE!

Remember, save all documents evidencing what was said to you or promised you and how you’ve been harmed economically. Realize that documents can be powerful weapons in defending a claim for promissory note repay or pursuing a claim against the firm.

"Winning a lawsuit, establishing the proof of claim, or obtaining proper restitution requires more than just reciting the facts of a case; the law requires you to meet a burden of proof. So, remember, the devil is in the details and thorough documentation is critical. Your greatest chance to prevail in a claim against your employer or to defend a claim by your employer will require representation by an experienced securites industry legal specialist! Tracy Stoneman of Stoneman Law is that specialist!"

Ms. Stoneman has defended stockbrokers in promissory note cases and represented stockbrokers in disputes with their firm. She has also defended stockbrokers in FINRA enforcement claims. Ms. Stoneman does not represent stockbrokers or brokerage firms in cases against investors. If you are a broker and have issues concerning your U-4 or U-5 with your current or former brokerage firm, need a promissory note defense, or believe you have been wrongfully treated by your employer, Ms. Stoneman may be able to help you.

Types of Claims

Promissory Note Defense*

A large percentage of FINRA arbitrations involve cases where the brokerage firm sues the broker for reimbursement of the amount due on the promissory note the broker signed when he joined the firm. The brokerage firms almost always win these cases UNLESS the broker has a crafty lawyer who can counterclaim with one of the claims below. The old saying, “The best defense is a good offense” is quite applicable in promissory note cases. If the broker has counterclaims that can be asserted (which of course depend on the facts of the case), oftentimes the amount owed under the promissory note can be reduced or eliminated completely in a best-case scenario.

Defamation is the act of damaging the good reputation of someone through slander or libel. Stockbrokers have brought defamation claims for untrue or misleading statements their brokerage firms made on the Form U-5. A derogatory term on the U-5 report can render a licensee unemployable and destroy his career.The larger the broker’s book and production, the easier it is establishing damages.In August 2016, a FINRA arbitration panel ordered Morgan Stanley to pay a fired Florida broker more than $2 million for defaming him on an inaccurate regulatory report and through discussions his former colleagues held with his customers. Though Morgan Stanley initiated the case to recoup part of a signing bonus, arbitrators awarded the broker $2.4 million and required Morgan Stanley to alter the U-5 form it filed with regulators to say he was “terminated without cause” and to delete its assertion that he was fired for conducting an outside business. The $2.4 million included over $700,000 in attorney's fees; almost $100,000 in costs and $500,000 in punitive damages.

*Brokerage firms commonly recruit stockbrokers to gain access to their books of business. They do this by offering up-front payments or bonuses in the form of forgivable loans or promissory notes to lure brokers. Often, these payments are well in excess of $1 million dollars and are typically cash payments. If the broker stays with the new brokerage firm long enough - through the duration of the forgivable loan or promissory note, usually nine years or so - the broker is not obligated to repay the money if the broker then leaves the firm. But if the broker leaves before the loan or note is fully forgiven, the brokerage firm will insist that the broker pay back the unforgiven portion of the loan or promissory note. These amounts can be quite large in light of the huge bonuses awarded.

When the brokerage firm requests payment of the amount due (or sues), there may be counterclaims the broker can make to excuse his or her refusal to repay the note, including wrongful termination, fraudulent employment law practices, false promises, sexual harassment, discrimination, or breach of contract.  The result often is that the broker ends up paying a lot less than the firm says it is due or, the arbitration panel may declare the outstanding note paid and, to boot, award the broker compensation for the firm’s wrongdoing!
These contract/promissory note cases are likewise conducted in FINRA arbitrations and not in court.

FINRA enacted a new rule 2273, effective November 11, 2016 that requires for brokers who switch firms, the recruiting firm must provide an Educational Communication to customers that contains the following language:“

Could financial incentives create a conflict of interest for your broker? In general, you should discuss the reasons your broker decided to change firms. Some firms pay brokers financial incentives when they join, which could include bonuses based on customer assets the broker brings in, incentives for selling in-house products or a higher share of commissions. Similarly, some firms pay financial incentives to retain brokers or customers. While there’s nothing wrong with these incentives in either case, they can create a conflict of interest for the broker. Whether you stay or go, you should carefully consider whether your broker’s advice is aligned with your investment strategy and goals.”FINRA acknowledges that the disclosure should prompt the customer to ask additional questions, like, “How much was that bonus you are being offered?

