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

Broker was fired before contract was up and defaulted on upfront loan.
FEB 28, 2014
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.

Latest News

The Stacking Strategy: How Intelligent Allocation Can Create Better Tax Outcomes
The Stacking Strategy: How Intelligent Allocation Can Create Better Tax Outcomes

What if one investment decision could create tax-saving opportunities across your entire portfolio? Chris Vizzi shares how the Stacking Strategy helps investors align tax planning, portfolio construction, and wealth preservation to maximize long-term outcomes while keeping more of what they earn.

AI could drag down RIA valuations, warns Alaris CEO Allen Darby
AI could drag down RIA valuations, warns Alaris CEO Allen Darby

Buyers spending on AI may treat less efficient sellers as overstaffed and price the cost of rightsizing into lower offers

Former Western Asset Management star bond manager fined $3 million
Former Western Asset Management star bond manager fined $3 million

Kenneth Leech pleaded guilty in June to one obstruction charge, and could face six to 12 months ⁠in ​prison.

Morningstar rolls out agentic AI platform built on its research
Morningstar rolls out agentic AI platform built on its research

Launch of Direct AI follows a model portfolio tie-up with Envestnet as advisors juggle AI adoption and private-market due diligence.

Advisor moves: Osaic draws Equitable advisor overseeing $245 million in assets
Advisor moves: Osaic draws Equitable advisor overseeing $245 million in assets

Meanwhile, Cetera's streak of Commonwealth recruitment continues in Washington, and an LPL advisor hops over to Raymond James in Maine.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor