FINRA Arbitration Win for LPL in Promissory Note and Rep Agreement Case

May 28, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in June 2010, Claimant LPL asserted causes of action for the breach of a
  • Term Commitment Note dated August 14, 2008 ("Note"); and
  • Representative Agreement ("Agreement"). 

Claimant LPL asserted that upon Respondent Shigley's termination of employment, he failed to repay sums due pursuant to the terms of the Note and the Agreement.  In the Matter of the FINRA Arbitration Between LPL Financial Corporation, Claimant, vs. Robert S. Shigley, Respondent (FINRA Arbitration 10-02651, May 19, 2011).

Claimant LPL requested:

  1. $22,500.00 principal balance due and owing under the Note;
  2. interest in the amount of $1,695.00 from February 2, 2009 through April 30, 2010, and at a rate of $3.75 per day until the Note is satisfied;
  3. $10,522.41 principal balance due and owing pursuant to the Agreement; and
  4. interest on the principal balance of the outstanding accounts receivable pursuant to the Agreement at prime rate plus 2% beginning twenty (20) business days from the date Respondent received the September 29, 2009 demand letter;
  5. costs of collection and of this proceeding including attorneys' fees as agreed to under the terms of the Note and the Agreement; and
  6. other relief as the Arbitrator deemed just and equitable.

SIDE BAR: At the hearing, Claimant requested interest accrued to date on the Note in the amount of $3,127.50, interest accrued to date pursuant to the Agreement in the amount of $847.51, and attorneys' fees in the amount of $3,675.00.

In his Statement of Answer, Respondent Shigley, proceeding pro se, did not deny the allegations in the Statement of Claim and asserted that a majority of his debt was a result of trying to build an agency.  Respondent  explained that his income dropped due to the economic crisis at the time and a dramatic decrease in sales.

SIDE BAR: The minute that I read Shigley's "defense," I could tell that he was headed for trouble. 

From the firm's perspective, the money at issue was a "loan," portions of which had not fully accrued to Shigley.  As such, the firm would likely argue that prudence dictated that until the loan had been earned-out by Shigley, he should have set aside the unaccrued balances in a bank account or liquid investment. 

Unfortunately, the recipients of such Wall Street loans typically view them as an up-front "bonus" that comes with the legalese trappings of a loan but, in reality, is just a gift.  As you might well imagine, the bonus/loan theory doesn't tend to hold much water at a hearing.  For starters, there's that nasty document called a "Promissory Note" that sets forth the terms of the loan.  A feeble response of "I didn't read that" or "I didn't understand that" is simply not going to win the case for the debtor/Respondent.

Arbitration Panel's Decision

The FINRA Arbitration Panel found Respondent Shigley liable to and ordered him to pay to Claimant LPL 

  • $22,500.00 the principal amount on the Note plus interest in the amount of $3,127.50;
  • $10,522.41 balance on the Agreement plus interest in the amount of $847.51; and
  • $3,675.00 in Claimant attorneys' fees.

SIDE BAR: As best I can tell, Shigley left LPL sometime around February 2009, which was near the nadir of the Great Recession. Times were tough and trying to build an agency in the midst of the worst stock market meltdown in memory must have been incredibly challenging.  To Shigley's credit, he offered what seems to be an honest excuse for his failure to repay the loan: I put the cash into my business and it's gone - I tried my best to make a go of things but sales plummeted and my income disappeared.

The lesson here for most men and women facing similar deals is to recognize that you don't get much, if any, credit for giving it a shot.  You have borrowed money from your firm. Sure - the intent is to give you some bucks in the form of a bonus, but the other equally compelling rationale is to give you a loan that binds you to the firm, forces you to think twice before jumping ship, and imposes a painful obligation to re-pay any balances when you leave. 

Sometimes, the dollars were lost at the casino or racetrack. Sometimes, the bucks were lost in a failed business or underwater mortgage. Frankly, the lender doesn't really care.  Those are excuses. You need something more potent. You need legal defenses.