Failure to Pay FINRA Arbitration Award

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Beyond_Depressed's picture
Joined: 2011-08-29

PLEASE, PLEASE....what I am looking for are solid opinions.........not smart azz replys.  I really need help in getting my hands around something that I can't control and what I really believe is unfair and discriminatory.Here are the facts:Took the check for $ XXX,XXX.00Paid back most of the promissory note but slightly less than 1/4 remainsI didn't buy one piece of BLING, go swimming with the dolphins, by Momma a big azz diamond or even buy the Benz.  I put every dime in the bank and used it to supplement my transition and used it through the recent down turn in the market;  Thank god I did.Resigned Firm X to go to Firm Y (No upfront check)I am still in the industry; XX years of ZERO client complaints and or arbitrationsFirm X took me to arbitration and won.  I didn't have the cash to hire an attorney so I did it pro se (and please don't tell me pro se was my 1st. mistake).   Firm was awarded $ XXX,XXX.00 and my counter was denied (the he said she said promise thing didn't work) I don't have $ XXX,XXX.00 to pay the awardI have a negative net worth I have very low debt other than my underwater homeI have nothing to liqudate to pay the awardI have $ XX,XXX in my IRA (Below 20)I can't borrow the money from friends or relatives (they are in worse shape than I am)The banks will not loan me the cash unsecured (an I have flawless credit)After my basic bills are paid I have cash left over that I could make monthly payments.      Firm X's attorney knew I am living from pay check to pay check and have a negative networth.  I made many offers to settle but Firm X's attorney said it wasn't enough and the firm wanted to send a messageSo hear I am.....waiting for that letter from FINRA saying "PAY UP" or you are out.  I know the post award process and rules.  I completely understand why FINRA instituted rules for failing to pay an award.  Plain and simple LEVERAGE and it was because so many advisors were just not paying / ignoring the awards to client claimants.  I can completely understand and would accept that rule of suspension if it were investor related but I isn't.   It is Industry related.  Does a Doctor get his medical license suspended because he can't repay his student loans.  Does a Dentist loose his license because he can't repay the loan for new office equipment.  Does an attorney loose his license to practice law because Capital One sent his pass due credit card bill to collections. I can pay...but I can't pay it all at one time.Don't ask me why the Firm X's attorney wouldn't take what I offered even though the Firm's attorney knew what my financial condition was after they saw documented financials in Discovery.  I guess what my question is - will FINRA allow you to pay the firm over time even if the firm will not accept time payments ?  Why should I have my life absolutely destroyed and my career crushed because I couldn't pay the firm back all at one time ? I took the check and I agreed to pay the firm back all at one time immediately if I left the firmUnfortunately things have not worked out exactly how I planned but should I be suspended for not being able to pay back the firm at one time.  I didn't shift my clients fund to my outside personal bank or churn B shares or flipped client annuities annually or stole cash from clients. I know life is not fair and I am a very realistic person but DAMN  !  Am I missing something here ? Trust me when I tell you that I am by far one of those entitlement sluggs that believe I have been denied or cheated or someone owes me something..I am not.  I just think that having my license suspended based on ability to pay is completely unfair and discriminatory.  FINRA will accept a "Bona Fide Ability to pay" defense in an industry related case but I HAVE the ability to pay; just not all at one time.  Please help....your opinions would be greatly appreciate.  PS: Filing for protection is NOT an option.    

LoveInvesting's picture
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Joined: 2011-07-07

This may not be what you want to hear, but how is it unfair and discriminatory if you knew you would have to pay it back if you didn't meet the performance hurdles? Also, you stated: "Paid back most of the promissory note but slightly less than 1/4 remains" Does that mean you only owe 1/4 right now?

LoveInvesting's picture
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Joined: 2011-07-07

This may not be what you want to hear, but how is it unfair and discriminatory if you knew you would have to pay it back if you didn't meet the performance hurdles? Also, you stated: "Paid back most of the promissory note but slightly less than 1/4 remains" Does that mean you only owe 1/4 right now?

LoveInvesting's picture
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Joined: 2011-07-07

This may not be what you want to hear, but how is it unfair and discriminatory if you knew you would have to pay it back if you didn't meet the performance hurdles? Also, you stated: "Paid back most of the promissory note but slightly less than 1/4 remains" Does that mean you only owe 1/4 right now?

