Janney Montogmery Scott Loses Promissory Note Arbitration

April 29, 2016

Ho hum. Did you hear the one about the registered person who failed to repay a balance due on a promissory note from his former employer? Yawn. And he argued that he had been fraudulently induced into the employment and into accepting the loans documented by the notes. Oh, and for good measure, he also said that the former employer firm had breached several agreements. Yadda, yadda, yadda. Like we all don't know how this is going to turn out, right?

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2015, FINRA member firm Claimant Janney Montgomery Scott LLC sought to recover the balance on two promissory notes dated April 20, 2014, and May 16, 2014, from former associated person Respondent Kelleher. Claimant alleged breach of contract and asked for the net balance on the two notes of $93,208.23 plus 1.81% annual interest on the April Note and 1.93% annual interest on the May Note plus attorneys' fees and costs. By the end of the hearing, Claimant requested $97,991.01 inclusive of principal, interest, and costs. In the Matter of the FINRA Arbitration Between Janney Montgomery Scott LLC, Claimant, vs. Frederick Daniel Kelleher, Respondent (FINRA Arbitration 15-02448, April 20, 2016).
Respondent Kelleher, appearing pro se, generally denied the allegations and asserted various affirmative defenses. 

In defending against repayment, Respondent Kelleher raised his affirmative defenses of fraudulent inducement and breach of verbal agreements. Respondent requested that any damages awarded to Claimant be set off against "the value of the book of business he left with Claimant when his employment was terminated."

SIDE BAR: Okay . . . this one is goin' down in flames. We got another guy who owes about $100,000 in the form of two promissory notes and he's come up with the old fraudulent inducement gambit. That tired saw never, ever works. On top of all of it, Kelleher is representing himself against a fairly substantial brokerage firm.

Arbitrator's Decision

The sole FINRA Arbitrator hearing the case found that:

1. Claimant's claims are hereby denied. Respondent effectually argued that Claimant's fraudulent inducement and verbal breach of contract prohibited Respondent's performance under the Notes.
2. The parties shall bear their own respective costs, attorneys' fees and administrative fees.
3. Any and all claims for relief not specifically addressed herein are denied.
4. If the Arbitrator has provided an explanation of his decision in this award, the explanation is for the information of the parties only and is not precedential in nature.

Bill Singer's Comment


Did I read that right?

Kelleher effectually argued the affirmative defense of fraudulent inducement?

Kelleher effectually argued that Claimant had verbally breached a contract?

Omigod . . . lemme sit down before my heart explodes out of my chest!

WOW . . . this decision was one hell of a surprise! 

Unfortunately for you and me, we're never going to understand the underlying facts and/or the FINRA Arbitrator's rationale. The FINRA Arbitration Decision fails to disclose those aspects of the findings and rulings. 

There are those who argue that pulling the veil over FINRA intra-industry arbitration proceedings is okay. I am not one of those folks. Frankly, I find it disgraceful that FINRA member firms have the ability to mandate intra-industry arbitration, and that the forum is under no obligation to provide sufficient content and context so as to make the decisions meaningful. This would never happen in a civil proceeding in a state or federal court. Before you waste your time trying to persuade me that I'm wrong, let me assure you that I've heard all of the excuses and explanations and I remain adamantly unconvinced.

How was Kelleher fraudulently induced by Janney Montgomery Scott? I would love to know the underlying facts -- and I'm sure that other Janney employees would benefit from such disclosure. 

It's nice to conclude that Janney verbally breached a contract but, for godsakes, aren't we at least entitled to know the basic elements of how that breach occurred?

In any event, that's enough of a rant on this point. Regular readers of the BrokeAndBroker.com Blog know my position on this touchy topic. I trust that this arbitration will serve as yet another example of a lack of quality control by FINRA over its Arbitration Decisions.