Broker Warns Bonus Arbitrations Are a “Fixed Game”
Our article yesterday on Barclays’ pursuit of U.S. brokers who left with unvested balances on their promissory notes provoked a gloomy response from a reader in the compliance community. No matter how good a broker’s case may be to retain a signing bonus, the odds of prevailing in arbitration are oppressive.
Statistics bear him out. Employers won monetary damages in 94% of the 173 Finra arbitration cases involving promissory notes that were decided in 2015, according to Securities Arbitration Commentator, a New Jersey-based award research service that tracks data from arbitration awards.
The win rate for firms has prevailed for years and continues, according to the latest posting on Finra’s disciplinary action website. Indeed, this week’s list includes the cautionary tale of James Cady.
He sued Wells Fargo Advisors for dismissing him after five years on the job, only to have Wells successfully reply with a counterclaim for $335,000 it said it was owed on his promissory note. Cady, who is now with Oppenheimer & Co. in Red Bank, NJ, said when informed of the decision by AdvisorHub that he felt “totally screwed,” but declined to comment further.
We’ll let our source, who is fighting his own arbitration battle on another issue before Finra, spell out the moral:
“To ever win one of these [note] cases, you will have to practically have evidence on camera of a manager threatening you….I have seen arbitrations where firms have made outright material misstatements, faked evidence, [and had] witnesses and firm attorneys who outright lied, etc. The firms still WON their cases!”
It’s not lost on him that the brokers at Barclays have strong cases for leaving with their full awards since the British bank told them last year it was shuttering its U.S. brokerage business, just as Credit Suisse and Deutsche Bank did. (They would not have had the problem, to be sure, if they had gone to Stifel Financial, Barclays’ sanctioned choice.) But he’s not persuaded they can win.
“Here’s my advice to Barclays brokers: The firms will get their pound of flesh off you, eventually…You’re going to have to pay your note, plus [the firm’s] legal fees plus another $50,000 for your attorney.”
Several lawyers spelled out the theory behind what the uninitiated may see as a rigged game.
“The other side of the argument is that a loan is a loan is a loan is a loan,” said Brian Neville, who represents some former Barclays brokers who are in arbitration.
Arbitrators generally believe that the burden of proof is on the advisor to show they were fraudulently induced to join a firm or to prove in a counter-claim that their employer failed to deliver on recruiting promises, he and other attorneys have said.
So lick your wounds and take out your wallets if your former employer chases you down for note repayment, but think twice before you put up an expensive defense. It may be a difficult industry but it’s also unique in continuing to dangle multi-million-dollar signing bonuses before top brokers despite executives’ knowledge that they may never earn back the bonuses.