LoveInvesting's picture
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Joined: 2011-07-07

This may not be what you want to hear, but how is it unfair and discriminatory if you knew you would have to pay it back if you didn't meet the performance hurdles? Also, you stated: "Paid back most of the promissory note but slightly less than 1/4 remains" Does that mean you only owe 1/4 right now?

LoveInvesting's picture
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Joined: 2011-07-07

Sorry I have no idea how I posted that last one...but my advice would be to hire an attorney, even if you think you cannot afford one, offer to pay him from your retirement account if he can get a settlement.

Beyond_Depressed's picture
Joined: 2011-08-29

The Firm was awarded what was remaining on my note (prorated for time served).  As for taking the money out of my retirement account; 10% pre-59 1/2 penanty and 25% marginal bracket = I should be subjected to a 35 % tax to pay a attorney that would do what ?  Try to settle for what ?  Why pay the attorney when I could use the cash to pay back the firm.  I really appreciate your response.Any more seasoned opinions out there ?    

LoveInvesting's picture
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Joined: 2011-07-07

Well, if I were you I would research and ask around and find out who 'the best' or really good securities attorney is, and set an appt for an initial consultation with that person and tell him/her your whole story as above. You could possibly arrange to pay the attorney on a mthly payment plan if they take your case. I bet they could negotatiate a better deal for you than you could representing yourself. I have 8 years in this business and an impeccable record like you. Good luck, now I will be quiet and let other posters respond.

rrbdlawyer's picture
rrbdlawyer (not verified)

Although FINRA eliminated the “bona fide inability to pay” defense in customer cases,that defense remains available to industry parties in non-customer intra-industry award cases.Beyond that, I'm not sure that I understand what guidance you are seeking. If you have the funds to cover the award, then you should expect some pressure to be brought against you for failing to honor the Panel's ruling.  If you don't have sufficient funds, then raise the defense.  I fully appreciate your predicament but, in the end, the theory is that you were a "custodian" of the loan until it was fully earned out and that you retained an ongoing obligation to ensure repayment.  I appreciate all of your explanations and defenses but you also seem to have concluded that you are on thin ice and I'm not sure that there's anything more to be added to the discussion. Bill Singer

Beyond_Depressed's picture
Joined: 2011-08-29

Bill, I appreciate your opinion.  As I noted, I don't have 100% of the funds to pay the award in 30 days. The answer that I am looking for I guess is:   Has FINRA ever suspended an advisor because he didn't have 100% of the award  in cash ? (promissory note / industry related).  Have they ever allowed the Advisor to make installment payments to satisfy an award ?  Also, are there FINRA enforcement results in the cases of suspensions relative to promissory issues available somewhere on-line ?I have an IRA with less than 20m and a car worth about 7m (paid).  Would FINRA make me liquidate my IRA at a 35% penalty and sell my car to pay some of the award.  How would I get to work ? Would they also make me liquidate all of my household items, furniture and stuff in my garage ?As I mentioned, I owe the $ and I want to pay the Firm back but why should they take my ability to earn a living away ?  I'm 55 and wouldn't know what I could do to earn a living.  Is there light at the end of the tunnel ?        

rrbdlawyer's picture
rrbdlawyer (not verified)

