In order to attract and retain financial advisors and other registered representatives, it is common practice in the securities industry for financial services firms to offer incentive compensation to registered representatives through “upfront” payments upon being hired, and “back-end” payments while employed. In return, registered representatives typically must agree to remain with the firm for a period of time by executing promissory notes in amounts equal to the incentive compensation paid. The sums due on the promissory notes are either forgiven over time or paid back through the firm’s payment of systematic bonuses matching the amounts and payment dates on the promissory notes. When a registered representative’s employment terminates before all outstanding amounts on their promissory notes are either forgiven or paid back in full, the firm has a claim for the balance due plus interest and collection costs (including attorneys’ fees). This is true regardless of whether the termination was voluntary or involuntary, as well as whether the registered representative has the financial capacity to pay the sums due. When the registered representative is unable or unwilling to pay the sums due, firms typically file a FINRA arbitration claim. The firm typically prevails in these arbitrations unless the registered representative establishes an employment-related defense or counterclaim based on actionable wrongful conduct by the firm.
Our firm has handled hundreds of promissory note matters, often times representing clients before FINRA arbitration panels in contested and protracted hearings. Our attorneys’ prior experience as regulators with the Securities and Exchange Commission, and their prior affiliation with Morgan Stanley and UBS Financial Services, makes us uniquely qualified to properly evaluate the merits of the core promissory note claims, as well as common allegations tied to the following employment-related defenses and counterclaims:
- Constructive Discharge
- Wrongful Termination
- Fraudulent Inducement
- Violations of FINRA Rules or Standards of Conduct
- Breach of Contract
- Defamation and Improper Form U-5 Disclosures
Due to the complexity of defenses and counterclaims asserted in response to promissory note claims, and the considerable sums of money that are often at stake, it is critical that promissory note claims be properly evaluated, and when necessary, litigated. Please contact us for more information about our promissory note practice.