FINRA member firm Barclays Capital Inc. ("BCI") offered Matthew Grady a job as an investment representative, and sweetened the deal with a $900,000 employee forgivable loan ("EFL"). The EFL was made by BCI's banking affiliate Barclays Bank PLC. The terms of the loan stated that it was extended by the bank independent of Grady's employment with the brokerage firm. And as if things weren't odd enough, the loan was made subject to the express understanding that any disputes arising out of the loan would not be subject to FINRA arbitration. That being said, when a dispute arose over repayment of a portion of Grady's EFL, BCI filed a FINRA Arbitration Statement of Claim against Grady. How did the lawsuit over the EFL wind up as a FINRA arbitration when the loan terms expressly prohibited such recourse? One answer may be that Grady represented himself. A more likely answer is that FINRA-the-regulator and FINRA-the-arbitration-forum sat on its fat ass on the sidelines. And so it goes. Day after day on Wall Street.
Case in Point: 2015 FINRA Arbitration Claim
In a FINRA Arbitration Statement of Claim filed in June 2015, FINRA member firm Claimant Barclays Capital Inc. ("BCI") asserted breach of promissory note against former associated person Respondent Grady. Claimant BCI sought $514,285.71 compensatory damages plus interest; $46,825.67 in withholding tax; and $77,142.85 in costs and fees. In the Matter of the Arbitration Between Barclays Capital Inc., Claimant, v. Matthew Grady, Respondent(FINRA Arbitration Decision 15-01468 / March 29, 2017) http://www.finra.org/sites/default/files/aao_documents/15-01468.pdf
Respondent Grady, representing himself pro se, filed a Counterclaim seeking to have the note deemed discharged as a result of Claimant's alleged breach of the covenant of good faith and fair dealing, or, in the alternative, based upon damages sustained by Respondent.
The Panel issue the following Award:
1. Respondent is liable for and shall pay to Claimant compensatory damages in
the amount of $514,285.71.
2. Respondent is liable for and shall pay to Claimant $46,825.67 for the
withholding tax Claimant previously paid.
3. Claimant is responsible for and shall pay Respondent compensatory
damages in the amount of $100,000.00.
In his Counterclaim, Respondent requested that the Panel determine that Respondent's
obligation under the note is discharged as a result of Claimant's breach of the covenant
of good faith and fair dealing or that Respondent has been damaged to the extent of the
outstanding balance and further determine that Claimant is to receive nothing with
respect to its claims; lost compensation in an amount to be determined by the Panel;
legal fees; costs; interest; and attorneys' fees.
4. Respondent's award of compensatory damages in the amount of $100,000.00
in item 3 above is an offset to Claimant's award in items 1 and 2 above. As
such, Respondent is liable for and shall pay to Claimant $561,111.38 minus
$100,000.00 awarded to Respondent in item 3 above for a net amount due
Claimant of $461,111.38.
5. Any and all relief not specifically addressed herein, including attorneys' fees,
Bill Singer's Comment: The FINRA Arbitration Decision doesn't even mention Barclays Bank PLC or even the term "bank." There isn't a single reference to the fact that the EFL was issued by the bank and that the terms of the loan prohibited resort to FINRA. All of which is outrageous when we consider that Respondent Grady proceeded pro se. As will be revealed below, BCI's conduct in filing the Statement of Claim raises very troubling questions. As may be inferred from some of the subsequent developments, FINRA's conduct is also very troubling. If you think I'm mischaracterizing the omissions in the Decision, please confirm for yourself at: In the Matter of the Arbitration Between Barclays Capital Inc., Claimant, v. Matthew Grady, Respondent(FINRA Arbitration Decision 15-01468 / March 29, 2017) http://www.finra.org/sites/default/files/aao_documents/15-01468.pdf
2017 District Court Motions
On October 4, 2017, BCI moved to confirm the FINRA Arbitration Award in the United States District Court for the District of Massachusetts. BCI's motion was filed after the three-month period to file a motion to vacate under the Federal Arbitraton Act Section 12 had expired. Notwithstanding, Grady filed a motion to vacate or modify the Award on June 29, 2018. Barclays Capital, Inc., Petitioner, v. Matthew Grady, Respondent (Order and Memorandum, 17-CV-11880 / July 29, 2019) http://brokeandbroker.com/PDF/BarclaysDMA1908.pdf
The Offer Letter
Given the uselessness of the FINRA Arbitration Decision in terms of providing us with the genesis of the EFL, it is refreshing to see that the content and context of the loan is set forth in the Court's Order and Memorandum.
