Number of deadbeat broker cases surging

Firms want reps who quit after taking retention bonuses to pay up

Dec 15, 2010 @ 3:43 pm

By Dan Jamieson

The number of arbitration claims filed with the Financial Industry Regulatory Authority Inc. seeking repayment of forgivable loans from brokers who quit has more than doubled in the past two years.

Through Dec. 12, 1,087 claims had been filed with the regulator in 2010, up from 840 in 2009 and 415 in 2008, Finra spokeswoman Nancy Condon said.

The claims arise when brokers leave a company without paying what's due on their forgivable loans, or promissory notes.

Many registered representatives got retention bonuses in the form of forgivable loans from the major firms after the financial crisis hit in 2008, which is driving the glut of cases, attorneys said.

Brokerage firms are less inclined to negotiate and settle the money owed on a retention deal than the outstanding balance of a longer-term recruitment package, lawyers say.

“Firms take a much tougher approach if people take off on a retention package,” said Patrick J. Burns Jr., managing attorney in the The Law Offices of Patrick J. Burns Jr. PC.

Leaving a few months after taking a retention check — and not paying it back —is “really offensive” to firms, said David A. Gehn, a member at Gusrae Kaplan Bruno & Nusbaum PLLC.

The influx of case filings prompted the Finra board last week to authorize a proposal to streamline arbitration procedures used in such cases.


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