J.P. Morgan Securities is taking legal action in a case involving 16 former First Republic brokers, according to an AdvisorHub report.
At issue is whether the advisors should have to repay over $92.4 million in outstanding recruiting loans that they received as part of their bonus agreements when they were hired by First Republic, which was acquired and absorbed by J.P. Morgan after going into receivership in May 2023 during the banking crisis.
In a petition filed with the U.S. District Court for the Northern District of California in San Francisco, J.P. Morgan is suing the 16 brokers to force them to repay the recruiting loans. The firm also seeks an injunction to block the brokers from pursuing counterclaims against it in arbitration proceedings before the Financial Industry Regulatory Authority. FINRA has scheduled arbitration hearings on the matter to begin May 20.
J.P. Morgan asserts that there was a a September 5, 2023 deadline for creditor claims set by the Federal Deposit Insurance Corporation when it auctioned First Republic’s assets. Many of the counterclaims were filed late last year.
“Absent immediate injunctive relief, Plaintiffs will be forced to unnecessarily waste time and resources participating in the [Financial Industry Regulatory Authority] arbitrations addressing claims that are barred by federal law and where Finra has no authority,” J.P. Morgan wrote in the complaint.
A lawyer representing the brokers, Michael S. Taaffe, responded to the lawsuit by calling it a “last-minute attempt” to avoid the FINRA hearings. The advisors and their attorneys have filed a $270 million counterclaim against J.P. Morgan that they say includes lost client assets and lost deferred compensation.
They also claim they were misled by First Republic during the recruiting process because the bank executives knew the bank was in financial trouble. Taaffe asserted that J.P. Morgan is asking the court to usurp FINRA’s authority by seeking an injunction before the authority’s arbitration panels have ruled
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