Former Merrill Broker Says Arbitrations Can Be Won
To lighten brokers’ gloom about the astoundingly low odds of prevailing in arbitration cases when former employers seek the return of unamortized signing-bonus/promissory note awards, we’d like to share a success story.
It comes from a former Merrill Lynch broker in the Midwest who says his careful record-keeping and note-taking, mixed with some fortuitous help from clients, won the day for him in arguing for his right to hold onto his bonus and even won him around $200,000 in damages.
Merrill recruited him in the mid-2000s from a well-known independent broker-dealer, where he was producing about $500,000 annually, by promising to open a branch for him to run as a producing manager in a nearby midwestern city that would be more convenient for himself and many of his clients. But after a frustrating wait and corroboration from management after almost two years months that the new branch was on indefinite hold, he bolted for another independent firm.
“They sued. I kept good notes and documentation. They thought they could get by with charm and good looks. I countered. End result: Mother loses a couple hundred grand, attorney’s fees, and a slew of local management. [His manager, he explained, got the boot.] I go independent with a nice cushion.”
We corroborated the story, but promised the broker anonymity because he was not authorized to speak publicly about the award and was concerned with repercussions from his new firm. The reason he’s talking, he said, is to remind brokers that arbitration isn’t hopeless if they do what compliance is always preaching: “Document, document, document.”
He also had a good lawyer who in discovery found e-mail conversations in which the broker’s manager was told to promise a new office orally but make sure not to put it in writing. And then there was the recording provided by a friendly client. It memorialized a call the client received from a former Merrill colleague scrambling for business by saying that the broker had been fired.
“Document. Document. Document!” our source advised. “They painted a pretty picture while they were recruiting me – but delivered something from the funny papers after 18 months.”
To be sure, winning arbitrations on note cases remains difficult, and readers can’t help but argue that their agreements requiring arbitration (usually in an Financial Industry Regulatory Authority forum) doom them to failure because of “collusion” between the industry-funded regulator and the brokerage firms that pay the bills.
Such claims are no doubt overstated. Although brokers have been losing 94% of signing-bonus cases in which awards were made, the number does not include settlements in which brokers prevail on condition they keep mum. What’s more, the win-rate in client cases is much fairer. Customers were awarded damages in 42% of cases last year against firms and/or brokers, according to Finra dispute resolution statistics. The average is 43% for the past six years.
On the other hand, the fairness of forced arbitrations, whether for customers or employees, is becoming an issue of national concern, as highlighted in an award-winning series of New York Times stories. On that note, here is another submission that our stories on the subject elicited last week:
“Many of the broker employment contracts and promissory notes that are disputed in arbitrations wouldn’t pass muster with a first-year law student. The fact that firms win…points to collusion between FINRA and the firms that are collecting on these promissory notes. As you pointed out, in 2015 firms won [94%] of these contractual disputes….Even with a home-field advantage, a fair system would mean 60-40 or 70-30 in favor of these firms. Even 80-20 might be believable, but 94-6 is statistically impossible in a fair system. It shows a system that is fixed entirely in favor of FINRA member firms.”
A Finra spokeswoman did not respond to an emailed request for comment.