April 27, 2014

FINRA Sees 10% Rise in Arbitration Cases, Puerto Rico Bond Claims A Factor

According to statistics put together by the Financial Industry Regulatory Authority, the number of securities arbitration cases brought by the self-regulatory agency is on target to exceed last year’s total. A likely contributor to the increase can be attributed to the numerous Puerto Rico municipal bond cases already filed by investors who sustained huge losses. More of these are inevitable, especially as FINRA just increased its arbitrator pool to deal with cases involving muni bonds from the US territory.

The broker-dealer regulator said that during this first quarter alone, 1,011 FINRA arbitration cases were submitted—a definite increase from the 919 securities arbitration claims filed during 2013’s first three months. However, the number of arbitration cases that were closed during this first quarter is less than in two years prior, with just 946 resolved. Compare that to the over 4,400 and 4,800 cases in 2013 and 2012, respectively.

That said, 5O% of arbitration cases decided during this initial quarter rendered damage awards, which is more than in the last two years. The most common claim in FINRA arbitration cases filed in 2014 so far is breach of fiduciary duty. Negligence, failure to supervise, and breach of contract are the other leading claims.

FINRA Arbitration
Arbitration is another means to resolving disputes as opposed to mediation and arbitration. A FINRA panel of arbitrators presides over the cases, studies the evidence and issues a ruling. The decision is final and binding unless a successful challenge is made in court within the statute of limitations. While outcomes are generally not made known to the public, if an award is issued then the SRO will publish this information.

Our FINRA arbitration law firm works with individual investors and institutional investors. We are here to help investors get their losses back. Shepherd Smith Edwards and Kantas, Ltd. LLP would like to offer you a free case assessment to find out whether you have reason to file an arbitration claim.

Finra sees uptick in arbitration cases filed in first quarter, InvestmentNews, April 22, 2014

Arbitration Overview, FINRA


More Blog Posts:
FINRA Seeks to Limit Definition of Public Arbitrator, Stockbroker Fraud Blog, February 11, 2014

FINRA Doesn’t Want Oversight Over Financial Advisers, Says CEO Ketchum, Stockbroker Fraud Blog, April 12, 2014

Lawyers, Investor Advocates Want to Know More About SEC Supervision Of FINRA’s Arbitrator Selections, Institutional Investor Securities Blog, December 2, 2013

February 11, 2014

FINRA Seeks to Limit Definition of Public Arbitrator

According to Investment News and The Wall Street Journal, sources in the know say that the Financial Industry Regulatory Authority wants to limit how many brokerage industry insiders can act as arbitrators in investor disputes with broker-dealers and brokers. The amendment would keep anyone affiliated with the securities industry, including lawyers and ex-brokers, from representing themselves in the role of public arbitrator. FINRA’s board of directors will decide whether to approve a proposed rule changes on this matter at a meeting this week.

Under the FINRA arbitration system, there are two arbitarator categories: nonpublic and public. Public arbitrators usually don’t have a current insider industry connection with the securities industry. Meantime, arbitrators that are nonpublic can have current ties, even working as a banker or a broker or securities fraud lawyer.

Usually, there are three arbitrators on a panel presiding over an investor-broker dispute. The panel members are selected from a list of arbitrators. Respondents and claimants go through this list to eliminate those they don’t want on the panel.

Currently, the SRO lets industry veterans that haven’t been associated with a broker-dealer in at least five years (and didn’t spend at least 20 decades in the financial services sector) add themselves to the list of public arbitrators. Accountants, lawyers, and others that previously represented brokerage firms but haven’t made $50,000 in yearly revenue from the companies in the last two years were able to do the same. If the proposal passes, however, all these individuals, as would lawyers representing investors in securities lawsuits, would have to list themselves as “nonpublic.”

FINRA reportedly hopes this revised and delineated designation would make panels more neutral. There have been worries that arbitrators with industry connections might find it hard to be impartial.

