In Uncategorized on 12/26/2018 at 17:59

Despite his vociferous assertions that Merrill Lynch stole his book (of business: that’s what we call client lists, client info, client goodwill), all His Honor Big Julie, Judge Julian I Jacobs (sometimes hereinafter referred to as “HHBJJJIJ”) can find is that when FINRA (an organization that rejected my application to join the ranks of their arbitrators after my brief pre-merger stint with MSRB) told Merrill Lynch they couldn’t make Robert A. Connell, of Robert A. Connell and Ann P. Connell, 2018 T. C. Memo. 213, filed 12/26/18 fame, pay back his unamortized signing bonus ($3,242,248), it was ordinary income.

Rob claims ML wooed him with promises of big bucks, then, four days before the end of his first year, made him walk the plank and hit him with a U-5. That’s not the sequel to the 1981 Wolfgang Petersen wet-and-wild saga about a World War II German submarine. Rather, that’s the termination statement for any registered rep type in the securities industry. And as a far finer writer than I put it, “After your death you were better have a bad epitaph than their ill report while you live.” I’ve fought those, and lost.

Well, Rob got their ill report while he lived, which guaranteed no reputable firm would pick him up. Plus, ML grabbed his book and had his former subordinates strip-mine his clients.

Rob ran to FINRA with his top-class attorney Thomas B. Lewis, Esq. And got a “very unusual” win, according to Mr. Lewis. He got to keep the $3 million, got back his computerized client templates (with the data wiped), got some compensatories (a little less than $500K) and even got $288K for Mr Lewis.

Rob claims it’s the price for the book of business ML stole from him, and the U-5 torpedo that sinks him. IRS says it’s ordinary income, like compensation.

The problem is having a top-notch lawyer get complimented by the Judge: that’s a sure sign you lost. The compliment, I suppose, is there to keep the client from stiffing the complimented one, as compliments pay no rent.

HHBJJJIJ: “Admittedly, the filings heavily emphasize Mr. Connell’s argument that Merrill Lynch lured Mr. Connell to Merrill Lynch in order to acquire his book of business and that thereafter it set out to ruin his professional reputation so as to keep him from working at a competing financial services firm. But this argument was not the only one Mr. Connell presented to the FINRA Panel.  Mr. Connell’s attorney, Mr. Lewis, an experienced and successful litigator, made certain of that.  Mr. Connell’s filings forcefully argue that the FINRA Panel should reject Merrill Lynch’s position and conclude that Mr. Connell need not pay the balance of the upfront forgivable loan.  Indeed, Mr. Connell’s filings emphasized that Merrill Lynch breached the terms of the employment contract, not Mr. Connell, causing Mr. Connell to suffer damages. This argument, by itself, would relieve Mr. Connell of his obligation to pay the outstanding balance of the promissory note to Merrill Lynch.” 2018 T. C. Memo. 213, at pp. 33-34.

The answer lies in what FINRA decided, but there’s no opinion, decision or judgment. Just an order giving Rob most (but not all; the bad U-5 remains) of what he wanted.

So what did FINRA really decide? Like the 5-7-4 doubleplay, for explication of which see my blogpost “FIIK,” 4/19/18, one has to try to parse out what went through the arbitration panel’s minds.

“The record herein does not reveal the specific argument the FINRA Panel found most persuasive when it extinguished the balance of the upfront forgivable loan.  Petitioners bear the burden of answering the question ‘in lieu of what were the damages awarded?’  On the basis of our examination of the record, we conclude that petitioners have not met their burden to establish that the amount at issue was solely for the acquisition of Mr. Connell’s book of business.  Consequently, we sustain respondent’s determination that the extinguishment of Mr. Connell’s debt to Merrill Lynch constitutes cancellation of debt income and that the amount of the extinguishment is taxable as ordinary income.” 2018 T. C. Memo. 213, at p. 34.

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