Often times, when you leave a place of employment for greener pastures it is not the most amicable separation. Usually, feelings of resentment and betrayal materialize regardless of the culture or climate existing beforehand. There is no better instance of the aforementioned scenario than in the securities industry where more and more brokers are leaving wirehouses. When a broker leaves a wirehouse, there is a good chance that there is some sort of promissory loan note in place whether it was given as a sign-on bonus or a retention incentive.
One of the trickiest components when it comes to a broker’s departure from a wirehouse firm is how to handle the promissory note. Some brokers hire attorneys to negotiate repayment options and some completely refuse to pay and hire arbitration attorneys in an attempt to fight the terms of the note. Most promissory notes are loans wrapped in the guise of a bonus. Generally, the note the broker accepts comes with a list of terms and if those terms are violated then they can go after the broker for the remaining amount due on the loan.
In the case of, Wells Fargo Advisors, LLC v. Jose A. Larrea, instead of either negotiating repayment of a note or filing a claim against Wells Fargo (“claimant”) to fight the note, Mr. Larrea (“respondent”) apparently went with a third option, do nothing.
In this case, the respondent accepted a promissory note from Wells Fargo Advisors, LLC for the amount of $445,668. The terms of the loan stipulated that the respondent would be in default on the note if his employment came to end with Wells Fargo Advisors and the remaining balance on the note would be due and payable immediately. When the respondent’s employment with Wells Fargo was terminated in September of 2009, Wells Fargo promptly made an effort to recover the amount owed. Thereafter, when the respondent failed to pay the note, Wells Fargo filed an arbitration claim against him stating there was a breach of the promissory note and overpayment of commissions. The respondent failed to enter a responsive pleading.
It was the respondent’s failure to enter the response that ultimately led him to lose the arbitration case against Wells Fargo. Wells Fargo was awarded $411,361.38 plus 7 percent interest until the principal is paid. In addition, Wells Fargo was awarded the $6,328.27 in overpaid commissions plus 7 percent until the principal amount has been paid off. The respondent is also liable for the attorney’s fees incurred by Wells Fargo throughout the process as well as other miscellaneous fees that accrued from the arbitration. The FINRA arbitration award was granted in October of 2010. It has been a year since the arbitration concluded and Wells Fargo just filed a “Motion to Confirm Arbitration Award and For Entry of Final Judgment with the United States District Court for the Southern District of Florida” against the respondent in order to collect on the hundreds of thousands of dollars owed.
The takeaway from this case is that although unpleasant and draining, communicating your intentions with regard to your note repayment, whether you hire an attorney to do this for you or not, and whether you intend to negotiate or fight, is crucial. Promissory notes are legal and binding obligations which need to be considered pre-departure and addressed quickly on a post-departure basis.
Patrick J. Burns, Jr., is the managing attorney with The Law Offices of Patrick J. Burns, Jr. He is also the co-founder and president of Advanced Regulatory Compliance, Inc., a regulatory compliance services firm dedicated to assisting securities firms and their representatives with their regulatory compliance needs. He is located in Beverly Hills, Calif.