Our FINRA arbitration law firm represents investors with securities disputes that they wish to resolve before the SRO. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra to Limit Use of Arbitrators with Industry Ties, Wall Street Journal, February 11, 2014

Finra moves to tighten public arbitrator definition, Investment News, February 11, 2014

Arbitration and Mediation, FINRA


More Blog Posts:
Lawyers, Investor Advocates Want to Know More About SEC Supervision Of FINRA’s Arbitrator Selections, Institutional Investor Securities Blog, December 2, 2013
FINRA Orders J.P. Turner to Pay $707,559 in Exchange-Traded Fund Restitution to 84 Clients, Stockbroker Fraud Blog, December 10, 2013

FINRA Issues Investor Alert on IRA Rollovers, Stockbroker Fraud Blog, January 31, 2014


December 10, 2013

FINRA Orders J.P. Turner to Pay $707,559 in Exchange-Traded Fund Restitution to 84 Clients

The Financial Industry Regulatory Authority Inc. says that J.P. Turner & Co. has to pay restitution of $707,559 to 84 clients over the sale of inverse and leveraged ETFs that were unsuitable for them, as well as for excessive mutual fund switches. The SRO says that the broker-dealer did not set up and keep up a supervisory system that was reasonable but instead oversaw inverse and leveraged ETFs the same way it did traditional ones. It also accuses the financial firm of providing inadequate training regarding ETFs. By settling, J.P. Turner is not denying or admitting to the charges.

Leveraged and Inverse Exchange Traded-Funds
Inverse and leveraged ETFs “reset” every day. They are supposed to meet their objectives daily so their performance can rapidly diverge from that of the benchmark or underlying index. Unfortunately, even if long-term index performance exhibits a gain, investors can be susceptible to substantial losses. Markets, when they are volatile, can only exacerbate the situation. Also, leveraged and inverse ETFs are not suitable for all investors.

According to FINRA, J.P. Turner let registered representatives recommend inverse and leveraged ETFs without conducting adequate diligence to comprehend the risks and features involved or determining whether the investments were appropriate for at least 27 customers, who included conservative investors and retirees. Because of this, contends the SRO, a lot of J.P. Turner clients held these ETFs for a number of months and they sustained collective net losses of over $200,000.

FINRA is also accusing J.P. Turner is of taking part in mutual fund switches that were not suitable. The agency believes that the broker-dealer did not set up a supervisory system that could prevent this type of mutual fund switching and lacked the adequate procedures to properly monitor for such patterns or trends. The regulator says that even when there were red flags, the brokerage firm did not reject any of over 2,800 mutual fund switches that showed up in its reports regarding switch exceptions. Because of this, FINRA notes, 66 clients paid over $500,000 in sales charges and commissions.

Adequate supervision of representatives, proper training, and the designing, maintenance, and implementation of the proper systems to detect unsuitable and improper activities are the responsibility of brokerage firms. When failure to provide any of these results in investors getting involved in investments that are inappropriate for them and they end up sustaining losses, there may be an opportunity for legal recourse through securities arbitration or by filing a financial fraud lawsuit.

Contact our exchanged-traded fund fraud lawyers to request your free case consultation. Shepherd Smith Edwards and Kantas, LTD LLP represents investors that have sustained losses and are seeking to get their money back.

FINRA Orders J.P. Turner to Pay More Than $700,000 in Restitution for Unsuitable Sales of Leveraged and Inverse ETFs and for Excessive Mutual Fund Switching, Yahoo, December 5, 2013

Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors, FINRA


More Blog Posts:
FINRA Securities Activities: SRO Withdraws Proposal to Make Financial Firms Link to BrokerCheck, Gets Request from SIFMA to Modify ‘Inability to Pay’ Rule, and Says Broker-Dealers Can Give Investors PIP Data About ETPs, Stockbroker Fraud Blog, May 15, 2013

US Hedge Fund Industry is Worried About Tax Implications Under EU Directive, Institutional Investor Securities Blog, November 27, 2013

New Stream Capital LLC Hedge Fund Executives Face Criminal Securities Fraud Charges, Stockbroker Fraud Blog, February 28, 2013

December 3, 2013

Broker-Dealer National Planning to Pay $6.2M FINRA Arbitration Award to Two Minnesota Investors Over REITs

A Financial Industry Regulatory Authority panel says that National Planning Corp. must pay a $6.2 million REIT arbitration award to Minnesota investors Stacy and Ronnie Erickson. The Erickson and trusts on their behalf accused the independent brokerage firm and its ex-brokers Christopher R. Olson of negligence, breach of fiduciary duty, misrepresentations, and industry rule violations involving real estate investment trusts.

