In a Financial Industry Regulatory Authority ("FINRA") ArbitrationStatement of Claim filed in December 2009, Claimant Wells Fargo Advisors sought to recover the principal balance allegedly due and owing on a promissory note executed on August 17, 2004 in the amount of $1,110,592.00 by former employee Respondent Elliott. As a result of Respondent's alleged breach, Claimant requested damages of $631,473.56 plus interest at the rate of 7% per annum from the January 5, 2009, date of default, attorneys' fees, and costs. At the close of the hearing, Claimant requested $150,729.46 in attorneys' fees; $4,700 in FINRA filing fees; and $139,148.88 in interest through February 29, 2012. In the Matter of the FINRA Arbitration Between Wells Fargo Advisors, LLC, Claimant/Counter-Respondent vs. Kent Robert Elliott, Respondent/ Counter-Claimant (FINRA Arbitration 09-06810, February 29, 2012).
Respondent generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim. In his Counterclaim and an amended iteration, Respondent alleged:
Respondent sought not less than $1 Million in damages, punitive damages, attorneys' fees and costs. It appears that Elliott also sought an expungement of his Form U5 but the full nature of that request is not set forth in the Decision. At the close of the hearing, Respondent requested $2,494,825.12 in damages. According to online FINRA documents as of March 5, 2012, Respondent Elliott appears to have first become registered in 1991 and had joined the Wells Fargo family around 1995.
The FINRA Arbitration Panel found Respondent Elliott liable to and ordered him to pay to Claimant Wells Fargo:
Separately, the FINRA Arbitration Panel found Claimant Wells Fargo liable to and ordered it to pay to Respondent Elliott:
Accordingly, Respondent Is liable for and shall pay to Claimant damages in the net sum of $778,158.83. Respondent's request for expungement of data on his Form U-5 was denied.
There is a myth among far too many industry employees that the big boys won't take these promissory note / employee forgivable loan cases to the mat. The water-cooler lawyers proclaim that all of these disputes settle and that firms such as Wells Fargo won't risk washing their dirty laundry at an arbitration. Oh yeah? Tell that to Respondent Elliott. And while you are investigating that myth, don't forget to note how many times Merrill Lynch, Morgan Stanley, UBS, and the other major players supposedly faint dead away when faced with the prospect of going to verdict - you may be shocked if you listened to the nonsense that gets around in the office.
Then there's the frequent question of defenses and counterclaims. When you're looking over a dispute involving six or seven figures of loans, the former employee often raises a lot of contentions about why he or she shouldn't have to repay a penny, or why there should be a sizable discount. Respondent Elliott's legal team did an admirable job in setting forth many of the defenses and counterclaims that exist in these types of cases - he certainly got his money's worth in that regard. If you're a broker planning on leaving your current employer with a balance due on your loan, make sure to ask your lawyer about the 15 points raised by Respondent in this case.
You know how everyone tells you that there's no way, no how,fuggedaboutit, when it comes to recovering a penny in "deferred compensation" when you leave a Wall Street employer? Well, so much for conventional wisdom - the FINRA arbitrators awarded deferred comp to Respondent in this case.
Finally, this case perfectly illustrates the hidden costs of not repaying upon termination and of not subsequently settling - which is not to suggest that there are cases in which prompt repayment or settlement are foolish strategic/tactical moves. With these disputes, there's lots of nuance and plenty of room for negotiation. Nonetheless, if you won't or can't make the repayment/settlement, consider the extras that you may get hit with because they really add up.