Losing the Battle of the Water Cooler: UBS's Promissory Note Arbitration Against Former Employee

June 3, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2009, Claimant UBS sought to recover the balance due on three three promissory notes (the "Notes") that it had entered into with Respondent Walters. As of the close of the FINRA arbitration hearing, Claimant UBS specified its damages as:

  • $148,564.32 in compensatory damages for the principal balance due and owing on the Notes;
  • $20,155.31 in interest on the principal balance of the Notes at prime rate plus 2% compounded monthly from the payment due date until paid;
  • $71,979.48 in attorneys' fees; and,
  • $7,887.50 in various FINRA fees.

In the Matter of the FINRA Arbitration Between UBS Financial Services Inc., Claimant vs. Kenneth Walters, Respondent (FINRA Arbitration 09-07226, May 31, 2011).

Respondent Walters generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim, which asserted three causes of action including inducement by false promises. At the end of the arbitration hearing, Respondent sought not less than $225,000 in damages.


The FINRA Arbitration Panel found Respondent Walters liable to and ordered him to pay to Claimant UBS $109,976.05 in compensatory damages with post-judgment interest; however, the Panel excluded an award of pre-judgment interest.

Adding It All Up

Just doing the rough math, Claimant UBS was looking for about $250,000 from Respondent Walters. As such, since Walters came away with an award for about $110,000, he managed to nearly halve the damages sought. Moreover, simply using UBS's calculation of pure compensatory damages on the Notes of a bit under $150,000, the Claimant didn't even walk away with its claimed principal-balance owed.

In the end, what's the verdict on this one?  Well, just based upon the award, UBS won.  

However, let's drill down a bit into that victory and see how it all really adds up.

It took almost 18 months from the date the FINRA claim was filed by UBS until the date of the award - 18 months for which the Panel declined to award interest. As such, UBS essentially gave Walters an interest-free loan for about a year and a half - let's just place that somewhere in the $6,000 to $10,000 range (although UBS sought about $20,000). 

Moreover, using UBS's own valuation, it incurred some $72,000 in attorneys fees plus an additional $8,000 in fees. Consequently, in order to pursue its arbitration claim against Respondent Walters, UBS ran up about $80,000 in fees and lost about $6,000 to $20,000 in interest - that's adds up to between $86,- to $100,000.

Respondent Walters did not walk away from this dispute without some pain. On the other hand, did UBS walk into this one with its eyes open? In fairness to UBS, Walters may have told the firm to shove it and refused to settle for anything reasonable. Frankly, that's becoming a fairly common posture by former registered persons.  On the other hand, UBS may not have been willing to accept what would objectively be viewed as a fair settlement, and may well have forced Walters's hand.

Bill Singer's Comment: In the final analysis, the outcome of a case such as this one is the strongest advertisement for parties in such disputes to tone down the posturing and to see things through the prism of "the cost of doing business." 

Assuming that UBS could have settled this case in 2009 or 2010 for, say, $100,000, it may have made far more economic sense - especially after you impute the lost interest, the attorneys' fee, the time/financial costs, and the likely unwanted publicity that an article such as this brings.  Moreover, the chatter around many a Wall Street water cooler will be that Walters stared down UBS for nearly two years, hung tough, and walked away having to repay only half of what the former employer was demanding.

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