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FINRA Arbitration Panel Finds Morgan Stanley Promissory Note Unenforceable

By George C. Miller, Esq.  of Shustak Reynolds & Partners, P.C. posted on Thursday, May 14, 2015.

A panel of three FINRA arbitrators recently found that a promissory note between Morgan Stanley and its former advisor John Offenburger was "unenforceable." The case involved an employment dispute between Offenburger and Morgan Stanley stemming from his recruitment to the firm in 2008.  

According to the award, Morgan Stanley failed to fulfill promises made to Offenburger during his recruitment, including a promise that Offenburger would be given a management position.  Soon after joining the firm, however, Morgan Stanley closed its joint venuture with Smith Barney, which resulted in the elimination of his proimsed management position.  Offenburger also alleged Morgan Stanley made defamatory statements to his clients after he was forced to resign from the firm in 2012.  Morgan Stanley, meanwhile, sought to collect approximately $519,000 Offenburger owed on a forgivable promissory notes.  Up-front bonuses tied to forgivable promissory notes are common in the securities industry, particulary among higher-producing advisors.  

The panel concluded that Morgan Stanley's promissory note "was unenforceable" and denied the firm's claim in its entirety.  The panel then awarded Offenburger $500,000 in affirmative damages.  But there was a catch.  The damages awarded to Offenburger were deemed "fully satisfied" by the forgiveness of the note.  The net effect is a virtual wash.   

Shustak Reynolds & Partners' FINRA lawyers have decades of experience representing financial advisors and brokers in securities industry disputes, including up-front, forgivable promissory note disputes, bonus disputes and in broker protcol, trade secret and financial advisor transition disputes.  Contact us today at (619) 696-9500 or at for a confidential analysis of your situation.  

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