Former Reps Face Steep Odds When Fighting Their Former Firms Over Notes
According to a recent article that appeared in the Wall Street Journal, From 2013 to 2014, arbitrators in the Financial Industry Regulatory Authority’s (FINRA) dispute-resolution program decided 829 cases between employers and employees. In 498 of those cases, they ruled on firm claims for unpaid Employee Forgivable Loans (EFL). The arbitration panels awarded monetary damages to the firm 93% of the time. Also, during the same period, there were 291 arbitration decisions related to brokers’ claims that included discrimination, unpaid compensation or wrongful termination. The former brokers received monetary awards 38% of the time. These are sobering statistics for registered reps considering an arbitration action against their former employer. Worse, once the award has been rendered, unlike in court, there are few avenues for appeal.
For claims that go all the way to a hearing, generally in front of a panel of three arbitrators, the estimates the whole process can last about thirteen-eighteen months and be quite costly. And when the panel members make a decision, they rarely provide a written opinion making an appeal even more difficult. Also, if they lose, brokers have thirty days to pay the awards or risk having their their securities license suspended.
It’s no wonder approximately 90% of cases settle before they go to hearing. In the course of the legal battle, there’s often a “shift in expected returns,” Mr. Burns says. Interest continues to accrue during EFL cases, and attorneys’ fees start climbing. Brokers who lose their cases frequently must pay all of those associated costs. From 2013 and 2014, for example, the brokers who lost promissory note cases paid were ordered to pay their former firm’s legal bills 60% of the time and those fees averaged $32,200. That doesn’t even take into consideration the broker’s own attorney’s fees which are estimated in the mid to high five figure range for a typical arbitration proceeding that goes all the way to final hearing. Daunting and in stark contrast to the story of the Morgan Stanley broker who received a $500,000 award in a note case (see our May 12, 2015 blog).
The experienced securities fraud attorneys at Colling Gilbert Wright & Carter have successfully represented registered representatives in breach of promissory note, tortuous interference with business relations and defamation. investors. If you have suffered losses as a result of a termination from your firm, please contact us for a free case evaluation