Broker Loses EFL / Promissory Note Arbitration But Wins Dramatic Counterclaim

June 24, 2010

In a Statement of Claim filed on March 20, 2009, Claimant Morgan Keegan & Company, Inc. (MK) asserted causes of action for breaches of a promissory note and contract against Respondent [Ed: Name of Respondent redacted at the sole discretion of the Blog]. Claimant MK sought $277,106.01 in compensatory damages and accrued/accruing interest at the rate of 10% per annum, plus attorneys' fees, costs, and other relief. In the Matter of the Arbitration Between Morgan Keegan & Company, Inc., Claimant v. [REDACTED] Respondent, (FINRA Arbitration #09-01573, June 15, 2010)

Respondent [REDACTED] generally denied the allegations and asserted various affirmative defenses.  Also, [REDACTED] filed a Counterclaim seeking $1,700,000 in punitive damages, interest, costs, and expert witness fees. He further sought a FINRA Panel-ordered amendment to his Form U5 with fees and costs for that relief.  Claimant KM denied the allegations in Respondent's Counterclaim.

Claimant Morgan Keegan Wins

The FINRA Panel found Respondent [REDACTED] liable and awarded Claimant MK $277,106.01 plus $66,986.41 in interest. The Panel further awarded attorneys fees.

WOW!!! . . . Panel Throws a Curveball

However, in a very unusual decision, the FINRA Panel stated as follows:

Claimant is found not liable on Respondent's Counterclaim, however, the Panel feels that the procedure deployed by Claimant in the termination of Respondent fell significantly short of industry standards. In this regard, the Panel has determined to assess sanctions and Claimant shall pay to Respondent the amount off $200,000.00. 

Respondent' s requests for punitive damages, amendment of Form U5 and attorneys' fees, are denied. 


I recently authored a Registered Rep Magazine column: FINRA Honor and Principle,, in which I discussed the case of a registered person who withheld his member firm's share of his fees (10 percent share equalling $5,150).  FINRA charged him with violating then NASD Rule 2110: Standards of Commercial Honor and Principles of Trade, which stated that "A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade."  The individual settled FINRA's regulatory case by agreeing to a Bar. 

In discussing the case, I noted the following:

[D]oes FINRA ever hear about one of its member firms doing something dishonorable or unprincipled when it comes to its registered representatives? Am I the only industry lawyer who has heard repeated complaints about brokers being short-changed, underpaid, jammed up, and otherwise screwed by their employers?

. . .

[T]he diligent cops at FINRA have more important things to do. There is honor and there are principles when it comes to FINRA member firms, but it's a tad different when registered reps are involved.

I applaud the FINRA Arbitration Panel in Morgan Keegan v. [REDACTED] for awarding $200,000 in [REDACTED]' Counterclaim against his former member firm for  falling "significant short of industry standards." What I'm not understanding is whether this same Panel referred the matter to FINRA for a regulatory investigation.  Given that the Panel found in favor of Claimant MK on its demand for repayment of its loan to Respondent [REDACTED], the stinging rebuke by the Panel about Claimant's manner of terminating its employee is all the more dramatic.  Moreover, the  breathtaking award of $200,000 to [REDACTED] on his counterclaim strongly suggests that the Panel was deeply and profoundly troubled by what it deemed the member firm's failure to comply with industry standards. 

Just in case the Arbitrators did not make such a referral,   I have taken the initiative in that regard.  I have forwarded a copy of this article to FINRA's Office of the Whistleblower and FINRA's Office of the Ombudsman with a request that they investigate the issues in this arbitration.