Advising Financial Firms and Professionals on Promissory and Forgivable Notes

To attract and retain financial advisors and other registered representatives, it is common practice in the industry for financial services firms to offer incentive compensation through “upfront” payments upon being hired and “back-end” payments while employed. In return, registered representatives typically must agree to remain with the firm for a period of time by executing promissory or forgivable notes in amounts equal to the incentive compensation paid. The sums due on the promissory notes are either forgiven over time or paid back through the firm’s payment of systematic bonuses matching the amounts and payment dates in the promissory notes.

When a registered representative’s employment terminates before all outstanding amounts on their promissory notes are either forgiven or paid back in full, the firm has a claim for the balance due plus interest and collection costs (including attorneys’ fees). This is true, regardless of whether the termination was voluntary or involuntary, as well as whether the registered representative has the financial capacity to pay the sums due.

When the registered representative is unable or unwilling to pay the sums due, firms typically file an arbitration claim with FINRA or the dispute resolution forum identified in the promissory note. The firm typically prevails in these arbitrations unless the registered representative establishes an employment-related defense or counterclaim based on actionable wrongful conduct by the firm.

The attorneys at Hyman Cotter PC have handled thousands of promissory note matters for some of the largest financial services firms in the world, as well as on behalf of registered representatives. In this capacity, we have handled claims before FINRA, AAA and JAMS arbitration panels in contested and protracted hearings. We are uniquely qualified to properly evaluate the merits of the core promissory note claims, as well as common allegations tied to the following employment-related defenses and counterclaims:

• Constructive discharge
• Wrongful termination
• Fraudulent inducement
• Misrepresentations during recruitment or while employed
• Violations of compliance policies
• Discrimination
• Breach of contract
• Defamation and improper Form U4/U5 disclosures

Due to the complexity of defenses and counterclaims asserted in response to promissory note claims and the considerable sums of money that are often at stake, promissory note claims must be properly evaluated and, when necessary, litigated.

If you need guidance on matters related to promissory or forgivable notes, contact Hyman Cotter PC at 312-291-4600 or through our online contact form for a free consultation.