Wrongful Termination**
Wrongful termination cases are often brought along with defamation cases, the gist of the claim being that the broker was wrongfully terminated. In March, 2016 an arbitration panel awarded an ex-broker more than $1.7 million from Wells Fargo for wrongful termination and other misconduct. The broker was terminated for not following Wells Fargo’s internal policy regarding contacting customers before orders. The panel awarded the broker more than $1.8 million, including attorney's fees. The arbitrators also ordered the expungement of the broker’s record; the reason for termination will be changed to "other" and the explanation to "terminated without cause".

A successful wrongful termination or defamation case can literally reverse the damage that a brokerage firm levies on a broker through its wrongful conduct, thereby putting the broker on a clean path going forward.

Constructive Discharge
These cases arise when a broker is lured to a brokerage firm with a hefty upfront bonus (sometimes in the millions of dollars) in exchange for the broker bringing along his substantial book of business and being able to service his clients in a better way. The broker expects that he will be able to continue his level of production using the tools that the new firm provides. Then, to the surprise of the broker, the brokerage firm changes its business by eliminating those tools or otherwise hampering the broker's ability to service his clients. The broker is forced to leave and go elsewhere, however, the brokerage firm insists upon repayment of the promissory note consisting of the upfront bonus.If these circumstances exist, the broker can file a counterclaim against the brokerage firm for "constructive discharge" and probably "fraudulent inducement", as well.

These cases are the rarest in FINRA arbitrations, because the broker may be able to file the claim in court. However, when documented facts establish that the brokerage firm intentionally treated the broker in a manner different from other employees on the basis of prohibited factors such as age, race, color, religion, sex, or national origin, such a case can be very valuable.

**All states recognize "at will" employment, however many have restrictions and exemptions. An “at will” employee can be dismissed by an employer for any reason. The employer may have “just cause”, “unjust cause” or no cause at all.

Such liberalities do not extend to the stockbroker–brokerage firm relationship, though. When a firm and stockbroker part ways, the regulatory Form U-5 must be filled out and filed. In certain circumstances, this form requires an explanation of the circumstances surrounding the termination. This information will become public through the CRD system, including FINRA’s BrokerCheck. As you can imagine, this creates a setting ripe for the publication of defamatory or potentially defamatory remarks.

The publication of the reasons for termination, if false or not justified, gives rise to a wrongful termination by the stockbroker against the brokerage firm. In addition, the stockbroker would have a defamation or libel claim for the false information reported on the U-5 form.

Wrongful termination claims can arise for a whole host of reasons. Oftentimes, it arises due to ill will between the stockbroker and his branch manager. Sometimes the firm has an incentive to fire the broker before his vesting period expires delineated in the broker’s promissory note with the firm. It is very common when there is a wrongful termination claim, it is accompanied by a claim against the stockbroker for promissory note repayment.

Normally, wrongful termination involves an illegal firing, however, constructive discharge can also be a form of a wrongful termination claim. The stockbroker must prove that there was some sort of adversity that caused him to say, “I quit”, instead of waiting to hear, “You’re fired”. An example would be if the Branch Manager told the broker that unless he quit, he was going to make life miserable for him by taking accounts away from him and preventing him from making bonuses.

Good advice is that if you think you have a wrongful termination claim, to seek a lawyer as soon as possible. However, wrongful termination cases by their nature do not have damages unless the stockbroker cannot find work and has lost his client base. It takes time to see how things play out in terms of how the stockbroker is damaged. It is not uncommon in these cases for damages to be continuing through the arbitration hearing and into the future. Experts can be hired to place a value on the loss of future earnings. Do not delay seeking lawyer advice if you have been wrongfully terminated. The last thing you want to do is to delay the seeking of advice until more damages accrue when various statutes of limitations may restrict your claim.

It is difficult for stockbrokers to find good work at other brokerage firms when they have a termination on their record. I once evaluated a case where the stockbroker was clearly fired for the wrong reasons, yet he was able to get a job at another brokerage firm and was making more money than he was at his old firm. That was an example of great liability but no damages. It was also a rare scenario.

Wrongful termination claims, unless they are a particular type of discrimination claims, must be pursued through the FINRA arbitration process. This means they are handled like any other securities arbitration. Documents created by the firm at or around the time of firing are critical to discover and when these types of cases.

Claims of wrongful termination have been on the upswing at FINRA and stockbrokers are winning these claims and recovering not only compensatory damages but punitive damages, as well.

Contact Ms. Stoneman - Stoneman Law Offices - Texas & Colorado. (719) 783-0303 Free Consultation - Representing Clients Nationwide