Articles Posted in Employment Issues

compass-rose-1444702-300x225From Deutsche Bank to Credit Suisse and Barclays, brokers are in transition for a variety of reasons – some voluntary and some obligatory.  Either way, for a FINRA registered representative, leaving their broker-dealer can be a nerve-wracking time.  Regardless of the reason for leaving, the ultimate goal is always the same: get to your new firm and bring with you as many clients as you can without getting sued by your old broker-dealer in a FINRA Arbitration.

But, easier said than done.  In addition to the logistical challenges, there are also some legal hurdles that must be cleared first.

The first major question that should be asked is: “Does the Protocol for Broker Recruiting apply?”  If either your old firm or new firm are not signatories to it, then your answer should be “No.”  If both your old firm and your new firm are signatories to it, then the answer to that question should be “Yes” – but some restrictions may apply.

Brokers beware; FINRA is watching your firm, and you.  Becoming embroiled in a regulatory inquiry or investigation can become a major and costly headache and impediment to registered representatives’ business.

In January 2016, the Financial Industry Regulatory Authority (FINRA) released its annual list of priorities, showing what sorts of sweeps they may perform, and investigations they may bring, in the coming year.  brokers working in the securities industry should be aware of the priorities that are relevant to them, including those having to do with sales practice.

FINRA’s 2016 Priorities make clear that they intend a top-down review of the following areas, which may lead to firm-wide or broker specific investigations, including:

benjamin-1239799-300x200Thinking about leaving your broker-dealer?  Looking to make the transition to a new firm?

It has been reported recently that brokers from Credit Suisse, Deutsche Bank and potentially Merrill Lynch are being heavily recruited to leave and join new broker-dealers.  For those leaving Credit Suisse, Deutsche Bank, and Merrill (as it is for any FINRA registered representative) the choice to move to a new broker-dealer is not one that is made lightly.  Whether a protocol move or a non-protocol move, many of the same issues remain at the forefront and need to be dealt with judiciously.  One of these issues is the transition bonus/promissory note.

If you are fortunate enough to have a substantial book of business and significant gross production, you may have been offered an upfront transition bonus by a new broker-dealer.  Frequently, these bonuses are awarded to reps in the form of Forgivable Promissory Notes.  The basic structure of these “Notes” is as follows:  The “bonus” is structured on paper as a loan.  Over a set time period – usually five to seven years – the balance of the loan, including interest, is paid off or “forgiven” by the broker dealer.

Today, Ms. Malecki was extensively quoted in the FundFire story titled MSWM Goes to Court to Get Former FA to Pay Back Loans. 

This story is focused on Morgan Stanley’s attempt to go to court to make a former advisor pay-up after FINRA arbitrator granted them a million dollar reward in a promissory note dispute case. Ms. Malecki, who has extensive and relevant experience with securities industry employment dispute cases opined that “it is common for wirehouses to pursue awards through FINRA arbitration when advisors leave the firm but don’t repay outstanding promissory notes” and this happens more often when markets are bad. The detailed story is available on the FundFire website at http://bit.ly/1ZAPssh

FundWire

A number of senior management with UBS Puerto Rico were terminated late last week, according to sources.  It is believed that individuals from marketing, investment banking, lending and other areas of the bank’s operations on the island were all let go. Read the recent report by Reuters on this here.

Consistent with industry custom, those who were let go were reportedly offered a severance package which they have roughly two to three weeks to accept or reject.  Since these packages are usually contingent upon a general release of liability (meaning that the individual cannot sue the firm), for those individuals who were offered packages, there are likely a number of factors that should be considered before deciding to accept or reject.  Once a general release is signed, virtually all claims for monetary damages that could have been brought before are then lost forever.

For anyone, being fired is a major life event.  For licensed professionals, being fired comes with the potential for an additional life-changing of having a mark on their license in connection with their termination.  If you are a licensed professional and are asked to sign an agreement, whether or not you have any intention of filing an action or any possibility of a FINRA U5 issue, it is always wise to seek the advice of a lawyer to learn about both your rights and what you might be giving up before you sign anything.  Once you sign, it is too late.  This is not the time to be “penny wise and pound foolish” – this is the time to consult with counsel to make informed decisions.  Many lawyers provide free consultations.

“My broker dealer wants me to meet with its lawyers.”  This is the start of a FINRA registered representative’s worst nightmare.

Your heart is pounding and your head starts to race.  “Why me?” “What do they want to know?”  “What could I have done?”  “Are they going to ask me about the XYZ account?”  “I’m sure that I did everything right and by the book, didn’t I?”

