DAMAGES AWARDED BY FINRA PANEL FOR FAILING TO JOIN THE PROTOCOL
If joining the Protocol will effectively transition a broker to a new employer without the fear or cost of litigation, can the new employer be held liable for failing to do so when its recruits are sued by their old employer? Maybe so. In an arbitration award issued in July, 2010, a FINRA panel sitting in Indianapolis ordered a broker-dealer to pay 2 million dollars to a pair of brokers it hired from Merrill Lynch for damages sustained in what appeared to be a botched transition.
The award indicates that the claim was filed by NRP Financial, Inc., for recovery of sums due on promissory notes and stock purchase agreements. The brokers filed a counter-claim seeking 21 million dollars in damages allegedly sustained as a result of their transition from Merrill Lynch to NRP. Specifically, they alleged that NRP falsely represented that it was a Protocol member and prematurely announced the brokers’ move to NRP. According to the brokers, upon learning of their impending departure, Merrill Lynch promptly fired them and obtained injunctive relief that prevented contact with their clients for five further months, effectively decimating their book of business.
The FINRA panel ultimately awarded 2 million dollars to the brokers and dismissed the claims for recovery on the promissory notes and stock purchase agreements. Of this amount, nearly $500,000 was awarded for attorney’s fees, costs and expenses. The case illustrates the sums at stake in securities recruiting cases. If properly executed under the Protocol, the transition probably would have occurred without litigation and the brokers would have had the opportunity to contact their clients and solicit their business following their resignation from Merrill Lynch.