When Robert Lansing Padgett found he wasn't generating enough money to pay off a recruiting loan owed to Wells Fargo, he helped bring in an advisory team from a rival firm to bridge the gap.
Now a Financial Industry Regulatory Authority arbitration panel has decided he doesn't have to pay his more than $1.2 million outstanding loan balance after finding he was fired under suspect circumstances.
According to a FINRA arbitration ruling on Friday, around 2017 or 2018 Padgett began searching for a way to make good on a loan he had received in return for his recruitment from Bank of America after recognizing he wasn't generating enough revenue to pay it off on his own. His solution was to help bring over an advisory group then at Merrill and merge its roughly $200 million in assets under management with his $65 million in AUM.
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The team, called Warren Capital Management and led by the portfolio manager Thomas Rollando and financial advisor Sue Tompkins, joined Wells in 2019. Padgett was fired a few months later.
Padgett and Wells Fargo's claims cancel each other out
The FINRA arbitration panel found that Wells Fargo has a legitimate right to collect the just over $1.2 million, including interest, that Padgett still owes on his recruiting loan. But it also found under "principles of equity and fairness" that Wells' decision to fire Padgett was tantamount to a breach of an agreement between him and the firm.
The panel noted that Padgett has submitted a counterclaim alleging breach of contract and fraud and seeking just over $1.2 million in damages. Since the two claims, including interest, are identical, "they cancel each other out," according to the panel.
"The equities here are obvious," the panel found. "[Wells Fargo] got the benefits of the bargain by virtue of the revenue streams created by the now merged businesses, while [Padgett] was deprived of the benefits of his bargain, by being blocked from realizing the revenues from the merged firm that he was primarily responsible for creating."
A Wells Fargo spokesperson said, "We appreciate the panel's recognition of the advisor's duty to repay his obligation to the firm."
Wealth managers usually win in promissory note cases
The decision marked a rare rebuke to a large wealth manager seeking to recoup money provided to an advisor in return for moving over from a rival firm. Padgett came to Wells Fargo Advisors in 2009 from Bank of America Investment Services.
The exact amount of the recruiting loan he was given for making the change is not listed in the FINRA arbitration decision. The loans — technically promissory notes — are usually calculated as a multiple of an advisor's annual revenue generation. Recruited advisors can receive as much as two, three or even four times what they produced in the past year in the form of an upfront loan.
The loans are typically designed to pay for themselves out of recruited advisors' revenue production over a set number of years. As long as the advisors don't leave for another rival within an agreed-on number of years, often around 10, the loans are forgiven.
But if they leave early, firms will frequently go before FINRA arbitration panels to seek repayment. Wells Fargo has been among the most aggressive pursuers of loan repayments. In May 2024, a FINRA arbitration panel awarded Wells roughly $4.2 million from an unpaid promissory note issued to Joseph Siedler, an advisor who left after a stint of slightly more than a year to go to RBC Capital Markets in mid-2021. Just two days before that, a FINRA arbitrator had ordered Robert Boyer, who left Wells after six years, to pay back $1.1 million on three promissory notes.
Recruited under false premises?
With Padgett, the FINRA arbitration panel found that the plan was to have him work with the Warren Capital team for as long as needed to pay off his outstanding debt. Wells Fargo, according to the panel, was "totally onboard with this arrangement and, in fact, realized, over time, the benefits of this bargain, even though the agreement between the parties was never formally reduced to a final writing."
The arbitration panel found that Padgett at one point had rejected an opportunity to sell his book of business to another advisor for a "lucrative" sum. His firing in January 2020, according to the panel, cut off his "access to the very source of the revenues that were intended to and would have fully liquidated [his] debt."
The FINRA arbitration's panel lists no reason for Padgett's firing. His page on FINRA's BrokerCheck database, which shows he's no longer registered as a broker, does list two customer disputes involving Padgett, but both are more than 10 years old and were settled for fairly small sums.
The FINRA arbitration panel noted that Tomkins of Warren Capital testified that "Despite Wells Fargo's representations during the recruiting process, without any notification, they stunned us
less than three months after joining by terminating [Padgett's] licensee agreement." Tomkins also testified that, "This was one of many things they misrepresented to us and [Padgett] in the recruitment process, but clearly the most significant."
