UBS Goes After Former Broker for Three Promissory Notes

November 29, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2010, Claimant UBS sought to recover $286,756.86 in consequential damages, interest, costs, and fees arising in connection with balances due on three promissory notes executed by Respondent Northend (dates and amounts represent as initially issued):

  1. June 3, 2004: $307,444.00;
  2. September 9, 2004: $35,000.00; and
  3. August 8, 2005: $11,238.00.

In the Matter of the FINRA Arbitration Between UBS Financial Services, Inc., Claimant/Counter-Respondent, vs. William A. Northend, Respondent/Counter-Claimant (FINRA Arbitration 10-03827, November 17, 2011).

Respondent Northend generally denied the allegations; asserted various affirmative defenses; and filed a Counterclaim alleging, among other causes, fraud, negligence, and breach of oral contract.  Respondent sought compensatory and punitive damages, attorneys' fee, interest, and costs. At the close of the hearing. Respondent requested $200,000.00 in damages.

SIDE BAR:  Overwhelmingly, when a former broker-dealer employer sues to collect on the balances due on promissory notes, the employer prevails.  After some three decades on Wall Street, I'd have to say that my educated guess is that 90% of such demands for repayment end with either full repayment; a settlement providing for partial repayment; or a default award from a FINRA Arbitration Panel.  Clearly, a small percentage of these disputes, a very small percentage, fail to settle and wind up as a contested arbitration hearing. 

Those contested promissory note FINRA arbitrations tend to fall into three baskets. 

One, you have the Respondent broker essentially playing for time (the big stall) and using the process to delay the inevitable award, which, if unpaid and not timely appealed to a civil court (or not discharged in bankruptcy), frequently results in FINRA barring the Respondent for not honoring the award.

Two, you have the Respondent broker typically representing him/herself pro se because of a lack of funds to retain a lawyer.  Sometimes the pro se Respondent will give it a shot and take the case to verdict; other times, the pro se Respondent will simply not show up at the hearing and default.

Three, you have the distilled essence of outrage and principle in which a former employee Respondent is convinced that the former employer doesn't deserve to be repaid a single penny.  In such cases, the stockbroker frequently cites having been lied to during the recruitment stage, having been mislead about the nature of staff support and compensation, and complains that the employer's fraud, negligence, and incompetence - often the unholy trinity of such defenses - damaged the broker's reputation and ability to fully leverage client assets and business.


The sole FINRA Arbitrator decided that Claimant UBS' claims were denied and ordered Claimant to pay to Respondent Northend $42,870 in attorneys' fees and $3,518.48 in costs. Also, the Arbitrator assessed the $2,700 in hearing fees solely against Claimant UBS.

Bill Singer's Comment

Unfortunately, this FINRA Arbitration Decision fails to provide us with sufficient background to determine the nature of the protracted dispute; however, a fair inference is that Respondent Northend probably fell in the third basket cited above.  What is clear is that Claimant UBS seems to have made a fatal miscalculation in this matter. 

UBS had negotiated with Northend three separate promissory notes for about $350,000 over a little more than a one-year period from 2004 to 2005.  According to online FINRA records as of November 28, 2011, Northend's registration with UBS ended around January 2006; as such, he accrued portions of each of the three notes in the form of forgivable loans (with the unaccrued balances typically repayable upon the employees resignation/discharge). Based upon UBS' arbitration demand, the employer calculated the total repayment owed to it as about $287,000.

Not only did UBS wind up eating its balance due of $287,000, but the FINRA Arbitrator tacked on about $50,000 in awarded fees and costs - resulting in about a $337,000 black eye for the former employer.  And we're not yet done with the negative fall-out for UBS.  Not only did it lose its case and the recovery of the six-figure balance.  Not only did it get hit with costs and fees.  Worse - UBS may have used this promissory note case (and other similarly situated) as a way to send a message to its registered employees that it will aggressively litigate to collect all similar balances.  Oops!  Imagine the legacy of this loss when in the future other Northends are faced with choosing which of the three baskets to drop their fate in.  That third option becomes a helluva lot more attractive in the wake of this victory for the former employee.

As to the $287,000 disallowed collection, Respondent Northend may well be advised by his accountant that the FINRA Decision effectively converted the $287,000 "unpaid loan" into a non-collectible loan and, hence, into "income."  Having won the right to retain the disputed $287,000 balance, Northend now has the honor of writing out checks for the taxes due on his newly recognized income.