Citigroup Global Markets has been ordered to pay $500,000 to a former branch manager who alleged the company fired him because of his age. The arbitration award against the firm found that the firm violated Florida's civil rights statute in 2008 when it terminated the branch manager.
Age discrimination cases are extremely difficult to prove in FINRA arbitrations, given the limited amount of discovery, and the reluctance of arbitration panels to order discovery regarding terminations and human resources issues. I was therefore eager to learn what it was that caused this particular panel to award a half a million dollars in damages.
The FINRA panel did not explain its reasons for the decision, but according to an article in Reuters, the branch office manager began to hear from other branch managers who told him they were being "forced" back into broker positions and replaced with younger employees. His manager made frequent remarks about age. For example, he said that the manager was "getting kind of long in the tooth" for the job, and "When you reach your age, you should think of retirement and not working," according to the Reuter's article. The article also claims that the manager then engaged in a series of actions against branch manager, including giving him a "final warning" for alleged employee complaints and reducing his bonus by 3 percent as a penalty for an alleged customer complaint, according to the document. The branch manager was eventually "offered" a position as a broker while on family leave after his sister died. Citigroup replaced him with a 42-year-old manager, according to the article.
Citigroup unit to pay $500,000 in age bias case - Yahoo! News
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FINRA Fines Merrill Lynch $1 Million for Failure to Arbitrate Disputes With Employees
Kamis, 26 Januari 2012 0 komentar
FINRA has fined Merrill Lynch, Pierce, Fenner & Smith $1 million for failing to arbitrate disputes with employees relating to retention bonuses. Registered representatives who participated in the bonus program had to sign a promissory note that prevented them from arbitrating disagreements relating to the note, forcing the registered representatives to resolve disputes in New York state courts.
After merging with Bank of America in January 2009, Merrill Lynch implemented a bonus program to retain certain high-producing registered representatives and purposely structured it to circumvent the requirement to institute arbitration proceedings with employees when it sought to collect unpaid amounts from any of the registered representatives who later left the firm. FINRA rules require that disputes between firms and associated persons be arbitrated if they arise out of the business activities of the firm or associated person.
In January 2009, Merrill Lynch paid $2.8 billion in retention bonuses structured as loans to over 5,000 registered representatives. Merrill Lynch structured the program to make it appear that the funds for the program came from MLIFI, a non-registered affiliate, rather than from the firm itself, allowing it to pursue recovery of amounts due in the name of MLIFI in expedited hearings in New York state courts to circumvent Merrill Lynch's requirement to arbitrate disputes with its associated persons. Later that year, after a number of registered representatives left the firm without repaying the amounts due under the loan, Merrill Lynch filed over 90 actions in New York state court to collect amounts due under the promissory notes, thus violating a FINRA rule that requires firms to arbitrate disputes with employees.
FINRA Fines Merrill Lynch $1 Million for Failure to Arbitrate Disputes With Employees
Court Confirms Scope FINRA Arbitration Jurisdiction
Senin, 26 September 2011 0 komentarThe federal appellate court in New York has rules that an issuer who used UBS' auction rate securities services can force UBS to arbitrate a dispute over those services under the mandatory arbitration provisions under FINRA's rules.
The securities industry is the only industry in the United States where its firms and employees are forced to arbitrate disputes with their customers, and between themselves, by government regulation. This decision clarifies the scope of that requirement, which only requires a firm to arbitrate disputes with "a customer."
Some commentators, including my friends at the ADRProfBlog, are calling the decision an expansion of FINRA arbitration jurisdiction. I don't agree, and do not believe there was ever a serious dispute over the definition of "customer" in the FINRA rules. As the Court pointed out, every definition of "customer" is basically one who purchases goods or services. The Isssuer in the case was clearly purchasing UBS' services in connection with the maintenance and operation of its auction rate securities auctions, and as an underwriter, was a customer.
There is a more interesting aspect to this decision however. The Issuer filed a FINRA arbitration against UBS alleging fraud in connection with the auction rate securities program organized and operated by UBS. UBS is losing arbitration claims left and right, over auction rate securities and Lehman Principal Protection Notes. UBS did not want to go to a FINRA arbitration, and filed in Court to stop the arbitration. The Federal District Court denied the request, ruling that the Issuer is a customer. UBS appealed again, to the Second Circuit, which again ruled that the Issuer was a customer. Which, as noted above, was the only answer that the Court could reach under these circumstances.
Is this a case of UBS attempting to run up its adversary's legal costs in order to achieve a result to which it would not obtain from a court? Perhaps, and in this case the adversary had the funds to fight. What happens when they engage in such conduct with an employee, or a customer?
2nd Circuit Affirms $400 Million FINRA Arbitration Award
Selasa, 07 Juni 2011 0 komentar
Professor Jill Gross at the ADR Prof Blog provides the details - the Second Circuit affirmed a denial of a vacatur motion in the context of a $400 million FINRA arbitration award. In STMicroelectronics, N.V. v. Credit Suisse Securities (USA), LLC, Docket No. 10-3847-cv (2d Cir. June 2, 2011), Credit Suisse moved to vacate an award against it arising out of its sale of auction-rate securities (“ARS”) to STMicroelectronics (“ST”), a semiconductor manufacturer. Credit Suisse sold ARS to ST, and, when the ARS market froze in August 2007, more than $400 million of ARS owned by ST failed at auction, rendering them illiquid and significantly lower in value.
