Advisor accuses Wells Fargo of pulling 'bait and switch' with promissory note

An ex-Wells Fargo advisor is accusing his former employer of running a "bait and switch" scheme when it offered him nearly $1 million to come over from Merrill.

Tommy Nguyen, a no longer registered broker and advisor from Fountain Valley, California, sued Wells Fargo Advisors in St. Louis on Monday over allegations that he was misled when he was recruited from Merrill last year. Nguyen, who left Wells Fargo in June, contends that Wells dangled before him a $924,173 "transition bonus" that he would receive in a lump-sum payment after making the move. He later learned, according to the suit, that the money was in fact a loan that could be paid back only if he met certain revenue generation and other performance criteria.

Meanwhile, according to the suit, a series of fumbles Wells made in trying to provide Nguyen with working email addresses and phone numbers ended up costing him virtually his entire book of business — formerly valued at about $70 million. As a result, the suit contends, he saw "a reduction in pay from more than $200,000.00 in 2022 to minimum wage level pay of approximately $50,019.54 in 2023."

California set its minimum wage at $16 an hour at the start of the year. That comes out to just over $30,000 a year for a full-time worker.

Recouping promissory notes

Wells Fargo declined to comment on Nguyen's suit. When firms have disputes over recruiting loans, they usually try to recoup any money still owed them by going before arbitration panels overseen by the Financial Industry Regulatory Authority, the broker-dealer industry's self-regulator. 

Nguyen's lawyer, William Carlisle of the Carlisle Law Firm in Flowery Branch, Georgia, said he's not aware of Wells submitting a FINRA complaint against his client.

"But I wouldn't be the least bit surprised if they did file a claim at some point," Carlisle said.

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Firms use promissory notes — technically loans — to give new recruits an incentive to stick around for a certain amount of time. As long as new advisors fulfill their obligations, often to stay put for seven to 10 years, the loans are forgiven; if they leave early, they can be forced to pay back the outstanding balance, plus interest.

Wells has been among the firms aggressively pursuing former employees who leave before the completion of the years of employment often required by their recruiting deals. On May 10, a FINRA arbitration panel awarded Wells roughly $4.2 million from an unpaid promissory note issued to Joseph Siedler, an advisor who left after a stint of slightly more than a year to go to RBC Capital Markets in mid-2021. Just two days before that, a FINRA arbitrator ordered Robert Boyer, who left Wells after six years, to pay back $1.1 million on three promissory notes. 

Rick Rummage, an industry recruiter and the CEO of The Rummage Group, said promissory notes are so common in recruiting deals, it beggars belief that advisors wouldn't know they weren't signing up for one when moving firms. More likely, Rummage said, Nguyen simply found it harder than expected to move his clients over.

"And advisors are notorious for not seeking legal counsel or seeking advice from recruiters," Rummage said. "And another big mistake they make, if they do get an attorney, is that they do not get a securities attorney. If you get a regular old contract attorney, they may not understand what's common in the securities industry and may not give you the best advice." 

Nguyen's lawyer, Carlisle, said he thinks many times the supervisors who are making recruiting pitches don't actually understand how promissory notes work.

"It's only when you get to the back office and start working with accountants that you get chapter and verse on how these things go," Carlisle said.

Terms of promissory notes

Nguyen's lawsuit says his $924,173 recruiting payout was calculated at 150% of the revenue he had generated over the previous year at Merrill. The suit says Nguyen did receive the money about a month after he started working at Wells. 

Separately, though, Nguyen had been presented with documents saying he had taken out a loan for the same amount from Wells. He was told he had just over nine years to pay it off, plus interest, over the course of 112 monthly installments.

Money for those payments was to come from a series of monthly bonuses that Nguyen earned in accordance with his revenue generation and other performance measures. Crucially, Nguyen contends he was never informed he was taking on a loan before making the move to Wells Fargo.

"The documents presented by the defendant contained previously undisclosed terms and conditions that were materially different from the terms and conditions of the pre-employment recruiting offer used to induce the plaintiff to terminate his employment and FINRA registration with Merrill Lynch," according to the suit.

Forced to quit

Nguyen's suit lobs an accusation of "constructive discharge" — arguing Nguyen was essentially forced to quit due to Wells' pay policies and missteps involving his phone numbers and email address. 

Part of that trouble started with emails sent to Nguyen's former clients to tell them he had moved to Wells Fargo. But replies, instead of being directed to Nguyen, went instead to a different Tommy Nguyen who had previously left the firm. Even after Nguyen's email address was changed, the replies continued to be sent to the former employee, according to the suit.

Nguyen experienced similar difficulties, his suit contends, with phone numbers assigned him by Wells Fargo. At first, the number assigned to him connected to a voicemail service at an inaccessible address. Later he was given a number that already belonged to a totally unrelated person's cell phone, according to the suit.

One of his former clients eventually told him he had received a voicemail from someone named Matt.

"The voicemail from Matt stated that he has been receiving numerous calls for 'Tommy' on his personal cell phone and informed the client that he was calling the wrong number," according to the suit.

Nguyen was later assigned a number belonging to a fax machine and then a number already assigned to another person's cell phone, according to the suit. Every time he changed his number and email address, he also had to order new business cards.

Nguyen's suit contends that his pay was highly dependent on his ability to move his former clients over to Wells. When he was stifled in those transfers and his revenue generation started falling, according to the suit, his monthly bonus payments — used to pay off installments of his promissory note — were reduced by half.

"When the plaintiff's earnings were insufficient to satisfy the amount of the defendant's monthly deductions, the defendant began calculating a running 'arrears' balance, allowing for increased deductions from the plaintiff's future earnings, keeping his compensation at minimum wage indefinitely," according to the suit.

"They were squeezing him on both ends," Carlisle said of his client.

Tax avoidance allegations

The suit also accuses Wells Fargo of running what it calls a "tax avoidance scheme." If the $924,173 Nguyen was promised had been paid as a bonus, it would have counted as taxable income under IRS rules. By instead deeming the money a loan, that tax obligation was avoided, according to the suit.

This isn't the first time Nguyen has been with Wells Fargo Advisors. He started his career at Merrill in 2006 and then left in 2010 for Wells, where he stayed for less than a year before going back to Merrill for 11 years. Nguyen is no longer registered with the Securities Exchange Commission or the Financial Industry Regulatory Authority.