Former Barclays broker ordered to repay $3.25M on loan default

Broker was fired before contract was up and defaulted on upfront loan

Feb 6, 2014 @ 12:01 am

By Mason Braswell

broker, barclays, upfront loan, default
+ Zoom

An ex-Barclays PLC financial adviser has been ordered to repay his old firm more than $3.25 million in one of the largest promissory note cases in recent years.

A Finra arbitration panel ruled that former managing director Preston McSwain was still liable for much of the unvested portion of a large upfront recruiting bonus after he was fired in 2011, according to the award, which was finalized last month.

The case stems from a recruiting deal that he signed in 2009. Firms such as Barclays, which has about 260 advisers focused on high-net-worth clients, often offer top producers substantial bonuses to move their books of business.

The bonus is usually structured as an upfront loan that is forgiven, provided that the adviser doesn't leave or get fired from the firm in a certain number of years. But the move doesn't always pan out, and firms frequently bring arbitration claims with the Financial Industry Regulatory Authority Inc. when brokers depart the firm voluntarily or involuntarily and don't repay the unvested balance.

Last year, promissory note claims were involved in about 25%, or 380 out of 1,507 new awards issued, according to Securities Arbitration Commentator Inc., a research service that tracks data from arbitration awards.

Mr. McSwain, who had more than two decades of experience and was in a senior position at the Neuberger Berman Group, was offered $6 million, paid out at a rate of $928,571 per year for seven years, according to the award.

As in his case, the firms are usually able to recoup at least part of their loans in arbitration disputes.

Firms had over a 90% success rate in recouping at least some of a disputed payment in 2012, according to the most recent data reported by Securities Arbitration Commentator.

After firing Mr. McSwain just over two years into his employment, Barclays filed an arbitration claim to recoup some $4.6 million of the upfront loan.

The case, which played out over 28 hearing sessions from August to December last year, came down to the terms of his dismissal.

Mr. McSwain accused the firm of breach of covenant of good faith and fair dealing, wrongful termination and fraudulent inducement, according to the award.

In his counterclaim, he asked for more than $50 million in damages and lost commissions, saying that the firm was trying to avoid paying him his full commissions and part of his recruiting bonus, according to the award.

A spokeswoman for Barclays declined to comment.

Attorneys for both parties also declined to discuss details of the case because they had signed confidentiality agreements.

Ultimately, the panel dismissed Mr. McSwain's claims and ordered him to repay $3.25 million. The panel didn't provide justification for the amount in the award.

An attorney for Mr. McSwain, Jed DeWick of Arrowood Peters, said that he is pleased that the award was less than Barclays had requested.

“He's pleased with the result, and he's moving forward,” Mr. DeWick said of Mr. McSwain.

In January 2012, Mr. McSwain founded an independent advisory firm, SJM Fiduciary Advisers, where he manages about $1 billion in client assets, Mr. DeWick said.


What do you think?

View comments

Recommended for you

Featured video


Cybersecurity threats advisers are seeing right now

The key threats advisers are seeing right now seem to change daily. Michelle Thetford of Schwab Advisor Services explains how to protect yourself and your clients.

Latest news & opinion

Is LPL's deal sweet enough for NPH's 3,200 reps and advisers?

They will have to decide if the signing package they are being offered by LPL makes sense. A lot is hanging in the balance.

Eduardo Repetto to leave Dimensional Fund Advisors

Gerald O'Reilly, currently co-CIO, will take over as co-CEO with David Butler.

Alternative strategies boomed after crisis, but haven't been tested

Because the S&P 500 has outperformed, convincing clients they need protection is a hard sell.

7 ways advisers fixed clients' biggest financial dilemmas

Sometimes it takes creativity, along with knowledge and outside help, to get a client out of a jam.

LPL Financial buys NPH, a broker-dealer network with 3,200 advisers

The deal, part of which is based on the advisers and revenue that eventually will move from NPH, could potentially cost LPL $448 million.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print