Broker Can’t Escape Promissory Note Debt Through Bankruptcy
A former broker with J.P. Morgan Securities lost his third attempt at escaping repayment of a $790,000 transition-bonus loan to the bank when a federal bankruptcy court panel in Los Angeles earlier this month upheld a lower-court decision backing a Finra arbitration panel award.
Joseph Ellison, who left the bank-owned broker in early 2012 after two-and-a-half years, filed for bankruptcy in 2014 three weeks after receiving notice from the Finra panel that he was bound by his promissory note to pay back the loan, according to the decision. He also took the unprecedented step of prepaying $52,000 on his home mortgages within six days of learning that his arbitration attempt to escape repayment had failed.
The U.S. Bankruptcy Court for the Central Division of California “did not err in finding that Debtor made transfers with the intent to hinder or delay a creditor,” a three-judge panel ruled in response to the appeal Ellison filed on September 8, 2017. “The bankruptcy court committed no clear error in finding the facts.”
Filing for bankruptcy to escape signing-bonus promissory note commitments is rare and risky for brokers because it can derail their careers, said Kevin Hoffman, an employment lawyer in Greenwich, Conn., who was not involved in the Ellison case.
Ellison, who is now a registered investment advisor with Holly Street Wealth Advisors in Pasadena, Calif., did not return a call for comment.
The advisor, who spent the first 16 years of his brokerage career with Morgan Stanley in Beverly Hills, initiated his arbitration claims against J.P. Morgan in June 2012 in an attempt to escape repayment, the courts found. The bank counterclaimed with a successful request for the outstanding loan balance he owed of $550,000 plus interest and $200,000 in attorney’s fees.
Ellison argued in his appeal that he transferred $121,000 from personal bank accounts to those of companies he owned out of concern that he would “leave his family destitute,” according to court papers. But the judges ruled that his visit to an asset protection attorney in Las Vegas in January 2014, six months before the bankruptcy filing, helped corroborate J.P. Morgan’s claims.
After leaving J.P. Morgan Securities in April 2012, Ellison worked for two-and-a-half years at Mutual Securities in Beverly Hills, according to his BrokerCheck record. Finra suspended him from working as a registered representative in November 2016 because of his failure to comply with the arbitration award and to cooperate with its investigation of the status of his compliance.