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If you did do something that may have been a violation of the law, FINRA Rules, or the firm’s manual, you will likely begin to think about the potential punishment (fine, suspension, termination) even before you hang up the phone or close the door to your office.  Once an investigation into your conduct starts, you are not able to leave with a “voluntary” termination, but at best would be “permitted to resign during a firm investigation.”

Malecki Law announces the filing of a $10 million FINRA arbitration claim against UBS Financial Services, Inc. and UBS Financial Services Incorporated of Puerto Rico (collectively “UBS”) on behalf of former UBS Puerto Rico registered representatives, Jorge Bravo and Teresa Bravo (the “Bravos”).

In the Statement of Claim filed with FINRA, the Bravos allege that through its management (including Miguel Ferrer, Robert Mulholland and Carlos Verner Ubinas Taylor) UBS misled both its brokers and its customers about the UBS Puerto Rican closed-end funds.  In their pleading, the Bravos accuse UBS of threatening, deceiving and coercing its brokers, including them.

Specifically, the Bravos allege that they were lured away from their prior firm by UBS under the false pretense that UBS could and would help them better serve their clients.  UBS was allegedly engaged in a fraudulent course of conduct in material conflict with both its customers and its brokers, unbeknownst to the Bravos.  Over the three years they were registered with UBS, the Bravos allege that they were repeatedly and fraudulently mistreated and misled by UBS for UBS’s own benefit, until being unceremoniously forced out by the firm.

Reuters reported on February 6, 2015 that UBS in Puerto Rico held a meeting during which executives of the firm, including Miguel Ferrer, then the Chairman of UBS Financial Services Inc. of Puerto Rico, threatened financial advisors to sell UBS originated Puerto Rico closed-end bond funds despite the brokers’ and their customers’ growing concerns about “low liquidity, excessive leverage, oversupply and instability.”  According to the Reuters article, Mr. Ferrer found “unacceptable” the view of UBS financial advisors who were wary of recommending UBS funds that were loaded with debt of the Puerto Rican government.

According to the Reuters article, in a recording made by an attendee of the meeting, Mr. Ferrer reprimanded the brokers to focus on the positive aspects of the products available or “get a new job,” continuing that it was “bullshit” for brokers to claim that there were no products to sell.  Portions of the recorded meeting are available online in the Reuters article.

At the time of the recording, according to Reuters, many of UBS’s funds were highly concentrated in Puerto Rico’s debt at a time when there were concerns about the size of that debt and the weakness of the overall economy.  This recording may be beneficial to both claimants and brokers who each have hundreds of millions of dollars in damages because their claims generally alleged that there was a lack of disclosure regarding the attendant risks of bond funds underwritten by UBS.

In instances where a broker-dealer’s proprietary products fail, the brokers who are tasked with selling those failed products often suffer many customer complaints.  In these situations, the brokers often are given faulty due diligence, research and information by the firm, and sometimes even forced to sell their employing firm’s product with their jobs threatened.  Brokers have sued firms on these types of allegations, including former Morgan Keegan brokers.  A similar situation occurred with the auction rate securities debacle that began in 2008.  More recently, it appears due diligence failures and pressure may have been causes of problems for UBS brokers selling UBS Puerto Rico’s closed-end bond funds, leading to a substantial amount of customer complaints that have tarnished the reputations of many brokers in Puerto Rico.

Brokers with many customer complaints from failed products often have few options for cleaning up their professional record, which is publicly available through the Financial Industry Regulatory Authority’s (FINRA’s) CRD or Brokercheck system.  One of options involves expungement, where the broker initiates a claim against either the broker’s firm or customer requesting that a FINRA arbitration panel “expunge” or remove the customer’s complaint from the broker’s CRD record.  A broker may also claim monetary damages, including damages for defamation for untrue statements that are made on a broker’s U-4 or U-5.

As mentioned in previous posts, once a firm’s product fails and the brokers get too many customer complaints, the employing firm may not want to keep them employed.  It may be very difficult for brokers to obtain jobs elsewhere in the industry because once a broker gets 2 to 3 complaints, they required heightened supervision, something most broker-dealers avoid if possible.

Broker-dealers may be held liable to brokers who they threatened, misled, and/or lied to about the features and relative safety of an investment sold to their customers.

The stockbroker and broker-dealer relationship can be characterized as one of agent-principal, respectively.   While many understand that an agent has a duty to his or her principal, frequently overlooked in this capacity is the duty of the principal to the agent.

In the securities world, it is known that a broker has certain and specific obligations to his firm both contractually and as agent.  Yet many industry participants are unaware of the duties the firm can be said to have to its brokers beyond those bargained for in their employment contracts.