More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
FINRA on Tuesday, in an arbitration case, decided against Lehman Brothers, which sought to recover $259,084.12 from a former employee, Jennifer Lorenc Mitchell.
Lehman originally filed a claim against Mitchell, one of 113 former employees against whom it took similar actions, in October 2010. According to a Forbes report, Lehman contended that, from 1998 to August 2008, it loaned the 113 employees a total of some $80 million; it was this money that it sought to recover after its bankruptcy.
The company sought $176,000 in compensatory damages from Mitchell, plus interest, costs, and attorneys’ fees, arising in connection with an alleged breach of promissory note and contract; the company’s compensatory damages claim was later amended to the larger amount.
While details of the arbitration were not released, Lehman’s claim was dismissed in its entirety. Previously Lehman has had some success in filing claims against former employees to whom promissory notes were extended. Mitchell, who was represented by David E. Robbins, Esq. of Kaufman Gildin Robbins & Oppenheim LLP, had joined Lehman three years before the company declared bankruptcy.
In the wake of the bankruptcy, Lehman pursued claims against former employees in an effort to recover some of the money, which by the time of the bankruptcy amounted to about $51 million. Employees contended that they were not loans at all, but employee forgivable loans (EFLs) that were actually signing bonuses.
To further complicate the issue, Lehman Brothers Inc. (LBI), the broker-dealer subsidiary of Lehman Brothers Holding Inc. (LBHI), extended the loans, but LBHI is the entity trying to recover the funds, and there is some dispute between them about which entity is entitled to collect the funds.