Eloquent Arbitration Decision Rules For Merrill Lynch In Pro Se Employee Promissory Note Case

March 23, 2012

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2010, Claimant Merrill Lynch ultimately sought to recover from Respondent Huang $98,049.84 in principal due, daily accruing interest from June 24, 2009, in the amount of $14.10 (5.25% per annum), reasonable attorneys' fees,  and costs in connection with a promissory note. In the Matter of the Arbitration Between Merrill Lynch, Pierce, Fenner & Smith, Inc.,Claimant, v. Haorong Huang, Respondent (FINRA Arbitration 10-05794, March 21, 2012).

Respondent Huang, representing himself pro se, generally denied the allegations.


The sole FINRA Arbitrator ruled in Claimant's favor and ordered Respondent to pay to his former employer:

  • $98,049.84 in compensatory damages;
  • $3,500 in "capped interest;"
  • $20,000.00 in attorneys' fees;
  • $1,750 in FINRA filing fees;
  • $120.80 in mailing costs; and
  • $81.10 in copying costs.

In His Own Eloquent Words

This remarkable Decision offers a fascinating window into the way in which a FINRA Arbitrator analyzes the facts and legal arguments in a given case.Rather than editorialize or interpret the Arbitrator's words, let me permit him to speak to you in his own words from the Decision:

Let me say at that at the outset that I found the testimony ot Respondent to be open, sincere, forthcoming and entirely credible…

[R]espondent went to work tor Claimant in August, 2007 after being actively recruited for that position from Citigroup by Claimant. . .because of his background and expertise in recruiting and securing Asian investors in the securities market and because of his successful ability to do so at Citigroup.  Respondent, among other reasons, made the shift because of Claimant's policy of funding trips to Asia tor the purpose of securing new foreign investment, a policy not so firmly followed at Citigroup. Indeed, Claimant did fund at least two such excursions tor Respondent to secure new foreign investment in Asia and a third trip . . .

As part of Respondent's compensation package and as an inducement to make the switch in employment, Respondent was offered and accepted an upfront loan to be paid off as specified in installments and in the manner specified therein during the five year tenure of his employment contract. . .

It must be observed that at or about the time Respondent went to work for Claimant, the market hit its high and began the downward spiral known only too well to the industry, investors, and general public alike. Perhaps, due to that reason, and certainly exacerbated by it, Respondent failed to produce at his previous level and his production performance became a disappointment to both him and his employer. . .

Because of this situation, Respondent was ranked as one of the poorest producers in relation to other financial advisors. This led to Respondent effectively being placed on probation in March, 2009. . . Apparently, the situation did not improve and on June 23, 2009, Respondent tendered a resignation letter to Claimant. There is a difference of opinion as to whether this was truly a voluntary resignation. Respondent claims that he was being forced out, was advised by Claimant's representatives to tender said resignation as he would be terminated and said dismissal might reflect badly in his U-5 and affect future employment opportunities. In essence, Respondent claims he tendered said resignation under duress. . .

[A]s sympathetic as I am to his plight, try as hard as I may I can find no legal excuse or reason that would constitute a defense or set off to his obligations under the note. That the note was freely bargained for, signed and the proceeds accepted is without denial or question. . . It would appear that he failed to meet his and Claimant's goals due to the market conditions at the time and it was just plain bad luck. The fact that Claimant chose to cut their losses by terminating Respondent and did not do so to others similarly situated was simply an exercise of business discretion, certainly within their rights and not indicative of any malicious, unfair or unequal treatment.

Similarly, Respondent's claim of resigning under duress is without merit. His choice t0 do so under the circumstances in no way even comes close to the legally accepted definition ef duress. Certainly, he must have felt pressure to do so, but that is not equivalent to legal duress, people make such decisions on a daily basis. Considering his level of education and sophistication, it cannot be said that his decision was so unreasonable or his judgment so faulty not to indicate a lack, of understanding of the situation. He made a rational choice to pursue a course of action that he felt would ultimately be in his best Interests. We all make these kinds of decisions on a daily basis It's called free choice. Further there was no showing that any alleged inducements offered to him to join Claimant were out of the ordinary banter used by a prospective employer eager to bring in a new employee In fact, Respondent did get the opportunity to travel overseas to secure new investments exactly as he had been promised.

[A]s Respondent acknowledged his indebtedness at least to the tune of approximately $70,829.00, he might have been better off had he tendered that amount to Claimant, who then might have chosen to forgo the remainder. At the very least, such tender would have substantially reduced the Interest generated thereon.

It would appear that due to the economic turmoil of the time period, and through no fault of either party, both parties unfortunately made a "bad investment" Bad investments are a substantial risk In this industry, to both the public and the professionals. . .

Bill Singer's Comment

What makes this particular Decision so unusual - perhaps, I should even say, so amazing - is that it is written with great clarity tinged with eloquence.  Both parties come away from reading the Arbitrator's commentary with a clear understanding as to why Claimant won and Respondent loss. Some may disagree with the assumptions of the Arbitrator, may disagree with his analysis of the facts and law, and may even disagree with his conclusions.  That's acceptable and a common enough divergence of opinion with decisions rendered in courts and other forums.  What should be beyond debate is that for once, a FINRA Arbitrator provided the parties, the industry, and the public with a meaningful Decision.

Inevitably with pro se cases, one must wonder whether Respondent Huang would have fared better if he had retained a lawyer - one who might have made far more out of Claimant's complicity in the subprime and CDO crises that fomented the Great Recession, essentially forced its sale to Bank of America in September 2008, and ended it's separate existence in January 2009.  Similarly, a lawyer may have attempted to raise the issue of Claimant's approval in December 2008 of the payment of $3.6 billion in bonuses (one-third of the TARP bail-out paid to the firm). Alas, a skilled lawyer might have successfully argued that all those factors and more made it impossible for Respondent to perform the job for which he was hired and that Claimant was solely or largely responsible. Then again, to be fair, such defenses are, by now, routinely raised without much success by expensive lawyers.

The last hearing session in Merrill Lynch v. Huang was conducted on January 17, 2012, and the last document (Respondent's Sur-Reply) was submitted on February 14, 2012. I wonder whether this Arbitrator was aware that on January 25, 2012, FINRA fined Merrill Lynch $1 million for misconduct in connection with its efforts to skirt the mandatory arbitration requirements when the firm sought to collect on these types of promissory notes. See, Merrill Lynch Hit With $1 Million Fine For Employee Note Collections ("Street Sweeper" January 26, 2012). Perhaps this issue will raise its head should Respondent appeal this FINRA Decision.

Finally, the Decision in this case does nothing to alter my long-standing criticism of what I believe are the pro-Employer/Member Firm biases that are inherent in FINRA's mandatory intra-industry arbitrations.  Similarly, nothing in this one case changes my belief that these employee forgivable loan / promissory note cases are quite often blinded to the reality that these "loans" are often transparently disguised "bonuses." As such, while this is a case involving Merrill Lynch, it should be of interest to former and current employees of Goldman Sachs, JP Morgan, Morgan Stanley Smith Barney, Wells Fargo, and all the major players on Wall Street.

Whatever quibbles may exist are irrelevant, this FINRA Arbitrator has earned my respect and I thank him for his exceptional effort.