Second Circuit Affirms $400 Million FINRA Arbitration Award
Second Circuit Affirms $400 Million FINRA Arbitration Award
Actor Larry Hagman Settles with Citigroup
Selasa, 19 April 2011 0 komentarWhen Actor Larry Hagman (Dallas and I Dream of Jeanie) sued Citigroup for mismanagement of his investments, and won, the case made headlines. Of course there was the story that JR Ewing sued his financial advisor, but then there was the amount of the award - $1.1 million in damages, and $10 million in punitive damages.
But the award has been used in the press to argue that arbitration is bad - you see, Citigroup appealed! Imagine that, a punitive damage award that is 10 times the compensatory damages and they had the nerve to appeal!
Some commentators seem to forget that customers, and firms, have a RIGHT to appeal an arbitration award. It is a right that is rarely excerised, and is rarely successful, but it is a right. And given such a significant punitive damage award, that would be tossed by most judges if a jury imposed such an amount, it was not a surprise to see Citigroup appeal the award. Add to that the fact that the arbitrators tacked on an additional $400,000 in attorneys fees, and an appeal was almost a guarantee.
What was even more newsworthy, but completely overlooked by those same commentators, was the fact that Citigroup WON the appeal. The arbitration award was thrown out. I have not been able to locate the decision, but Bloomberg reported that the award was vacated because one of the arbitrators failed to disclose that he had been involved in a similar lawsuit in 2007. Sounds like Citigroup was well within its rights to appeal the decision.
But we will never know the outcome. The NYT is reporting that Hagman and Citigroup settled their dispute - Shades of J.R. Ewing: Citigroup and Larry Hagman Reach Accord - NYTimes.com
ADR, Securities Law and Facebook
Sabtu, 16 April 2011 0 komentarThere was big news last week in the Facebook world - the 9th Circuit affirmed the dismissal of the suit by the Winklevoss twins against Mark Zuckerberg in the case of Facebook, Inc. vs. ConnectU, Inc. The case involves claims by the twins that Zuckerberg stole their source code for ConnectU and used it to create Facebook.
The decision is not the resolution of the dispute, which was settled years ago, with the twins receiving $180 million in stock and $20 million in cash. They certainly did not lose, but what they did lose was their attempt to set aside the settlement based on claims of securities fraud committed during the mediation of the original dispute.
Professor Jill Gross has a detailed analysis of the case, which she said "involved the interaction of three of my favorite things: ADR, Securities Law and Facebook." I wouldn't put Facebook up there with ADR and Securities Law, but the Professor's analysis is worth a read at her blog - ADR, Securities Law and Facebook – I “like”.
More Securities America Arbitrations Stayed in Favor of Class Actions
Selasa, 08 Maret 2011 0 komentarSecurities arbitration claims against broker-dealers who sold shares of Medical Capital Holdings and Provident Royalties were being filed at a break-neck pace after the SEC charged the issuers with fraud in connection with the offerings. At the same time, class actions were filed across the country against the same brokerage firms.
Some of the broker-dealers who sold the securities have been forced to close and others are in danger of closing, as investors in the issuers attempt to argue that the individual brokerage firms are responsible for the fraud of the issuers.
That legal theory is difficult to prove, as the investor would have to prove that the brokerage firm was aware of the fraud, or should have been aware of the fraud. Still, tens of millions of dollars in arbitration claims is enough to force firms to re-think their strategies with dealing with the claims.
On the other side of the coin, securities attorneys will have their clients opt out of the class actions, since the potential recovery in a class action can often be pennies on the dollar. While class actions can be an excellent way of addressing wide-spread wrongs, the costs in bringing and maintaining a class action that has thousands of plaintiffs are significant. An individual investor with a potential claim should do better in his own arbitration, rather than joining the class.
Those costs are a large factor in decision of firms to attempt to avoid class actions, and to deal with investor claims one on one. Arbitration seems to be where everyone wants to be.
The decisions by one Judge in Texas have twisted this interesting alignment of interests. Judge W. Royal Furgeson Jr. of U.S. District Court for the Northern District of Texas has stayed arbitrations relating to the two offerings. The media is reporting that the Judge forced the investors into the class action, which is odd, and probably unconstitutional. However, that is not the case.
What Judge Furgeson did was to stay the three pending arbitrations one of which were scheduled to begin the following week and two others, which were scheduled to begin later.
The decision is interesting for a couple of reasons. First, according to my reading of the order, the claimants in the arbitration "would apparently be members of the proposed settlement class." It seems to me that either they are members of the class, or they are not, and I presume that all three claimants opted out of the class action. To my mind there is a problem with staying a proceeding brought in another forum, by someone over whom the court does not have jurisdiction.
However, Judge Furgeson relies on caselaw and the All Writs Act, to support his decision. I haven't done the research, but the cases quoted certainly do support the court's order. He also points out that all he is doing is temporarily restraining the arbitrations from moving forward, until he has the opportunity to consider the questions of jurisidiction and whether such relief is appropriate. The Court's concern is for the class, and the potential for the individual arbitrations to expend funds that could be used to pay the class action settlement.
