January 12, 2019
In today's featured FINRA regulatory settlement, a stockbroker is fined and suspended for introducing two acquaintances to a profitable real estate deal in Nepal. Ah yes, beautiful downtown Kathmandu with its stunning ocean views and red-hot real estate market! Psst . . . wanna get in on the new Trump Kathmandu Palace condominium development? How about a Nepalese fixer-upper you can flip? In any event, FINRA is all roiled up about the apparent violation of its Private Securities Transaction Rule and, you know what, given the facts at hand, the regulator may have a point. That being said, there's still something unsettling when a private regulator controlled by employer member firms decides what the industry's men and women can and cannot do without giving those same folks any vote on its rulemaking process.
Prominent corporate lawyer Aegis Frumento accepts that corporate executives find ways to put more money in their own pockets once they are incentivized to do so by lower high-end tax rates. Similarly, Frumento believes that disincentivizing high executive compensation normally forces corporations to spend their profits more wisely. In exploring those points, Frumento asks what would you do if you had the choice between paying yourself an extra dollar from which 70 cents would be taxed away; or, in the alternative, spending that dollar on a tax-deductible business expense? Pointing to the past and when the top tax rates were 91% and 70%, Frumento argues that corporate employees were paid decent middle-class incomes and disposable income. They had funded pension plans. They had medical insurance at company expense.
In yesterday's blog, we considered the preemptive gambit of a stockbroker who went on the opening offensive of suing his former brokerage employer in an effort to prevent being forced to repay allegedly outstanding balances due on promissory notes (also frequently referred to as "Employee Forgivable Loans" or "EFLs"). In today's consideration of another EFL dispute, we have the more typical opening combination of a brokerage firm suing its former employee in an effort to recover unpaid EFL balances. In response to the former employer's FINRA arbitration, the former employee fights back with his own counterclaim. There's an expression that when everyone wins, no one loses. Sometimes expressions spring from wisdom. Sometimes, not so much. In the world of litigation, even when everyone wins, one victor may limp off but the other victor is a bloody corpse.
Ah yes, it's a new year and we start all over again. You dust off the chessboard. I'll get the box of white and black chess pieces. Let's start another game for 2019 and take a look at the old Preemptive EFL Gambit, in which a former employee (playing as White) who has a balance due on his loans aggressively goes on the attack, which forces the former employer (playing as Black) to initially defend his exposed position but then launch a counter-attack. If you don't understand all the ensuing moves and the endgame, don't worry -- there will be plenty of repeat matches with the same opening throughout 2019.
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