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.

In the category of “Don’t try this at home” we have Steven Mandala. According to an article in Investment News, Mr. Mandala significantly overstated his earnings when negotiating with Merrill Lynch to join the firm. IN wrote that he said he earned $765,000 in a year when his true earnings were $100,000.

So what did he do with his upfront money? Well, he bought a Ferrari (in his father’s name), for which I salute him. Unfortunately, I think his resignation from Merrill Lynch, now owned by Bank of America, within two months of joining the firm might have sent up a red flag. But he clearly made someone angry.

Usually the upfront loan cases, sometimes called EFLs (“Employee Forgivable Loans”) or Transitional Compensation Agreements, go to arbitration. I am handling a few right now. It’s rare that the firm goes to the prosecutors. But it appears that Merrill did and now Mr. Mandala won’t have to worry about arbitrating the claims. Instead, he’s going to be selecting a bunk in the big house.

What can we learn from this boys and girls? How about – DON’T LIE TO PROSPECTIVE EMPLOYERS. I think that about sums it up.

That’s the view of one Lawyer from Jupiter, Palm Beach County, Florida, I’m Ferrari-less Marc Dobin.

A few weeks ago, I discussed the manner in which Jesup & Lamont was dealing with FINRA. For your ease of reference, the post is here. I suggested that this was a foolhardy approach to dealing with the organization that decides whether or not you stay in business.

Investment News described Jesup as “feisty” and described its dispute with FINRA and Penson Financial Services, its former clearing firm, as “nasty.” Now another adjective can be added to the list – “sanctionable.” In a recent FINRA arbitration award a FINRA arbitration panel gave “feisty” Jesup its requested relief on the Claimant’s employment claim, which was a zero. And then the panel, which contained two arbitrators that I know are experienced, assessed sanctions against Jesup in the amount of $60,000. I can honestly say that I have never before seen a discovery sanctions amount in arbitration that was more than $10,000. There is a fair bit of discussion in the award about the discovery issues in the case. At one point, Jesup was told to produce documents or face a daily fine of $500.

Who represented Jesup in this most recent case? According to the award, it is none other than the company’s general counsel, Todd Zuckerbrod. And what of the dispute with Penson? Jesup lost that case, too. No sanctions were awarded there, though. Mr. Zuckerbrod was listed as counsel of record in that case, too.

It’s only my opinion, but I don’t think “feisty” is the adjective one would want applied to one’s broker/dealer. Of course, “the firm that was sanctioned $60,000 for failure to comply with discovery” isn’t very attractive either. If Jesup had simply lost $60,000 in damages, that’s pretty easy to deal with. Each case has its own facts and the cases rise and fall on those facts. But it is foolish to give your future opponents the ability to say the following “Mr. or Mrs. arbitrator, it should be no surprise that we have discovery problems with Jesup, here is a copy of the award where the firm was sanctioned $60,000 for failure to comply with discovery.” In my opinion, that’s much harder to explain away.

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

Sometimes I wonder. FINRA is the organization responsible for administering the vast majority of the securities arbitrations in this country. One of the items FINRA decides is the location of the hearing. When I was a younger lawyer in New York (I’m still young), there were hearing venues in only a handful of locations, although we were grateful for Fort Lauderdale in the winter.

FINRA started adding venues within the last few years, in part as a reaction to some court decisions relating to the unenforceability of an arbitration agreement where there was no hearing venue within the state. FINRA now has hearing venues in all 50 states. I am currently scheduled for two hearings in Honolulu, Hawaii. It’s a tough job, but somebody has to do it.

The weirdness comes, as the Hawaii cases show, when the customer lives outside the United States. The claimants in the Hawaii cases live in Australia, so Hawaii is the closest venue. I had a case where my client lived in Belgium. His broker was in Florida. He chose me, a lawyer in Florida, for that reason. FINRA set the case in New York City, the closest hearing venue to Belgium (I guess we’re lucky they didn’t set it for Portland, Maine, which I think is closer.)

FINRA, in announcing the recent amendment, used another example. If a customer lives in Hoboken, New Jersey, the hearing would have been set for New York City, because NYC is closer to Hoboken than Newark, the next closest venue. Of course, Newark is usually easier to get to than NYC if you’re trying a case. So FINRA has amended its rules to provide for the primary choice for venue to be in your own state instead of being a slave to Google maps.

At least I’ll always have Hawaii.

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

Marc S. Dobin, P.A. is pleased to announce that James J. Duffy has joined the firm as an associate.

James is a Florida native and, to prove that, he is both a Gator (graduated with BS in Finance in 2006) and a Hurricane (graduated from University of Miami Law School, cum laude, in 2009). James comes to us after a Fellowship in the Foreclosure Defense Project of University of Miami Law School.

One thing that is interesting about James is his two internships. He interned at both the SEC and FINRA in their respective Enforcement divisions. James is very interested in the securities industry and these two internships gave him great exposure to the regulatory side of the securities business.

We welcome James and look forward to sharing his talents with our clients and friends.