All well and good, but noble purposes does not make the decision right.
I am certainly not a constitutional scholar, but this one just doesn't pass the smell test for me. Aside from the socialistic aspect of this (please, no political emails), I cannot fathom how a judge can stay private arbitration proceedings because it will expend the defendant's available pool of resources to settle the class action, and will give some investors more money than others. I understand the concept in bankruptcy court, but to my mind it has no application in civil court.
The decision also points out other decisions that hold that staying an arbitration, in order to preserve assets for a class action is "not a sufficient basis to limit an opted-out class member's contractual right to arbitrate." THAT makes legal sense to me. These claimants opted out of the class, they decided to go on their own, spend their own time and money to pursue their own claims, giving up the "benefits" of being members of the class.
It will be interesting to see what happens down the road. Assuming he stays the arbitrations on a permanent basis, does he have the power to force those arbitration claimants into the class action? Do they then bear the burden of having spend their own time and money (or their attorneys' time and money) to see it all washed away without compensation and without any benefit? What about the arbitrations that have already concluded? Doesn't the same rationale apply to the arbitration claimants who have already collected their awards? Under this theory, don't they have to return the money?
At the same time, this is a significant victory for Securities America. Defending corporations in these mass tort type actions is a challenge, as one has to deal with the legal issues, the factual issues, and the practical considerations that the firm does not have the money to pay the alleged losses. Fighting an unlimited war on multiple fronts is a problem for companies who are defending these types of claims.
Judge Furgeson's decision addresses some of that. Assuming his stay is not overturned, the Class Action Settlement will provide for a fixed pool of money to pay all claims against the firm, and we can assume that the broker-dealer will be able to stay in business after the payment of all claims. The brokerage firm gets to cap its costs, which for it is a good thing, under the circumstances.
The second interesting point is the reaction from the claimants bar - the attorneys who represent investors against brokerage firms. For years those attorneys have been beating the drum about how unfair arbitration is, and how customers are being forced to give up their right to sue in court. I don't agree with the argument, and still believe that despite its flaws securities arbitrations (which are different than consumer arbitrations) are vastly superior in dispute resolution than court proceedings. But I can respect and understand the argument, even though I disagree.
What makes this all very interesting is that now the customer attorneys are claiming that it is unfair for their clients to be in court. Of course, it is the class action they are arguing against, not the court proceedings in general, but I have to chuckle when I see this quote an investor attorney regarding the restraining order - “It strips the rights of the investors to arbitrate claims and have claims heard by arbitration panels." The quote is usually that arbitration agreements strip the rights of investors to be in court and have their claims heard by a jury.
But that is what I love about securities law. The law is never the same, and neither are the arguments.
We put the decision online here. InvestmentNews.com has a story on the decision as well, here.
Some of the broker-dealers who sold the securities have been forced to close and others are in danger of closing, as investors in the issuers attempt to argue that the individual brokerage firms are responsible for the fraud of the issuers.
That legal theory is difficult to prove, as the investor would have to prove that the brokerage firm was aware of the fraud, or should have been aware of the fraud. Still, tens of millions of dollars in arbitration claims is enough to force firms to re-think their strategies with dealing with the claims.
On the other side of the coin, securities attorneys will have their clients opt out of the class actions, since the potential recovery in a class action can often be pennies on the dollar. While class actions can be an excellent way of addressing wide-spread wrongs, the costs in bringing and maintaining a class action that has thousands of plaintiffs are significant. An individual investor with a potential claim should do better in his own arbitration, rather than joining the class.
Those costs are a large factor in decision of firms to attempt to avoid class actions, and to deal with investor claims one on one. Arbitration seems to be where everyone wants to be.
The decisions by one Judge in Texas have twisted this interesting alignment of interests. Judge W. Royal Furgeson Jr. of U.S. District Court for the Northern District of Texas has stayed arbitrations relating to the two offerings. The media is reporting that the Judge forced the investors into the class action, which is odd, and probably unconstitutional. However, that is not the case.
What Judge Furgeson did was to stay the three pending arbitrations one of which were scheduled to begin the following week and two others, which were scheduled to begin later.
The decision is interesting for a couple of reasons. First, according to my reading of the order, the claimants in the arbitration "would apparently be members of the proposed settlement class." It seems to me that either they are members of the class, or they are not, and I presume that all three claimants opted out of the class action. To my mind there is a problem with staying a proceeding brought in another forum, by someone over whom the court does not have jurisdiction.
However, Judge Furgeson relies on caselaw and the All Writs Act, to support his decision. I haven't done the research, but the cases quoted certainly do support the court's order. He also points out that all he is doing is temporarily restraining the arbitrations from moving forward, until he has the opportunity to consider the questions of jurisidiction and whether such relief is appropriate. The Court's concern is for the class, and the potential for the individual arbitrations to expend funds that could be used to pay the class action settlement.
All well and good, but noble purposes does not make the decision right.
