Q: I used to work for a broker-dealer and they sued me in arbitration for failing to repay a promissory note related to what I thought was simply a bonus but which I later found out was actually structured as a loan. Apparently, the loan was forgivable if I continued to work for them for a certain number of years. I lost the arbitration and was ordered to repay the loan but couldn’t afford it at the time. I’ve tried to have the award vacated in court. That case was dismissed, but I still can’t afford to pay. FINRA has now moved to have my license suspended. I filed for bankruptcy and FINRA is trying to have my defense dismissed. Can they do that?
A: Although the award is supposed to be paid within 30 days, if someone moves to vacate the award, the requirement to pay stops until the court rules on the motion to vacate. But if you lose the motion to vacate, then you have to pay the award immediately. However, if you file for bankruptcy, that again stops the obligation to pay. When FINRA files an action to suspend your license for failure to pay the award, you're entitled to present a defense to that. Although the defenses for not paying the award are pretty limited, filing for bankruptcy is one of them.
For specifics, Rule 13904(j) of
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To ensure the prompt payment of arbitration awards, FINRA adopted FINRA Rule 9554 that allows for expedited suspension proceedings against members, associated persons, and formerly associated persons who have allegedly failed to timely pay arbitration awards. Article VI, Section 3 of FINRA’s bylaws and FINRA’s rules provide a strictly limited exception to the obligation that arbitration awards be paid in cash upon receipt of the award. Rule 13904(j) provides that all monetary awards shall be paid in full within 30 days unless a motion to vacate has been filed with a court of competent jurisdiction. And where a motion is properly and timely filed, the payment obligation is suspended while the motion is pending before the court. But once the court denies the motion without an order staying compliance with the award, payment of the award is due immediately.
In terms of the defense you’re allowed to present in the suspension hearing, you have to provide sufficient documentary evidence to FINRA showing that you either: (1) paid the award in full; (2) entered into a written settlement agreement with your former employer, and are current in your obligations under the terms of the settlement agreement; or (3) filed a bankruptcy petition in U. S. Bankruptcy Court pursuant to Title 11 of the United States Bankruptcy Code and the case is pending before the Bankruptcy Court (or the Bankruptcy Court has discharged the debt representing the award).
The rules do not provide an alternative, prehearing means for adjudicating defenses. Specifically, the rules do not authorize dispositive motions, such as motions to dismiss, motions for summary disposition, or similar prehearing motions. FINRA Rule 9554 requires a respondent to assert one of the permitted defenses for failure to pay an arbitration award in an expedited proceeding, but it does not require the respondent to submit documentary proof conclusively establishing your defense at the time you file your answer.
The whole purpose of the hearing is to give you the opportunity to present evidence in support of the defense you identify in your answer.