According to the FINRA award, which doesn’t name the REITs that the Ericksons invested in, the claimants also invested in real estate investments in Waterway Holdings Group, which Olson and a Preferred Resource Group Inc. employee owned. Olson has since filed for bankruptcy and all claims against him have been halted. (Olson was allowed to resign from NPC after he failed to disclose his external business activities or the involvement of his clients in these undertakings. After he quit he registered with Berthel Fisher & Co. Financial Services Inc.)

The Ericksons say that in addition to becoming the victims of broker fraud, they had to fulfill outstanding loans on mortgages on the real estate investments to avoid foreclosure. They contend that Olson manipulated them into taking on significant debt, paying millions of dollars that they cannot get back, and annuitizing, liquidating, and structuring their investment assets that were for their retirement to pay back the “staggering” debt that resulted from the real estate investment recommendations.

NPC is part of National Planning Holdings Inc., a four brokerage firm network affiliated with Jackson National Life Insurance Co.

REIT Cases
While REITs have become popular recommendations by investment advisers and brokers—especially for clients wanting income or those who are retirees—it is unfortunate that many broker-dealers have failed to meet their duty as it pertains to REIT sales and solicitation practices. Our REIT fraud lawyers represent investors in recouping their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

National Planning slammed with $6.2M arbitration award, InvestmentNews, November 26, 2013

Brokerage Ordered to Pay Nearly $6.2 Million for Investment Losses, The Wall Street Journal, November 25, 2013


More Blog Posts:
Financial Firms in the Headlines: UBS Charges Financial Planning Fees, MF Global Customers Seek to Cap Ex-Leaders’ Legal Defense Expenses, Ex-Thompson REIT CFO is Suspended, Stockbroker Fraud Blog, July 2, 2013

US Hedge Fund Industry is Worried About Tax Implications Under EU Directive, Institutional Investor Securities Blog, November 27, 2013

New Stream Capital LLC Hedge Fund Executives Face Criminal Securities Fraud Charges
, Stockbroker Fraud Blog, February 28, 2013

October 4, 2013

FINRA Considers Making Broker-Dealers Carry Insurance Covering Arbitration Payments

The Financial Industry Regulatory Authority intends to weigh whether to mandate that brokerage firms have insurance covering payments for possible arbitration awards issued to investors. The SRO is aware that there has been frustration among claimants who have not received their awards.

It can be a problem when a brokerage firm closes its doors without paying legal claims and awards it owes customers. Making broker-dealers carry insurance could lower the amount of awards that go unpaid. Unfortunately, some firms have such a small financial cushion that they can be forced to close shop over just one arbitration award.

According to SNL Financial, which conducted an analysis for The Wall Street Journal, over 940 firms reported having a net capital of under $50,000 in financial reports from as recent as July. FINRA says that 11% of all arbitration awards issued in 2011 have yet to be paid—that’s $51 million. This is 4% increase from what was unpaid from 2009 and 2010.

It doesn’t help that a lot of small broker-dealers have a net capital of about $5,000 and no insurance to take care of arbitration awards. And even with the Securities and Exchange Commission’s rule that these firms have this net capital (or a level related to the brokerage firm’s debt if the amount is higher), this doesn’t make it easier for an investor to get his/her lost investment losses from securities fraud back. To have the brokerage firm go out of business makes it that much harder to recoup their investments.

Brokers from these failed broker-dealers go on to find other work in the industry with, according to the analysis. This can lead to the practice known as “cockroaching,” involving problems with one brokers going to another firm when he/she transfers there to work.

Shepherd Smith Edwards and Kantas, LTD LLP Founder and Partner William Shepherd is quoted in the US Congressional record for recommending to the Government Accountability Office that the Securities Investor Protection Corporation be expanded so that broker fraud is included and firms would have to pay SIPC accordingly.