I am certainly not a constitutional scholar, but this one just doesn't pass the smell test for me. Aside from the socialistic aspect of this (please, no political emails), I cannot fathom how a judge can stay private arbitration proceedings because it will expend the defendant's available pool of resources to settle the class action, and will give some investors more money than others. I understand the concept in bankruptcy court, but to my mind it has no application in civil court.
The decision also points out other decisions that hold that staying an arbitration, in order to preserve assets for a class action is "not a sufficient basis to limit an opted-out class member's contractual right to arbitrate." THAT makes legal sense to me. These claimants opted out of the class, they decided to go on their own, spend their own time and money to pursue their own claims, giving up the "benefits" of being members of the class.
It will be interesting to see what happens down the road. Assuming he stays the arbitrations on a permanent basis, does he have the power to force those arbitration claimants into the class action? Do they then bear the burden of having spend their own time and money (or their attorneys' time and money) to see it all washed away without compensation and without any benefit? What about the arbitrations that have already concluded? Doesn't the same rationale apply to the arbitration claimants who have already collected their awards? Under this theory, don't they have to return the money?
At the same time, this is a significant victory for Securities America. Defending corporations in these mass tort type actions is a challenge, as one has to deal with the legal issues, the factual issues, and the practical considerations that the firm does not have the money to pay the alleged losses. Fighting an unlimited war on multiple fronts is a problem for companies who are defending these types of claims.
Judge Furgeson's decision addresses some of that. Assuming his stay is not overturned, the Class Action Settlement will provide for a fixed pool of money to pay all claims against the firm, and we can assume that the broker-dealer will be able to stay in business after the payment of all claims. The brokerage firm gets to cap its costs, which for it is a good thing, under the circumstances.
The second interesting point is the reaction from the claimants bar - the attorneys who represent investors against brokerage firms. For years those attorneys have been beating the drum about how unfair arbitration is, and how customers are being forced to give up their right to sue in court. I don't agree with the argument, and still believe that despite its flaws securities arbitrations (which are different than consumer arbitrations) are vastly superior in dispute resolution than court proceedings. But I can respect and understand the argument, even though I disagree.
What makes this all very interesting is that now the customer attorneys are claiming that it is unfair for their clients to be in court. Of course, it is the class action they are arguing against, not the court proceedings in general, but I have to chuckle when I see this quote an investor attorney regarding the restraining order - “It strips the rights of the investors to arbitrate claims and have claims heard by arbitration panels." The quote is usually that arbitration agreements strip the rights of investors to be in court and have their claims heard by a jury.
But that is what I love about securities law. The law is never the same, and neither are the arguments.
We put the decision online here. InvestmentNews.com has a story on the decision as well, here.
Arbitration Award Forces Closing of B-D
Senin, 07 Februari 2011 0 komentarQA3 Financial Corp, a independent broker dealer, announced that it was closing its doors next week. According to InvestmentNews.com, the decision came as a result of an arbitration award against the firm. If true, the firm didn't have much choice - an arbitration award is a hit on net capital. If a firm's net capital falls too low, it must close, and that appears to be the case here.
The firm has been caught up in the Regulation D frenzy, where investors are suing their brokers over failed investments in private placements. According to InvestmentNews, QA3 has been in suits over two deals, Medical Capital and Provident Royalties. Both companies face fraud charges from the SEC, and investors have sued the brokerage firms for selling the security, despite the fact that fraud charges have not been brought against the broker dealers.
More...
The firm has been caught up in the Regulation D frenzy, where investors are suing their brokers over failed investments in private placements. According to InvestmentNews, QA3 has been in suits over two deals, Medical Capital and Provident Royalties. Both companies face fraud charges from the SEC, and investors have sued the brokerage firms for selling the security, despite the fact that fraud charges have not been brought against the broker dealers.
More...
SEC Approves FINRA Rule Change for All Public Arbitration Panels
Selasa, 01 Februari 2011 0 komentarThe FINRA practice of requiring an "industry" arbitrator on all of its arbitration panels has finally come to an end. The requirement once upon a time had some merit, back in the day when arbitrations were simple, handled in a few afternoons, and were primarily simple disputes. Over the decades that I have been representing parties in securities arbitrations, the landscape has changed dramatically. While the concept was to have someone on a panel who understood the workings of the securities industry, FINRA altered the definition of industry arbitrator to the extent that so many individuals were included that the entire concept was lost in rule changes.
It was also an issue to have an "experienced" industry arbitrator on a panel. While the thought is that the industry arbitrator could help the other arbitrators, that is simply not the case, and the risk that the panel will make decisions based on information from the industry arbitrator that was not evidence in the case has become far too great.
The practice is finally over. Yesterday FINRA announced that the SEC has approved its proposed rule change to provide customers in all FINRA arbitrations the option of having an all public panel. The amended rules will apply to all customer cases in which a list of potential arbitrators has not yet been sent to the parties.
Given the fact that 40% of all participants in the "all public" pilot program still chose an industry arbitrator, I do not expect to see any significant changes in the composition of panels. As experienced practitioners know, the best arbitrator is a fair and reasonable one, and that is very often an "industry" arbitrator. What will change is the complaining about the selection process. While the complaint that the "industry" arbitrator will side with the industry is insulting to the professionalism of our arbitrators, the complaint did have some traction with the public and the press and it was time for the requirement to go. More...
