FINRA Promissory Note Decisions Reflect Market Forces.

Early on in my legal career, I was a collection lawyer. In fact, I did collection work as a legal assistant while I was in law school. When I started doing collections in the securities business, I immediately starting working on promissory note cases. They go by many names, we called them Transitional Compensation.

At UBS (PaineWebber), they were called EFLs – for employee forgivable loans. Every firm on Wall Street had a different name. But one thing was for certain, in good markets, everyone got big money, even lower-end producers. And when acquisitions were on the way, even more money flowed. I called it “fattening the turkey”.
Well, those turkeys have come back to the turkey ranch. In an unscientific review of a large batch of recent arbitration awards, it sure felt like close to half of the awards were for promissory note cases. The excesses, and mergers, of just a few years ago have come home to roost. Producers that were hired to fill seats and desks washed out pretty quickly. Or, even worse, they were made to feel so unwelcome through a cut in support staff access and payout, they walked out because they couldn’t afford to work for peanuts any more.
Then there are the retention agreements. Firms provide “loans” or “bonuses” to employees to encourage them to stay after the merger of alleged equals (which it never is). A number of employees, who placed their faith in the smooth-talking executives whose bonuses counted on the short-term success of the merger, left their firms for many reasons. Most of the time it turned out that the grass was not greener on the other side.
For many years, one of my brokerage firm clients never gave out loans. They had an open door policy, meaning that the door was always open if the broker no longer wanted to work there. That firm was swallowed up – twice. It bears no resemblance to the firm it once was. And that’s a real shame. Because one never knows if the broker is moving for the culture or the money. And when the honeymoon is over, all that’s left is an arbitration to sort out the damage.
That’s the near-frozen view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.
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