An advisor who took on Morgan Stanley in a contract dispute was slapped with more than $200,000 in fees.
Contesting a breach of promissory note claim by Morgan, Jay Serniak represented himself before a FINRA arbitration panel in New York on Sept 10. According to FINRA records, Serniak spent two years with Morgan before joining BNY Mellon Wealth Advisors, a division of MBSC Securities Corporation, last September.
According to FINRA arbitration award records, Serniak denied the allegations made in the statement of claim and asserted various affirmative defenses.
The panel decided that Serniak had to pay back Morgans promissory note claim, the interest on its loan, the firms attorney fees and filing fees for the case, as well as FINRA hearing fees for the case, a ruling totaling over $203,000. Serniak did not return calls left at his White Plains, N.Y., office. A BNY Mellon representative said the firm does not comment on legal matters, and a Morgan representative said the firm declined comment.
Legal experts note the case stands as an example for why in any contract dispute involving a former employer, advisors should rely on legal representation.
Promissory notes the loans that wirehouses can offer upfront to incoming advisors are usually forgiven over a four-to-five year period, and if an advisor is able to produce according to expected quotas. Leaving a brokerage within three years usually triggers a claim for the balance of the note. Its one of these legal mechanisms that broker dealers use to keep advisors in house. There is a huge amount of pressure not to leave, says Jeremy L. Bartell, a Washington, D.C.-based securities attorney.
According to FINRA dispute resolution statistics, arbitrator panels have heard an average of nearly 1,800 breach of contract disputes in the last three years. As of this August, according FINRA, arbitrators have heard over 1,200 breach of contract disputes.
Adam Gana, a New York attorney who regularly sees the disputes warns that since promissory notes are legal contracts, firms have the right to reclaim them. Its a poor way [for broker dealers] to get compensated, but if you do not properly negotiate with a firm on the front end of your contract, you do expose yourself to later claims, he says.
Brokers might forgo hiring an attorney because of the cost, Gana says, estimating defending or making a claim before FINRA arbitration with legal representation can top $50,000 in upfront legal fees. But that decision can result in a costly situation for an advisor in any case, he adds. You cant afford an attorney, but then you cant afford to pay judgment either.