It was also an issue to have an "experienced" industry arbitrator on a panel. While the thought is that the industry arbitrator could help the other arbitrators, that is simply not the case, and the risk that the panel will make decisions based on information from the industry arbitrator that was not evidence in the case has become far too great.
The practice is finally over. Yesterday FINRA announced that the SEC has approved its proposed rule change to provide customers in all FINRA arbitrations the option of having an all public panel. The amended rules will apply to all customer cases in which a list of potential arbitrators has not yet been sent to the parties.
Given the fact that 40% of all participants in the "all public" pilot program still chose an industry arbitrator, I do not expect to see any significant changes in the composition of panels. As experienced practitioners know, the best arbitrator is a fair and reasonable one, and that is very often an "industry" arbitrator. What will change is the complaining about the selection process. While the complaint that the "industry" arbitrator will side with the industry is insulting to the professionalism of our arbitrators, the complaint did have some traction with the public and the press and it was time for the requirement to go. More...
Merrill Brokers Win $1.167 ML Arb Award For Retained Comp
Minggu, 17 Oktober 2010 0 komentarFor those who believe that the wirehouses would not deny compensation to an employee simply to save money, this article from Registered Rep provides some telling information. According to the article, Merrill Lynch's employee policies provide that a broker who resigns for "Good Reason" is entitled to have his deferred compensation benefits vest at the time of his resignation.
According to the article, at the time of its merger with Bank of America, brokers were leaving, and Merrill canceled the deferred comp benefits, and simply refused to pay out any funds for a "Good Reason" resignation, something Merrill Lynch had agreed to in the compensation plans.
Why would Merrill Lynch unilaterally breach an agreement with its employees? We have represented brokers against a number of wirehouses in this sort of situation, and the firm always has an excuse. "Good Reason" doesn't really mean "Good Reason", or we were going to fire him, or his reason wasn't really good, or some technical defense that is obviously a ploy to avoid paying.
When the broker points out the obviously ploy, and claims that they denied benefits or compensation to a particular broker as a cost saving measure , the firm chuckles in a smug way, claiming that the firm is so big that an individual broker's compensation would have no effect on the bottom line, and such a claim was absurd.
Really. According to the article, the value of the stock and cash that Merrill refused to pay its departing brokers was significant - between $100 million and $300 million dollars. Sure, one broker didn't make a difference, but deny all of the departing brokers their compensation, and you are talking about a significant sum of money. The theory is, I suppose, deny all of them compensation, a few will sue, but all of them will not, and we will be ahead of the game even if we lose the arbitrations.
A FINRA arbitration panel just awarded two Merrill brokers over 1.1 million dollars for this conduct. Unfortunately, no interest and no attorneys fees were awarded so perhaps the theory of "let them sue" actually works. The Registered Rep article is here, the award is at FINRA's website.
According to the article, at the time of its merger with Bank of America, brokers were leaving, and Merrill canceled the deferred comp benefits, and simply refused to pay out any funds for a "Good Reason" resignation, something Merrill Lynch had agreed to in the compensation plans.
Why would Merrill Lynch unilaterally breach an agreement with its employees? We have represented brokers against a number of wirehouses in this sort of situation, and the firm always has an excuse. "Good Reason" doesn't really mean "Good Reason", or we were going to fire him, or his reason wasn't really good, or some technical defense that is obviously a ploy to avoid paying.
When the broker points out the obviously ploy, and claims that they denied benefits or compensation to a particular broker as a cost saving measure , the firm chuckles in a smug way, claiming that the firm is so big that an individual broker's compensation would have no effect on the bottom line, and such a claim was absurd.
Really. According to the article, the value of the stock and cash that Merrill refused to pay its departing brokers was significant - between $100 million and $300 million dollars. Sure, one broker didn't make a difference, but deny all of the departing brokers their compensation, and you are talking about a significant sum of money. The theory is, I suppose, deny all of them compensation, a few will sue, but all of them will not, and we will be ahead of the game even if we lose the arbitrations.
A FINRA arbitration panel just awarded two Merrill brokers over 1.1 million dollars for this conduct. Unfortunately, no interest and no attorneys fees were awarded so perhaps the theory of "let them sue" actually works. The Registered Rep article is here, the award is at FINRA's website.
FINRA Proposes to Drop Industry Arbitrator Requirement
Rabu, 29 September 2010 0 komentarFINRA announced on Tuesday that it is going to propose a rule change which will permit investors in all cases filed with the agency to choose to have their claim decided by a panel of three public arbitrators. Currently, arbitration panels at FINRA are comprised of two public arbitrators and one arbitrator that has some connection to the financial industry.
Quite honestly, this is all much ado about nothing. There was a time when an industry arbitrator was beneficial to the process. However, during recent years, as FINRA changed the rules so appease investors, the definition of an industry arbitrator has become so expansive as to be meaningless in many cases. Clerks, runners, and secretaries who work at brokerage firms are considered industry arbitrators, and while they do a fine job, they do not offer any industry knowledge to the arbitration panel because of their industry "affiliation."