BeyondDepressed:Your comments in italics. My replies follow.Bill, I appreciate your opinion.  As I noted, I don't have 100% of the funds to pay the award in 30 days. REPLY:  Actually, you didn't have 100% of the funds quite some time ago when the demand for repayment was timely made; and then you didn't have it when the hearing was scheduled; and then you didn't have it when you lost the hearing; and, now -- and most critically for your problem -- you may not have the funds when FINRA moves to suspend you for non-payment of the intraindustry arbitration award.  I put it in  these stark terms not to belittle you but to make sure that you truly understand how the issue will be framed against you.  You borrowed the money pursuant to the terms of the loan, knew that you had an obligation to repay any unaccrued balances, and chose not to segregate the funds and put your career at risk. Yes -- I fully understand your unfortunate predicament and recognize it is an increasingly common issue.  However, you had an opportunity to raise all your explanations and defenses during the arbitration and failed to persuade the Arbitrators. Perhaps you will have a better result with the FINRA regulatory panel but I doubt it.The answer that I am looking for I guess is:   Has FINRA ever suspended an advisor because he didn't have 100% of the award  in cash ? (promissory note / industry related).  REPLY: YesHave they ever allowed the Advisor to make installment payments to satisfy an award ?  REPLY: The answer is nuanced.  FINRA cannot force a member firm to accept anything less than the Arbitration Panel's verdict. You had a chance to persuade  your former employer to settle on terms mutually agreeable but failed -- that is why you went to a hearing. The issue now is framed as your failure to satisfy a duly rendered award from a FINRA Arbitration Panel. You have specific grounds to raise in your defense but do not appear by your own admission to be on strong footing for any of them.  Ultimately, your defense seems to be that it would be financially difficult for you to raise the funds necessary to satisfy the Award and that you prefer not to file for bankruptcy (which you don't think would be granted) and that you don't think you can successfully argue a financial inability to pay because you believe that you are able but that it would be onerous.Also, are there FINRA enforcement results in the cases of suspensions relative to promissory issues available somewhere on-line ?REPLY: Visit http://www.finra.org and look under decisions. For some guidance, I would refer you to http://www.finra.org/web/groups/industry/@ip/@enf/@adj/documents/ohodecisions/p006693.pdf , which is no longer based upon the current rule but, nonetheless, sets forth a superb discussion of what is needed to prevail on a "financial inability to pay."I have an IRA with less than 20m and a car worth about 7m (paid).  Would FINRA make me liquidate my IRA at a 35% penalty and sell my car to pay some of the award.  How would I get to work ? Would they also make me liquidate all of my household items, furniture and stuff in my garage ?REPLY: You continue to place the wrong emphasis on the issue. It's not about FINRA making you do anything. You have defaulted on a duly rendered arbitration Award. You agreed when you became registered to abide by FINRA's rules, of which timely payment of an arbitration award is one such provision. You had the ability to fashion a settlement but failed -- be that you fault, your former firm's intransigience, or a joint effort.  As such, FINRA is not forcing you to do anything but it is enforcing its rule that requires you either make timely satisfaction of the award or that  your registration be suspended.  If you want to liquidate your assets and satisfy the award, then FINRA may well accept that capitulation and not impose the suspension/bar.As I mentioned, I owe the $ and I want to pay the Firm back but why should they take my ability to earn a living away ?  I'm 55 and wouldn't know what I could do to earn a living.  REPLY:  Again, this is not something you should keep putting on FINRA. You are making the choice. If you can sell your home, car, assets, cash in your various funds/plans, and raise the bucks needed to pay the Award, then you need to decide if it's worth it. If you're not willing to do that, then you will be given an opportunity to argue why the anticipated suspension is unfair given your predicament.  If the Panel is persuaded (which the Arbitration Panel wasn't), then great -- and keep in mind that you didn't actually get a chance to argue the issue of your financial extremis as an issue impacting your ability to pay the Award within 30 days; that was not before the Arbitration Panel in that specific form.Is there light at the end of the tunnel ?  REPLY:  Yes, but it may be an oncoming train. Your best option may simply be to present your position to the FINRA disciplinary panel and see if they will grant you some concession of time.  If not, then you may still have the ability to make full payment and avoid a bar.

Beyond_Depressed's picture
Joined: 2011-08-29

So would it be best to liquidate what I can and hire an attorney to represent me post award ?  Is there a strategy that they could use that would help me keep my license ?

Beyond_Depressed's picture
Joined: 2011-08-29

So would it be best to liquidate what I can and hire an attorney to represent me post award ?  Is there a strategy that they could use that would help me keep my license ?

rrbdlawyer's picture
rrbdlawyer (not verified)

