Stockbroker and Investment Adviser Employment Practice

Stockbroker and Investment Adviser Representation in Employment Matters.

Bryan Forman is a Texas securities fraud attorney who also represents brokers and investment advisers in connection with their employment with broker-dealers and registered investment advisers. Having organized, managed, and operated as CEO, CCO, and General Counsel of several brokerage firms, having hired and fired 100s of financial professionals, and having served in numerous board member/director capacities at NASD/FINRA, Mr. Forman knows the business side of the business. As a Texas based securities attorney, we naturally work most frequently with Texas advisers and brokers, but because of the national regulatory framework, and the fact that most brokers with regional and national firms are not governed from their home office, we represent clients nationwide.

Almost every financial professional will be required to execute an employment or compensation agreement when they begin work with a new brokerage firm, and while the best time to engage an experienced Texas stockbroker lawyer would be before signing such an agreement, most financial professionals don’t recognize the importance and potential consequences of these agreements until they want to leave to join another firm, at which time their employer reminds them of the one-sided agreement they had signed years before. Employment dispute cases typically involve disputes over employment and compensation agreements, solicitation of customers, temporary restraining orders, retirement compensation, stock options, wrongful termination, defamation and disparagement associated with the filing of a Form U-5, raiding and partnership cases, and other disputes frequently arising out of the employment of a financial professional in a regulated industry.

Employment Agreement Negotiation.

Many brokers enter into employment agreements when moving to a new brokerage firm, and unfortunately, most brokers do not carefully read the terms of these agreements which are naturally drafted in favor of the brokerage firm. When a dispute arises in the future, or more typically when a broker chooses to move to a new firm, the employment agreements become the focal point of a dispute. In many instances, brokers and advisors will have been paid substantial bonus compensation in the form of a loan which must be paid back over the course of time, and when a broker elects to leave for a new firm, these amounts will become due immediately, and if not paid, an arbitration will be filed. Having an experienced stockbroker attorney will help negotiate to a resolution, and/or present the best defense possible Similarly, disputes often arise over who owns the account related documents, the accounts, the customer contact information, and whether the employment agreement permits the firm enjoining the broker from soliciting any client. It can be critical to move quickly, as your clients’ accounts hang in the balance, and thus your ability to earn a living. The employment agreements signed when the relationship began will have significant impact on a broker’s ability to transport business to a new firm and get your registration effective quickly so that you can conduct your securities business. Having a seasoned securities lawyer experienced in the nuances of the employment relationship within the brokerage community will be critical to a favorable outcome.

FINRA Arbitration For Industry Disputes.

https://www.finra.org/rules-guidance/rulebooks/finra-rules/13000If a dispute arises, most employment disputes in the brokerage industry will be arbitrated according to FINRA’s Code of Arbitration Procedure for Industry Disputes, and a broker will not have the option of pursuing or defending the dispute before a Judge and a jury. Depending on the case, arbitration may be more advantageous to the parties because of the arcane issues found in the brokerage industry. Additionally, many of these disputes benefit from mediation, a process whereby the parties can evaluate the strength and weakness of the case through a qualified and experienced neutral mediator with the objective of reaching a solution, potentially saving significant sums that would otherwise be spent on legal and expert fees.

In most employment related disputes within the securities industry, the common denominators are money and customers. These disputes most frequently involve promissory notes, bonuses, forgivable loans, and other forms of compensation initially intended to attract the broker or adviser, and at the same time handcuff the adviser to remaining employed or licensed at that firm. Similar but different are the disputes that involve customers, which may escalate into injunction proceedings or raiding claims. Ultimately, everyone is fighting over the projected income from these assets under management, and quite often, the agreement signed at the outset will govern how the “divorce” will proceed, particularly with regard to the customer accounts and customer information.

Disputes Regarding Customer Accounts and Customer Information.

When a broker leaves a firm, unless it is a voluntary and amicable parting of the ways, the broker’s customer accounts become the center of a potential dispute. If there is no agreement in place, the customer accounts become fair game. If there is an original employment agreement in place, it will likely address, in the firm’s favor, how the customer accounts are to be treated upon a broker’s departure. Your business and career may depend on how you manage this situation. Additionally, if a broker from one of the larger firms participating in what is known as the Protocol for Broker Recruiting, the road map for a broker’s departure has been largely drawn out and agreed to by participating firms. Knowing how to comply with the Broker Protocol, and use it to your advantage is critical.