The entire concept of an industry arbitrator is a problem. First, it gives a perception of bias, even though there is no restriction on having a customer attorney on a panel. There is simply no reason to require an industry arbitrator. Put out the list, give everyone a choice, and if the parties and their counsel feel that an industry arbitrator would be helpful in a case, they will pick an arbitrator with that affiliation. Or not.
One interesting fact that comes out of the pilot program - 50% of the customers who were given the opportunity to have an all public panel still put an industry arbitrator on the panel.
I have handled hundreds of FINRA/NASD arbitrations. There is simply no benefit in requiring an industry arbitrator, and far too much controversy over the requirement. FINRA should have done away with the concept years ago.
The only problem is, who are investors going to blame when they lose an arbitration if they don't have the industry arbitrator to kick around? More>>>
Quite honestly, this is all much ado about nothing. There was a time when an industry arbitrator was beneficial to the process. However, during recent years, as FINRA changed the rules so appease investors, the definition of an industry arbitrator has become so expansive as to be meaningless in many cases. Clerks, runners, and secretaries who work at brokerage firms are considered industry arbitrators, and while they do a fine job, they do not offer any industry knowledge to the arbitration panel because of their industry "affiliation."
The entire concept of an industry arbitrator is a problem. First, it gives a perception of bias, even though there is no restriction on having a customer attorney on a panel. There is simply no reason to require an industry arbitrator. Put out the list, give everyone a choice, and if the parties and their counsel feel that an industry arbitrator would be helpful in a case, they will pick an arbitrator with that affiliation. Or not.
One interesting fact that comes out of the pilot program - 50% of the customers who were given the opportunity to have an all public panel still put an industry arbitrator on the panel.
I have handled hundreds of FINRA/NASD arbitrations. There is simply no benefit in requiring an industry arbitrator, and far too much controversy over the requirement. FINRA should have done away with the concept years ago.
The only problem is, who are investors going to blame when they lose an arbitration if they don't have the industry arbitrator to kick around? More>>>
Court Affirms Arb Award Against Madoff Feeder Fund
Senin, 30 Agustus 2010 0 komentarWe have always been of the opinion that Madoff feeder funds have potential exposure to investor claims for not disclosing or monitoring the feeder funds investments with Madoff. That exposure is heightened in some instances, where the feeder fund simply turned over the funds to Madoff, took a piece of the management fees, and did little else.
A New York court has confirmed a AAA arbitration award against Ascot Partners in favor of an Ascot investor for failing to disclose Madoff's exclusive role in managing the investor's assets.
Professor Jill Gross, at the ADR Blog, has an analysis of the decision. The arbitration panel, which rendered a 23 page decision in the arbitration, was chaired by none other than David Robbins, a well known investor attorney.
A New York court has confirmed a AAA arbitration award against Ascot Partners in favor of an Ascot investor for failing to disclose Madoff's exclusive role in managing the investor's assets.
Professor Jill Gross, at the ADR Blog, has an analysis of the decision. The arbitration panel, which rendered a 23 page decision in the arbitration, was chaired by none other than David Robbins, a well known investor attorney.
Advisors Win $2 Million Award Against NRP
Selasa, 27 Juli 2010 0 komentarTwo financial advisors won $2 million in arbitration from a retirement-plan advisory firm they left Merrill Lynch to join in 2008, only to be let go the following year.
According to this article in FA Magazine, National Retirement Partners sought to have the Indianapolis advisors, Wade Walker and Jeffrey Bafs, return funds the company said they owed through a corporation NRP purchased to buy their practice. It also accused them of violating transition agreements. But a panel of the Financial Industry Regulatory Authority ruled that the claims by the company and two subsidiaries were "frivolous, unreasonable, groundless, and made in bad faith," according to the award document.
The panel awarded a total of $2 million to the two advisors, who had filed their own claim accusing the company, based in San Juan Capistrano, Calif., of defamation, theft of clients, disclosure of confidential information and other offenses. More...
According to this article in FA Magazine, National Retirement Partners sought to have the Indianapolis advisors, Wade Walker and Jeffrey Bafs, return funds the company said they owed through a corporation NRP purchased to buy their practice. It also accused them of violating transition agreements. But a panel of the Financial Industry Regulatory Authority ruled that the claims by the company and two subsidiaries were "frivolous, unreasonable, groundless, and made in bad faith," according to the award document.
The panel awarded a total of $2 million to the two advisors, who had filed their own claim accusing the company, based in San Juan Capistrano, Calif., of defamation, theft of clients, disclosure of confidential information and other offenses. More...
Arbitration Panel Orders Goldman Sachs to Pay $20.58 million
Selasa, 29 Juni 2010 0 komentarGoldman Sachs has been ordered to pay $20.58 million to creditors of a failed hedge fund to settle claims that the bank helped the fund perpetrate a Ponzi scheme. More>>>
Impact of SEC CDO Fraud Case Against Goldman
Minggu, 18 April 2010 0 komentar
An analysis of the impact on investor claims of the SEC CDO fraud complaint against Goldman Sachs.
