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My former brokerage firm gave me some upfront money and had me sign a promissory note, when I was first hired. The "loan" was to be forgiven over a period of years, but my firm went under and apparently assigned the promissory note to a bank, which is now suing me in court to recover the balance of the note. The note has an arbitration clause, however, so isn't the bank required to go through arbitration? Also, can I sue the bank based on the assignment for the actions of the brokerage firm that caused me damages?

B.F., Fla.

The simple answer is, yes, the bank should be required to go after you in arbitration and your attorney should file a Motion to Compel Arbitration.

The proposition that an assignee stands in the shoes of the assignor and has all the rights enjoyed by the assignor, is almost universally followed. It is also well settled, (both in Florida and other states) that assignees of contracts containing pre-dispute arbitration clauses are bound to arbitrate. By accepting the assignment, the bank assumed all of the rights and obligations under the note, including the obligation to arbitrate any dispute.

Keep in mind, however, while the bank assumed the "rights" under the note, it did not assume the "duties." This means that, while you should be able to raise most defenses against the bank that you'd have against the brokerage firm, it may not be possible for you to raise a counterclaim against the bank for wrongdoing on the part of the broker-dealer.

I'm an investment advisor employed by an RIA. I had an IRS tax lien against me a few years back. Does this have to be reported on the firm's Form ADV?

C.B., Va.

Item 9 on Form ADV requires the disclosure of various matters that occurred within the past 10 years. These include criminal or civil actions-where the firm or a management person was the subject of an order, judgment, or decree permanently or temporarily enjoining or otherwise limiting the firm or the management person from engaging in any investment related activity or certain administrative proceedings before the SEC, a self-regulatory organization (SRO) or federal or state regulatory agencies. This also applies if the firm or management person was found to have caused an investment-related business to lose its authorization to do business or was found to have been involved in a violation of an investment related law or SRO rule and was subject to an order limiting the firm or management person's activities or imposing a civil fine or more than $2,500.

Based on that, it appears to me that a tax lien doesn't fall into those categories, since it doesn't appear that you're a management person. In addition, the tax issue does not, in my opinion, fall into the categories of violating investment-related laws, rules or regulations or constitute fraud, theft, perjury, or any of the other listed crimes.

But, there is a catchall in the Form ADV instructions that says you should disclose matters that would be material to a client, even if they don't technically fall into one of the defined categories. Consequently, I would suggest you consult with an attorney to see if the tax lien would be something that might be considered "material" to a prospective client. If you choose not to disclose it, you should make sure to keep some documentation on file explaining why you believed it was not material in case a regulator ever decides that it was.

Also, bear in mind that Item 3 on the Form ADV Part 2B Supplement requires disclosure of same Item 9 matters listed above for a supervised person (which you are). But, in my opinion, the tax issue doesn't constitute "investment related" laws, rules or regulations but you should check with an attorney.

Finally, note that Item 7 of the 2B for state advisors also requires disclosure of awards in an arbitration, where the supervised person was found liable and involved investment related activities or fraud, theft, bribery, forgery, dishonest or unfair or unethical practices.


Alan J.Foxman, is an attorney in private practice
in Boca Raton, Fla. He also works as an
independent contractor with National Compliance Services
Inc. He can be contacted at
this email address.


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