UBS Extracts $4 Million from Breakaway Broker
(Updated with comments from Miramontes.)
In a decision that sheds light on why big brokerage firms have pulled away from expensive hiring deals, an arbitration panel ordered a California-based advisor to pay UBS Financial Services $2.6 million he owed on forgivable-loan promissory notes plus at least $1.4 million more in interest and legal fees.
In its award posted Tuesday on a Financial Industry Regulatory Authority dispute resolution website, the three-person arbitration panel held Isidro Z. Miramontes personally liable for the $2,553,614 unpaid principal balance on six notes he executed between February 2008 and March 2015, encompassing the time of his hiring from Morgan Stanley to the last note he signed four months before leaving UBS to set up an independent registered investment advisory firm called Miramontes Capital.
In court papers filed by UBS more than two-and-a-half years ago as it sought an order restraining Miramontes from calling his former clients, it said that he was part of a team that generated $4.3 million in annual revenue and oversaw some $430 million of client assets. UBS, which ended 2017 with more than $2.6 billion of “forgivable” broker loans on its balance sheet, has dramatically cut its recruiting of experienced brokers in the past two years.
Miramontes, whose hybrid RIA firm oversees some $101 million in client assets, according to its most recent February 2017 Form ADV regulatory filing, said in an emailed statement that he had anticipated having to repay the note balance but was “disappointed” that the panel did not award damages for defamation.
“We never disputed the amounts due under the promissory notes, so the arbitrators’ order to repay them was expected,” Miramontes wrote. “We see that aspect of the ruling as the price of freedom.”
His lawyer, Michael R. Williams of Beinert, Miller & Katzman in San Clemente, Calif., declined to comment on the possibility of an appeal.
In addition to holding the former UBS broker personally responsible for the loan balances that came due when he left, the Los Angeles-based arbitration panel ordered him to pay just over $342,000 in back interest accrued from the time of the arbitration filing in July. He also was assessed another $412 of daily interest that will have accrued from late October, when the last of 24 hearing sessions was completed, through full payment of the note balances.
The broker and Irvine-based Miramontes Capital also were held jointly liable for more than $920,000 of attorneys’ fees and costs, “forensic remediation” and expert witness costs that UBS paid. The arbitration panel also ordered Miramontes and his firm to cover UBS’s $2,000 non-refundable filing fee when it first brought its complaint to Finra.
Miramontes’ former teammates Rodney L. Engel and client associate Veronica Aquino remain at UBS. In a brief interview, Engel said he was not aware of the award and not authorized to comment. Neither were named in the arbitration.
The panel denied UBS’s request for a permanent injunction, which would have blocked him and two associates at this new firm from contacting their former clients. Miramontes said in the statement he was “gratified that they rejected UBS’s baseless trade secret claims.”
The case began in July 2015 when UBS filed for a temporary restraining order in court and in Finra arbitration, and was followed a month later with a motion for return of all the promissory note balances and damages. The firm sought unspecified damages for Miramontes’ alleged breach of contract and misappropriation of trade secrets, and also sought return of all the “confidential” client information and records that Miramontes allegedly took with him.
Miramontes responded with an arbitration counterclaim, accusing UBS of defaming and slandering him after he left the firm, and of breaching covenants of “good faith and fair dealing” with regards to the promissory notes. He also filed a complaint in Orange County, California court in July 2016 that was in December 2016.
His court complaint alleged that his former colleagues told clients at dinner seminars and other meetings that they could “end up in a Bernie Madoff situation” if they transferred their accounts to Miramontes Capital. It also accused UBS employees of altering client records and interfering with the transfer of accounts that his former customers authorized.
A UBS spokeswoman did not return a request for comment about the arbitration decision.
The arbitration panel did not provide written explanation of its decision, which denied Miramontes’ and his firm’s claims “in their entirety.”
Miramontes joined UBS in 2008 with three associates after a 12-year brokerage career that began in 1995 at Morgan Stanley’s Brea, California branch. He also worked at a UBS office in Brea.