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Finra Cracks Down On Arbitrator Credentials
Jumat, 19 Februari 2010 0 komentarAccording to Financial Advisor Magazine, FINRA is plugging a loophole that has allowed many of its 6,200 arbitrators to serve on its panels without first checking their credentials. According to the article, FINRA began background verification of arbitrators in October 2003. However, the bona fides of those who had joined its ranks before then were not checked—until now. More>>>
Raiding Case Costs Raymond James $12 Million
Minggu, 07 Februari 2010 0 komentarIn a case involving 20 advisers in 4 branch offices, a securities arbitration panel has ordered Raymond James Associates Inc. to pay $12.1 million to Wells Fargo Advisors LLC for alleged raiding.
The award does not provide any detail of the case, but ordered 10,500,000 in compensatory damages, 1,500,000 in attorneys fees and costs. A copy of the award is available here.
The offices were, at the time, Wachovia offices, and according to published reports, Wachovia Securities allegedly lost $5.3 million in production from the departures of these advisors. FA Magazine has more>>>
The award does not provide any detail of the case, but ordered 10,500,000 in compensatory damages, 1,500,000 in attorneys fees and costs. A copy of the award is available here.
The offices were, at the time, Wachovia offices, and according to published reports, Wachovia Securities allegedly lost $5.3 million in production from the departures of these advisors. FA Magazine has more>>>
Investors Filing Claims Against Lehman Brokers
Kamis, 04 Februari 2010 0 komentarInvestors are starting to file arbitration claims against their Lehman brokers, in an attempt to collect their losses on investments in Lehman principal protected notes. I warned of this eventuality some time ago, as customers who lost money in the notes are going to look to recover those losses. Obviously suing Lehman is not going to accomplish anything, but some customers and their attorneys believe that suing the broker just might.
Lehman brokers have been through quite a bit. These professionals relied management's statements that "all is well" with the company, and were blindsided by the failure of Lehman. The demise of Lehman was devastating for many, for not only did they lose their jobs, they lost their investments, their deferred compensation and for many, their retirement funds, which were invested in Lehman stock.
Now the other shoe is dropping. Many Lehman brokers recommended the principal protected notes to their customers, relying on the information provided to them by Lehman itself. With the corporation gone, these brokers are being forced to defend themselves from claims for those losses - in effect paying twice for the failure of their employer.
Those claims are going to be difficult for the customers to win, but the brokers still have to defend themselves from the claims. Should a customer prevail in an arbitration and obtain an award, that award has to be paid in 30 days, or the broker's securities license will be suspended. And an arbitration award can be confirmed in a court, at which time it becomes a judgment, enforceable like any other judgment.
The solution? Unfortunately there is no good solution. If customers are going to blame their broker for the demise of Lehman, the brokers must defend themselves. Using an experienced securities arbitration defense attorney is the first step, and hiring one who is familiar with Lehman principal protected notes is another. These cases will be difficult for the customer to win, but the experience of the attorney will not only provide a better chance for success, it might even result in reduced defense costs, as there is no learning curve.
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Mark Astarita, Esq. is a securities attorney who represents brokers and firms in every aspect of their litigation, compliance and regulatory matters. He can be contacted at 212-509-6544 or by email at astarita@beamlaw.com
Lehman brokers have been through quite a bit. These professionals relied management's statements that "all is well" with the company, and were blindsided by the failure of Lehman. The demise of Lehman was devastating for many, for not only did they lose their jobs, they lost their investments, their deferred compensation and for many, their retirement funds, which were invested in Lehman stock.
Now the other shoe is dropping. Many Lehman brokers recommended the principal protected notes to their customers, relying on the information provided to them by Lehman itself. With the corporation gone, these brokers are being forced to defend themselves from claims for those losses - in effect paying twice for the failure of their employer.
Those claims are going to be difficult for the customers to win, but the brokers still have to defend themselves from the claims. Should a customer prevail in an arbitration and obtain an award, that award has to be paid in 30 days, or the broker's securities license will be suspended. And an arbitration award can be confirmed in a court, at which time it becomes a judgment, enforceable like any other judgment.
The solution? Unfortunately there is no good solution. If customers are going to blame their broker for the demise of Lehman, the brokers must defend themselves. Using an experienced securities arbitration defense attorney is the first step, and hiring one who is familiar with Lehman principal protected notes is another. These cases will be difficult for the customer to win, but the experience of the attorney will not only provide a better chance for success, it might even result in reduced defense costs, as there is no learning curve.
----------------
Mark Astarita, Esq. is a securities attorney who represents brokers and firms in every aspect of their litigation, compliance and regulatory matters. He can be contacted at 212-509-6544 or by email at astarita@beamlaw.com
Custodial Firm Not Liable for RIA's Alleged MisManagement
Selasa, 12 Januari 2010 0 komentarClearing firms, those entities which perform back office, bookkeeping, accounting, custodian and record-keeping functions for other broker-dealers, hedge funds and investment advisers, are not liable for the investment losses of their client's customers. That has been clear for quite some time, and really isn't in dispute.
The outcome makes sense. Firms like Fidelity and Schwab are not in direct contact with the customers of the firms and RIAs that they carry accounts for, they do not make decisions in the account, and are not the party providing investment advice. They are not compensated for selling securities, or for giving advice, and have no responsibility for the investments, or the advice that the broker or investment adviser provides.
