Securities Fraud Lawyer Blog
Offering bonuses in the form of employee forgivable loans (EFLs) is common in the financial industry, but these so-called bonuses can result in a trap for unsuspecting brokers (see our website here). While there are a variety of defenses (LINK) available to brokers when a brokerage firm seeks to enforce these EFLs in a FINRA action, the fact is that arbitrators seem to rule against brokers in these matters almost reflexively. But a couple of novel theories might offer new alternatives.
The Uniform Commercial Code
One potential new defense to an arbitration proceeding to enforce a promissory note is based on the Uniform Commercial Code (UCC). The UCC is a model law adopted by states throughout the country to insure that certain financial instruments are subject to the same legal requirements nationwide. The relevant provisions of the UCC for our purposes apply to negotiable instruments, which include, for example, checks and promissory notes. A negotiable instrument is a signed, transferrable document promising payment to a named payee at a specified time or upon demand. For example, your mortgage document is likely a negotiable instrument transferrable between banks, which explains how your bank can sell your mortgage to another financial institution, and then you get a notice to send your payments elsewhere.