This blog post looks at an interesting FINRA arbitration award issued on January 7, 2020:  Daniel Paul Motherway v. UBS Financial Services, Inc., FINRA Arbitration No. 17-02799.  This case seems to prove the old adage:  a man who is his own lawyer has a fool for a client.  Here we have an FA who proved, quite literally, that UBS defamed him, but was nonetheless ordered to stroke a check to UBS for more than $1 million.

Background Facts

On June 28, 2017, UBS fired Motherway and offered the following termination explanation on BrokerCheck:  “Financial Advisor’s employment was terminated after review concluded that he made false claims of merchant fraud on his personal credit and debit cards to an affiliate of the firm and made conflicting statement during the review.”

Apparently, UBS’s Form U5 disclosure didn’t sit well with the FA and he filed a FINRA arbitration against UBS for defamation, among other things.  The FA sought $12 million in damages and expungement of the Form U5 disclosure.

UBS likewise filed a FINRA arbitration against the FA seeking repayment of an employee forgivable loan.  UBS sought damages of $1,012,729, plus attorneys’ fees and expenses.

Underlying Arbitration

The arbitrators consolidated the 2 arbitrations over UBS’s objection.  After 3 full days of hearings, the arbitrators found UBS’s termination disclosure to be defamatory and ordered that:  (a) the reason for termination be changed to “other” (according to BrokerCheck, the current reason for termination is “discharged”), and (b) the Termination Explanation be changed to “termination for providing conflicting and misleading information in connection with the firm’s inquiry into a non-securities related matter.”

Regrettably for the FA, however, UBS’s Form U5 defamation did not relieve his obligation to repay the promissory note.  The arbitrators really dropped the hammer here, ordering him to pay compensatory damages of $1,012,729, interest at 3% until the award is satisfied, $111,400 in attorneys’ fees, and $20,254 in “late fees,” whatever that may be.

This award underscores the fact that the odds are stacked against the FA when challenging a forgivable loan in FINRA arbitration.  In this case, the FA got the money, he signed a promissory note, and the arbitrators strictly held him to the terms of the promissory note, which were likely clear and unambiguous.  There are instances in which arbitrators refuse to order repayment of a promissory note.  But those cases generally involve instances in which the firm actively took steps to harm the FA’s book of business.

Given that UBS’s conduct was questioned by the arbitrators, one is left to wonder whether the FA’s choice to go it alone was a wise one.

Herskovits PLLC has a nationwide FINRA arbitration practice.  Feel free to call us for a consultation.  212-897-5410.

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