Certainly, if the firm makes a mistake or is negligent in carrying out its obligations, it might be liable to the customer damaged by the negligence, but that is not the same as bearing responsibility for investment losses.
Securities attorneys are well aware of this legal concept, and you don't see many cases brought against clearing firms alleging violations of sales practice violations or inappropriate investment recommendations or choices. But every once in a while you see one, and the decision is typically in line with the concept.
A FINRA arbitration panel rendered such an award, and gave a zero award to an investor who tried to claim that Fidelity was responsible for the losses in their RIA managed accounts. The panel denied the claim as against Fidelity. The RIA was not a party to the arbitration, presumably because there was no arbitration agreement with the RIA firm.
Another interesting point. The customers claimed that they stopped opening their statements when the investments went bad. That was a huge mistake, as the panel found, since customers are charged with the knowledge of the information contained in those statements. Further, by not opening the statements, customers have denied themselves of the ability to monitor and control their own investments, putting a damper on any claim that they were unaware of ignorant of the investments, or the losses.
Read your statements. Take action when you think something is wrong, or run the risk of a zero award.
More>>>
The outcome makes sense. Firms like Fidelity and Schwab are not in direct contact with the customers of the firms and RIAs that they carry accounts for, they do not make decisions in the account, and are not the party providing investment advice. They are not compensated for selling securities, or for giving advice, and have no responsibility for the investments, or the advice that the broker or investment adviser provides.
Certainly, if the firm makes a mistake or is negligent in carrying out its obligations, it might be liable to the customer damaged by the negligence, but that is not the same as bearing responsibility for investment losses.
Securities attorneys are well aware of this legal concept, and you don't see many cases brought against clearing firms alleging violations of sales practice violations or inappropriate investment recommendations or choices. But every once in a while you see one, and the decision is typically in line with the concept.
A FINRA arbitration panel rendered such an award, and gave a zero award to an investor who tried to claim that Fidelity was responsible for the losses in their RIA managed accounts. The panel denied the claim as against Fidelity. The RIA was not a party to the arbitration, presumably because there was no arbitration agreement with the RIA firm.
Another interesting point. The customers claimed that they stopped opening their statements when the investments went bad. That was a huge mistake, as the panel found, since customers are charged with the knowledge of the information contained in those statements. Further, by not opening the statements, customers have denied themselves of the ability to monitor and control their own investments, putting a damper on any claim that they were unaware of ignorant of the investments, or the losses.
Read your statements. Take action when you think something is wrong, or run the risk of a zero award.
More>>>
Lehman Note Investor Obtains 1/2 an Award
Senin, 07 Desember 2009 0 komentar
A FINRA arbitration panel has awarded damages against UBS in favor of an investor who purchased Lehman principal protected notes.
While the WSJ is presenting the award as a significant win for the investor, and an indicator of the outcome of other cases relating to the Lehman notes, I am not so sure this is that big a win. According to the details contained in the article, the investor obtained 1/2 of the claimed damages, plus interest, costs and an undetermined amount for attorneys fees.
Some would say that any recovery is a good recovery, but is this really a win for the investor? The Lehman notes are worthless.
As in most arbitration awards, the three-person arbitration panel didn't give reasons for its findings. According to the WSJ, the investor argued that the notes were "speculative derivative securities" and were "unsuitable" for unsophisticated investors. Investors, and brokers, need to be careful in these cases.
I addressed these issues in my column, Lehman Principal Protected Note Arbitrations. While 1/2 the loss is better than a total loss for the customer, it is not necessarily a win for the customer, nor should it be the standard for the other Lehman Note cases that have been filed.
I do not know the details of the case, but if the investment was unsuitable, then it was unsuitable, and the investor should receive compensation for the loss. In addition, suitability cases are fact specific and investor specific. You simply can't attribute the parameters of an award in one case to other cases.
I will continue to update the blog as new awards become available.
More>>>
[Edited and updated 12/8/09]
While the WSJ is presenting the award as a significant win for the investor, and an indicator of the outcome of other cases relating to the Lehman notes, I am not so sure this is that big a win. According to the details contained in the article, the investor obtained 1/2 of the claimed damages, plus interest, costs and an undetermined amount for attorneys fees.
Some would say that any recovery is a good recovery, but is this really a win for the investor? The Lehman notes are worthless.
As in most arbitration awards, the three-person arbitration panel didn't give reasons for its findings. According to the WSJ, the investor argued that the notes were "speculative derivative securities" and were "unsuitable" for unsophisticated investors. Investors, and brokers, need to be careful in these cases.
I addressed these issues in my column, Lehman Principal Protected Note Arbitrations. While 1/2 the loss is better than a total loss for the customer, it is not necessarily a win for the customer, nor should it be the standard for the other Lehman Note cases that have been filed.
I do not know the details of the case, but if the investment was unsuitable, then it was unsuitable, and the investor should receive compensation for the loss. In addition, suitability cases are fact specific and investor specific. You simply can't attribute the parameters of an award in one case to other cases.
I will continue to update the blog as new awards become available.
More>>>
[Edited and updated 12/8/09]
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