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February 7, 2022

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Six-and-a-half years after joining Merrill Lynch’s Santa Monica, California office, a 33-year industry veteran must pay nearly $1 million back to his former firm, UBS Wealth Management USA, as part of a long-running promissory-notes dispute.

The broker, Michael A. Margiotta, who left UBS in June 2015, was ordered by a panel of three Financial Industry Regulatory Authority arbitrators to repay his former firm $763,609.03 in principal and interest on four outstanding promissory notes, plus $182,355.75 in attorneys’ fees and costs, according to the January 31 award.

UBS had filed its statement of claim against Margiotta in September 2017 alleging Margiotta breached the terms of the notes by failing to repay the principal balance upon termination of his employment. 

Margiotta had denied the allegations and asserted counterclaims including violation of anti-fraud provisions in the Exchange Act, common law fraud, and fraudulent inducement. He sought roughly $950,000 on those counts plus undefined punitive damages, but the panelists denied his counterclaims.

Reached at his office, Margiotta declined to comment on the Finra decision or if he would challenge the award. Steve A. Buchwalter, the broker’s Encino, California-based lawyer, did not respond to a request for comment.

Margiotta manages roughly $1 billion in client assets, according to a source familiar with his practice. He and another broker, Jerad Chao, had managed about $422.5 million in client assets and produced $1.9 million in annual revenue at UBS upon their 2015 move to Merrill, according to a Reuters report at the time.

The pair do business as Margiotta-Chao, operating out of Merrill’s Wilshire Boulevard office, according to their team page.

Spokespeople for UBS, which denied Margiotta’s counter allegations, and Merrill declined to comment.

The broker and UBS were each assessed $6,500 in hearing session fees, according to the award.

Margiotta, who had been with UBS for about six years, began his brokerage career in 1988 at Lehman Brothers and had worked at Smith Barney, PaineWebber, CIBC World Markets, Donaldson, Lufkin & Jenrette Securities and successor firm Credit Suisse First Boston, according to his BrokerCheck report.

Chao had started at UBS in 2010, according to his BrokerCheck.

The decision is the second victory in a month for UBS in a promissory note case. In mid-January, it successfully clawed back more than $1.2 million from a Chicago broker who left for Stifel, Nicolaus & Co. in 2016.

The cases reflect the high risks of a common industry practice at many major firms, which often pay top producers eye-catching signing offers that can be more than two or three times a broker’s trailing-12 month revenue. Brokers are required to stay at the firm for upwards of a decade before the bonuses, structured as forgivable loans, are fully amortized. 

UBS had $1.83 billion in outstanding forgivable loan balances tied to recruiting in the U.S. at the end of the fourth quarter, down 2% from the year-ago quarter, according to the Swiss bank’s most recent earnings report.

In November, the firm alleged in federal court in Georgia that ex-broker, Daniel P. Motherway, and his wife engaged in “a fraudulent scheme” by his transferring of real estate to her to “hinder, delay or avoid” its collection of $1.1 million in a promissory note case. The case is still pending.

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