If your firm does not participate in the Broker Protocol, focus will be on your employment agreement and policies and procedures, and also your relationship with your direct managers. Most firms employment agreements and employment policies are different, but generally have the same objective— recoup any money owed by the departing broker, and don’t let the broker unfairly compete for the firm’s clients, or breach any agreement that prescribes how the termination/resignation process is to proceed. Lawyers are expensive, and all legal disputes are time consuming. In most instances, good attorneys and reasonable minds can reach a resolution at the beginning of the dispute, but inexperienced attorneys and unreasonable expectations will almost always result in a protracted legal process, significant legal fees and expenses, and greater risk to your business.

Avoid those risks by hiring a competent Texas stockbroker lawyer. As an experienced stockbroker employment attorney, we can help you navigate the transition. Call us at 1-866-597-2221 today for a confidential consultation.

Disputes Regarding Prior Bonus Compensation or Forgivable Loans.

Many financial professionals are lured to a firm based on bonus compensation. As you know, most firms don’t pay bonus compensation with no strings attached. Those “strings” normally take the form of a forgivable loan which will be paid back (forgiven) over time, but if the broker or adviser chooses to leave before the entire balance is paid back, the firm will accelerate the balance due, demand immediate payment, and file an arbitration claim quickly if the amount due is not paid. At this juncture, most brokers have few options—perhaps their new employer will advance the amount due (unlikely), or an installment payout can be negotiated. The best course is to negotiate the most favorable terms at the time of getting hired, when there may be some leverage, rather than at a time when all you represent to the firm is a debt that is due, with no future earnings.

When these disputes are submitted to arbitration, you can count on the fact that the documents are clearly in favor of the firm, providing for the recovery of interest, and most importantly, attorneys’ fees. Standing alone, claims related to these promissory notes have few defenses. You should assume that without mitigating factors or other offsetting claims, the firm will prevail and you will owe the balance due, plus interest, and attorneys’ fees. However, in some instances, something caused the broker or adviser to seek out a new firm, and those circumstances can sometimes result in meritorious claims in favor of the broker or adviser. For example, if the firm or the firm’s management fraudulently induced the bonus compensation agreement by making misrepresentations about what the broker would receive by accepting the employment and the compensation, then such misrepresentations may present a viable counterclaim. Similarly, if the firm or its management engaged in conduct which made it impossible, or even illegal, for the broker or adviser to continue to work with the firm, then such circumstances may mitigate damages, or even excuse performance. But while brokers that owe their former firm money may often have counterclaims or other mitigating factors to assert in an arbitration, such claims/circumstances must be evaluated against the likelihood of the firm’s prevailing on the debt claims. Further, these claims may not be dischargeable in bankruptcy. Having competent and experienced counsel will be key to making the right decision.

Disputes Related to Termination and Defamation.

Whenever a broker moves to another firm, the former firm must complete and file a Form U-5 Notice of Termination, and on that form must answer a number of disclosure questions about your status at the time of your employment, including questions about investigations, internal reviews, regulatory actions, customer complaints, arbitrations, lawsuits, including whether you were discharged or permitted to resign, or whether your resignation was voluntary. For any “yes” answer to these questions, the firm must complete a DRP (Disclosure Reporting Page) and provide more comprehensive details about the event. With regard to termination, the firm will explain (maybe) “why” you were discharged or permitted to resign, and in so doing could subject itself to claims for libel, defamation, and/or business disparagement, depending on various facts and state laws. In many states, firms enjoy a level of immunity from disclosing the facts related to your disclosure, but when firms do so with an intent to cause you harm, such immunity is lost. Unfortunately, some firms will take the opportunity to “tattoo” you so that your ability to transfer accounts and/or gain future employment is restricted, thus providing the firm a greater ability to retain customer accounts, as well as provide a disincentive for other brokers considering a move. In such situations, you may have an extremely valuable claim for defamation and business disparagement, but rather than be in a position to have to win an arbitration, prudence suggests that engaging good counsel early in the process is a better course than arbitration.

Any of these Form U-5 disclosures will likely become an impediment to future employment. For these reasons, if you suspect there is any basis for the firm to answer “yes” to any of these questions, or to characterize your leaving as “discharged” or “permitted to resign”, it is advisable to engage counsel before you choose to leave the firm, rather than trying to un-ring the bell.

Your securities license and/or your investment adviser registration must be protected if you want to continue in the securities industry. Don’t leave your livelihood in the hands of someone on the other side of the table that wants your accounts or your money. Contact an experienced stockbroker lawyer today at 1-866-597-2221 for a confidential consultation.