Broker Bonuses and Forgivable Loans - When Brokers Place Personal Profits Above Client Interests, a William Mark Heiden Case Study

Attorney Advising Disclaimer

On the heels of FINRA's January 2019 complaint charging former Wedbush Securities broker William Mark Heiden of Southern California with unauthorized trading in elderly clients' brokerage accounts, Heiden is in the news again as part of a larger exposé about stockbrokers who put their clients at risk while pursuing massive bonuses and commissions offered by firms looking to drum up their bottom line.

According to a comprehensive Minnesota Tribune article on broker bonuses, the story began when Heiden (CRD #2885156) switched firms in 2013, joining Wedbush after a six-year stock broker stint at Morgan Stanley's offices in Newport Beach, CA.

The article states that Heiden invested a client's funds in an oil company that went bankrupt. In January, FINRA identified the Clearbridge American Energy MLP Fund as the product Heiden purchased using $47,480 of an 87-year-old widow's funds.

Heiden purportedly depleted one client's account by $200,000 over a five-year span and executed trades without permission in risky investments that paid larger commissions or fees than more conservative products, such as those the customer preferred. And for what?

It turns out, according to the Tribune, Wedbush Securities paid William Heiden $2.1 million in the form of a forgivable loan to move his stockbroker business from Morgan Stanley to Wedbush, and additionally promised Heiden a $135,000 bonus if he generated $2 million in commissions in his first year at Wedbush.

Coincidentally, Wedbush Securities has paid out nearly $2 million to settle customer complaints of fraud, unauthorized trading, and suitability breaches levied against Heiden.

Nothing comes free in the securities industry. Firms often poach top producers from other firms. The poachers offer "bonuses" based on the broker's production. However, those bonuses have steely jaws, they are termed as forgivable loans. The broker must make production quotas for a term of years (or sometime quarters) in exchange for a partial forgiveness of the loan. For example, a firm recruits a top producing stockbroker with an offer of a $1 million bonus in the form of a five-year forgivable loan based on the broker making production quotas each year. For each of the next five years, the broker must make the quota to receive a $200,000 forgiveness. If the broker doesn't make the quota, the firm fires the stock broker and brings an arbitration claim against its former employee to collect on the remaining loan balance.

The article also implicated Ameriprise Financial and Wells Fargo as other firms that have paid out tens of millions of dollars to settle similar fraud complaints filed against brokers who accepted bonuses to change firms. Many of these come with disputes that alleged unsuitable recommendations and excessive fees, while others were settled through the assistance of arbitration lawyers without much public fanfare.

One bonus-baited broker, James Madden, took a job with Raymond James after the firm offered him a $150,000 forgivable loan to join the team, but required he reach sales targets and meet quotas or else he would have to pay back $7,500 for each three-month period in which he failed to meet Raymond James' trading requirements. Madden responded by secretly churning client accounts, with regulators ultimately suspending Madden for making a series of unauthorized trades in at least 15 customers' accounts.

Said Madden, "If I was Raymond James, I wouldn't want anybody to know about that [bonus] program. It is ridiculous. If my clients knew about that, they would have fired me, I am sure."

If you have invested with William Mark Heiden, James Madden, or with any broker or financial adviser who has recommended, solicited, or otherwise pushed a risky product not suitable given your investment objectives and risk tolerance preferences, and this illicit conduct has proven harmful to your investments or interests due to incurring excessive fees and commissions, or losses when the risky investments performed poorly, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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