In July 2011, Grady signed an Offer Letter to join FINRA member firm BCI as an investment representative. The Offer Letter provided for Grady to receive a $900,000 personal loan from the FINRA member firm's affiliate Barclays Bank PLC ("Barclays Bank"). Barclays Bank is not a FINRA member firm. The loan would be forgiven in seven equal, annual installments; however, should Grady's employment with BCI cease before the loan's full term expired, he would be obligated to pay the remaining principal plus interest. The Court noted the following provisions [Ed: emphasis in the original]:
The Offer Letter also provided the following:
Your obligations for the loan will be solely to [Barclays Bank] and will be
independent of your employment with [BCI].
To be clear, [Barclays Bank] is not your employer and does not have any
authority or control over any aspect of your employment or continued employment
by Barclays, nor is the Bank a member of the Financial Industry Regulatory
Authority ("FINRA"). Accordingly, any disputes between you and [Barclays
Bank], including any disputes arising out of or relating to the loan, are not
subject to FINRA arbitration but rather will be adjudicated in an appropriate
court of law.
(Docket No. 44-1, at 3) (emphasis added). Further, the Offer Letter contained an arbitration
agreement, which provided: "This arbitration agreement does not apply to any dispute that may
arise between you and [Barclays Bank]." Id. at 4 (emphasis in original).
Consistent with the Offer Letter, the Note contained an exclusive forum selection clause
The Borrower expressly agrees that any and all actions to enforce the terms of this
Note shall be litigated only in the state or federal courts sitting in the State and
County of New York and in no other. . .
Page 2 of the Court's Order and Memorandum
As of January 23, 2015, when Grady resigned from BCI, the unpaid principal on his loan was $514,285.71. Following his resignation, sometime in mid-June 2015, Barclays Bank assigned the Promissory Note to its affiliate BCI.
On June 22, 2017, BCI filed its FINRA Arbitration Statement of Claim: and, thereafter, a two-day evidentiary hearing was held resulting in the net Award in BCI's favor of $461,111.38.
Wall Street Shuffle
In confirming BCI's Motion to Confirm, the Court noted in pertinent part that:
Accordingly, because Mr. Grady's challenge is untimely, this Court must confirm the
Award. Be that as it may, the Court notes that BCI and its counsel surely understood they
submitted claims to the panel that were non-arbitrable. If the language of the agreements were not
enough, on March 15, 2017, in a nearly identical case, the United States District Court for the
Northern District of Georgia vacated an arbitration award in favor of BCI. See Docket 44-1, at 47.
Counsel for BCI in this case was also counsel for BCI in that matter
Page 4 of the Court's Order and Memorandum
Bill Singer's Comment
Now that you and I are at the same place concerning the disclosure of the pertinent facts about the terms of the EFL, I hope that you will better appreciate the sincerity of my anger with the FINRA Arbitration Panel and with FINRA. What emerges from the Court's recitation of facts is far different picture than what barely escapes from the black hole of the FINRA Arbitration Decision. Yes -- of course -- Grady may well have contributed to much of the obfuscation by representing himself, but where is the obligation of the arbitrators and of FINRA the arbitration forum to ensure equity? Where is the quality control at FINRA that allowed the publication of a final draft of the Arbitration Decision without any disclosure of the role of Barclays Bank? Before you're too quick to come to the arbitrators' and FINRA's defense, be prepared to explain why the Court thought it necessary to disclose the terms of the EFL and the jurisdictional limits but FINRA did not.
Similarly, FINRA has compiled a regulatory record as a quasi-collection-agent for its member firms per unpaid awards on promissory notes/EFLs, but there is no such record reflective of FINRA's regulation when its member firms fail to pay or fail to timely pay fees and/or commissions. Additionally, FINRA has rarely taken on weaponized Forms U5 or invoked its regulatory arsenal when confronted with evidence of workplace discrimination/harassment.
Consider this cornerstone FINRA Rule:
FINRA Rule 2010. Standards of Commercial Honor and Principles of Trade
A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.
What is FINRA the self-regulatory-organization's response to the assertion of a United States District Court Judge's observation that:
[T]he Court notes that BCI and its counsel surely understood they submitted claims to the panel that were non-arbitrable. . .
What part of Rule 2010's "high standards of commercial honor and just and equitable principles of trade," comes into play when a FINRA member firm "surely understood they submitted claims to the panel that were non-arbitrable." And what about the exacerbating factor of a pro se Respondent?
Intra-industry arbitration is not voluntary or optional. It is mandatory by FINRA's rules. As such, FINRA must ensure that such an oppressive protocol is meticulously monitored to ensure fairness when parties enter the ring with vastly asymmetrical resources. A panel of arbitrators may well have had the law and equity on its side in ruling in favor of BCI; however, it is absolutely unacceptable for the FINRA Arbitration Decision to not reference Barclays Bank's role in the origination of the EFL and the existence of a prohibition against resort to FINRA arbitration. The Decision does not redound to the panel's or FINRA's credit.