Your comments in italics.  My replies follow. So would it be best to liquidate what I can and hire an attorney to represent me post award ?  REPLY: That decision would likely have been best made when the initial repayment demand was made upon you.  Since you chose to represent yourself through settlement talks and the hearing, you have truly hamstrung any lawyer at this point.  The regulatory proceeding that you are facing is simply to enforce your obligation to honor the Arbitration Award subject to FINRA's ability to suspend (if not bar) you in the absence of compliance.  As such, an attorney would simply attempt to extract a compromise from your former employer that would be an "accord and satisfaction" or the lawyer would argue your request for consideration before the Panel. You suggest that your former employer would not be likely to agree to anything but what the Arbitrators awarded. As to FINRA's willingness to not impose a suspension, I have fully addressed that previously.Is there a strategy that they could use that would help me keep my license ?REPLY: You would need to 1. reach a settlement with the Claimant in the Arbitration notwithstanding the verdict (i.e., promissory note payments, willingness to take a lesser lump sum, etc.); 2. persuade a FINRA disciplinary panel  not to impose a suspension given your alleged financial inability to pay; 3. raise the necessary funds from lines of credit, overdraft, loans, family, and friends to pay the Award and then enter into the necessary agreements with any lenders rather than with the Claimant.This will be my final comment on this thread.  Best of luck.Bill Singer 

RWM's picture
RWM
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Joined: 2010-06-08

If you have a substantial IRA (which I hope you do at 55) then look at a 72T and see if your old firm will take sytematic and equal payments until your 59.5 then you can make a lump sum.  You could even sign some form of document that would pledge the assets to the firm and would send the payments directly from your IRA to the firm.  It would still count at ordinary income but would avoid the penalty.  You may also do a IRA distribution once every calender year for 60 calender days without any penalty or taxes and then pay it back ( or a portion).  If you have a big month coming up try that ease the pain. You should consider sell part of your practice to a new firm or partner who has money and wants to grow his or her practice.  List with FP Transitions or use your network.  Speek with your CPA but I think that you maybe able to offet some of that 35% hit on your IRA if you have you payback your award.  Don't take this the wrong way but definately get some professional advice from a securities attorney and or CPA. Penny wise ...dollar foolish.  Finally....Stop the whining and end the pity party...it's not productive.Liquidate your IRA and pay up.  (If you can part in 2011 and the rest in 2012). Pay yourself less those years to minimize the tax burden from the IRA liquidation and move on.  Get in early and stay late and grow your business and do a huge SEP untill this money is paid back. This distraction is got to be killing your production, family life, and health.Revenge and anger should be a great motivator.  Your clients and family deserve 100% of your attention move on! Good Luck. 

broker4563's picture
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Joined: 2009-03-03

RWM, respectfully, the OP explained almost exactly how much is in his IRA:  "I have an IRA with less than 20m..."To the OP, I feel badly for you.  I can understand how you got into that bind.  I think many of us have seen clients and friends who are in tough financial situations that they never imagined could happen.  Although I'm not an attorney, what Mr. Singer is saying makes sense: A deal is a deal, and the rules are rules.  At this point I think you are looking for clemency, but it seems as though your counterparty is not inclined to show any, rather, they are intent on bringing the full force of contract and enforcement rules down on you. They're long that option.I don't mean to be cold, because I do think your predicament is tough.  The best [non-legal] advice I can give is simple.  Are you prepared to liquidate enough assets to satisy the decision?  Even if that means short selling your home or forcing foreclosure?  If not, then you are choosing those over your career as a registered rep.  That's not necessarily a bad decision, but it is your decision to make.If you are not able to raise the cash, even through extreme measures, then you are unfortunately in the position of living with the consequences of past decisions, i.e. "chose not to segregate the funds and put your career at risk."   Please research the following extensively, but here is a question worth asking:  If you forfeit your Series 7, can you still operate as an RIA? 

broker4563's picture
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Joined: 2009-03-03

Give me a call.  I'm putting my phone number in this format to thwart spambots: Six Four Six, Too Too Onu, Tree Tree Nin Eight. 

scholar87's picture
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Joined: 2011-10-07

Look, I think some of the comments with the moralizing "you knew what you were doing" and "pay your debt scumbag" insinuations are uninformed and unhelpful.  I was an attorney prior to my days as an advisor, and it is clear that you will be able to raise an "inability to pay" defense.  The former firm's inability to reasonable re: repayment is critical information that will help you in any hearing.  They may the right to get the repayment, but tactics that simply are designed to run you out of the business work against any claim at good faith settlement.  I would hire an attorney on this one, but also make sure to send a reasonable payment schedule and get the former employer to explicitly reject your repayment offer prior to the hearing. 

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