Broker Promissory Note and Employee Forgivable Loans (EFL)

In the securities industry, it is fairly common for brokerage firms to compensate financial advisers with upfront payments at the beginning of a relationship. These payments are often referred to as promissory notes (prom notes) or employee forgivable loans (EFL). The upfront payment incentivizes brokers to go from one brokerage firm to another. Prom notes and EFLs are generally based on what the broker earned in commissions in the last twelve months at his previous firm. This upfront payment is sometimes conditioned upon the broker staying with the new employer for a certain period of time.

If the financial advisor leaves a brokerage firm before the prom note expires, the broker may owe the balance of the prom note or EFL to his employer. The balance may accrue interest if a broker fails to timely repay the unearned portion. Brokerage firms will often initiate prom note collections claims against the employee through Financial Industry Regulatory Authority (FINRA) arbitration. FINRA rules regarding prom note cases are complex and generally require experienced legal counsel to fully understand the issues of the case.

Promissory note cases are similar to breach of contract actions. As such, financial advisers could argue that the promissory note or EFL may be void for the following reasons:

  • Misrepresentation: If the broker-dealer made a material representation about a material term of the prom note or EFL.
  • Unclean Hands: If the broker-dealer had committed a different violation of the prom note or EFL.
  • Laches: If the broker-dealer intentionally delayed bringing the lawsuit for the breach of the agreement and the delay was unnecessary and prejudiced the financial advisor.
  • Unconscionablity: If the note or EFL is so one sided that it “shocks the conscience.”
  • Illegal contract: Illegal contracts cannot be enforced either under legal or equitable principles. These include contracts that require the violations of securities laws.
  • Mistakes: There was a material mistake in the contract.
  • Undue Influence/Duress: Equitable relief may not be available if there has been any instance of undue influence or duress in the creation of the prom note or ESL.

In addition to affirmative defenses, the broker may also assert counter claims against the firm for sexual harassment, racial discrimination, wrongful termination, or fraud.

We can help you navigate your promissory note or EFL case.

Client Reviews
Thank you Adam and all your colleagues for the professionalism and diligence in the final settlement of our securities fraud case. When a past law firm group turned our case down, you and your firm took on the case and we thank you for the great outcome. We would highly recommend your firm. Gloria K.
I will never forget how much you helped me by winning my case! I never thought I would see any money from my investment. I admire the way you fight for everyday people against big companies. Thank you so much! Myra W.
Adam is an outstanding lawyer. I have worked on several cases with Adam and look forward to working with him again in the future. Rob D. - Co-Counsel.
If you want an attorney that is easy to talk to and genuinely cares about your legal situation, contact Adam Gana. He helped me settle a difficult contract dispute. When you work with Adam, he makes you feel as if you are his top priority. He will call you regularly to stay on top of the situation and submits all necessary legal documentation in a timely manner. His writing is excellent, his demeanor professional, and his work exceptional. Nancy N.
Adam helped me recover money from my broker when I thought all was lost. My house was about to be foreclosed, and I lost everything. Adam came in and saved my life. Jean C.