Dog bites man – Court agrees with Citigroup on promissory notes.

Posted by on Apr 27, 2010 in Uncategorized | Comments(0)

A while back I was asked to comment on a lawsuit where a Citigroup broker was arguing that upfront money deals were illusory and unenforceable. Now, depending on the circumstances, an argument can be made that a note is unenforceable or should be set off against other claims. In fact, there are arbitrators who have agreed with me on occasion. And there are others who haven’t. But I digress.

Investment News reports that the judge in New York has ruled that the the lawsuit is “baseless”. The article is here. Since I didn’t quite understand the points raised in the court complaint, I would have to agree with the judge.

Where this will get interesting is when one combines this “victory” with Morgan Stanley Smith Barney’s other announcement – that it will be closing 120 branches. And MSSB announced that it will grow organically. What, exactly does that mean? Will they be putting cow manure in the branches?

This doesn’t mean that every broker has to pay back every loan. Each relationship between broker and firm is too unique to say that. But to argue that, across-the-board, promissory notes should not be enforced because the contracts were illusory went a little too far. Nice try, though.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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