December 11, 2021
There are times when brokerage firms implement half-assed compliance policies. Similarly, there are times when Wall Street's regulators promulgate half-assed regulations. All of which fosters compliance departments and industry regulators that are incapable of effectively enforcing their own rules. Among the most breathtaking sights on the financial services landscape is the lightshow that emerges from the collision of failed compliance with the incompetent regulators. Sit back and enjoy today's fireworks!
After a stockbroker/advisor resigns or is terminated, a former employer often resorts to "self help" when it comes unpaid items purportedly owed by the ex-employee to the firm -- with the most common "quick fix" being to "dock" the former rep's trailing commissions/fees. The legal term for such a balancing-of-the-books is "indemnification." Of course once we start throwing around legal terms, disputes are going to arise as to whether a former employer has "rightfully" indemnified itself against an actual loss/cost. Read today's featured FINRA arbitration for an example of how self-help and legalese can come into conflict.
A recent FINRA Arbitration Award seems out of step with the tenor of the times. A key provision of an employment agreement is overly broad, but we're then asked to consider if that unenforceable provision could still be breached. The problems with the Award and its underlying rationale become all the more attenuated because we're dealing with confidentiality/non-solicit provisions that hamper a former employee's ability to continue in a given profession or to relocate in pursuit of employment.