A formerbroker doesn’t have to pay back the full amount owed on his sign-on bonus, a FINRA arbitration panel ruled this week.
When Lloyd Laughlin was terminated by Citi’sdivision in February 2008, the firm demanded immediate repayment of $142,000, the unpaid balance on the forgivable loan he received when he was hired. Citi said immediate repayment was required under his employment agreement, but Laughlin’s attorney argued that Citi breached the terms of that agreement.In the end, the FINRA panel found that Laughlin is responsible for paying about $20,000 in damages and fees.
Bill Singer, a securities attorney and Registered Rep. columnist says the case should be viewed as a victory for registered reps. The majority of bonus dispute cases get settled without a FINRA hearing and decision, he says. Typically, the broker and firm negotiate an amount that the advisor must pay back, which generally seems to fall between 50 and 66 percent of what was originally owed by the advisor. Laughlin ended up paying less than 20 percent of what the firm claims he originally owed on his bonus.
“The award of under 20 percent by the FINRA panel is significant, and the damage to Citigroup is substantial, as many registered reps will read this result and become emboldened to hold out for better settlements or to go to trial,” Singer says.
Bonus repayment disputes are not new, but securities lawyers say firms become more aggressive about retrieving bonus money from departing brokers in tough market conditions. Presumably, they have also gotten more aggressive as the size of the upfront bonuses they award to advisors has grown and as the number of advisors switching firms rises.
The FINRA decision in this recent case could influence the decision in a separate bonus dispute case that was filed in August 20009 by a different former Citi broker. That case is being tried as a class-action lawsuit on behalf of 500 to 1,000 advisors, says the lawyer handling the case. He argues that the upfront loan payback arrangements written into most advisor employment contracts violate contract law. Further, like in the case decided this week, he argues that Citi violated the terms of its employment agreements with financial advisors because it mismanaged its own business so badly that it prevented plaintiffs from attracting or retaining clients.
In January, Citi filed a motion to dismiss the claims in the class action suit.