“The last I checked, broker insurance for a clean broker for up to $1 million coverage per claim was about $2,000 per year (less than firms' costs for stamps, as I said at the time),” said FINRA arbitration lawyer William Shepherd. “Attorneys, doctors and many drivers pay more. The average broker brings in over $100,000 per year, probably closer to twice that at most firms these days. Importantly, if brokers have many claims they will be cost prohibitive to firms or themselves. In this way insurance companies perform an important duty to the public. Just as drivers, doctors and others can be priced out of the business by their serial wrongdoing, so will financial advisor types.”

Our securities fraud law firm represents investors with FINRA arbitration claims and securities lawsuits against broker-dealers, brokers, investment advisers, and other financial representatives. Contact our investment fraud lawyers today.

Finra to Consider Requiring Brokerages to Carry Arbitration Insurance
, The Wall Street Journal, October 4, 2013

Tracking Brokers Who Move Between Expelled Securities Firms, Barrons/FINRA, October 4, 2013


More Blog Posts:

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice, Stockbroker Fraud Blog, September 17, 2013

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013

September 17, 2013

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton "Bud" Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

The FINRA arbitration panel’s ruling this week includes over $1 million for the couple’s real estate investment losses and $2.1 million for the couple’s portion of the $10 million judgment. Should the Madhanys have to pay the entire $10 million amount, Citigroup will have to pay them back.

Selling Away
The securities industry prohibits selling away, which is a practice involving advisors promoting investments privately without their firm’s knowledge. Brokerage firms can be held liable when a broker engages in “selling away.”

Our securities lawyers represent investors that have lost their investments because of selling away, elder financial fraud, and other types of securities fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today and ask to speak with one of our FINRA arbitration lawyers.

Citigroup must pay couple $3.1 million for not overseeing broker: panel, Reuters, September 16, 2013

Orlando couple win $3.1M award from Citigroup Global, Orlando Sentinel, September 17, 2013


More Blog Posts:
Many Financial Fraud Victims Don’t See It Coming, Says Survey, Stockbroker Fraud Blog, September 7, 2013

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013

August 26, 2013

FINRA Enhances Its Arbitrator Vetting Policy

The Financial Industry Regulatory Authority is refining its new policy for looking into its arbitrators. The move is seen as even more essential in the wake of a court’s decision to dismiss an arbitration ruling that was decided on in part by someone who was indicted during a case against financial firm Goldman Sachs (GS).

Among the steps to be implemented is the use of Google to run searches on arbitrators right before they are appointed to a FINRA arbitration case. The SRO is also preparing to run annual background checks on its 6,500 arbitrators even after being checked when they applied for the arbitrator position.

The industry-funded watchdog’s actions are coming into effect at the same time as lawmakers are upping the pressure to put a stop to broker-dealers making investors arbitrate disputes—an agreement they consent to when they agree to work with the brokerage firm. This causes customers to forfeit their right to go to court over the disagreement. Meantime, consumer groups have been pressing the SEC to place restrictions on the arbitration agreement practice, and a new bill introduced by US Rep. Keith Ellison (D-MN) would modify the Dodd-Frank Wall Street Reform and Consumer Protection Act so that these mandatory agreements are banned.

State regulators support this legislation, which would give investors options, including arbitration and mediation. The bill also would not restrict a brokerage firm customer’s ability to submit a class action securities claim.

Right now, FINRA and Charles Schwab (SCHW) are still in a dispute because the latter decided to make its customers wave their right to file a class action lawsuit. While the SRO lost the enforcement case against the financial firm—the watchdog accused Schwab of violating industry rules that bar arbitrators from hearing class actions—it is appealing the ruling. Earlier this year, Schwab eradicated the waiver language, which can no longer be found on customer agreements.

While arbitration decisions tend to be binding, there are limited reasons that can allow a party to have a ruling dismissed. The U.S. District Court for the Eastern District of Pennsylvania vacated and remanded a securities arbitration decision that went in favor of Goldman Sachs Group Inc. The investor wants to get back $1.4M in purported losses.

Following the FINRA arbitration ruling, the investor went to federal court where Judge J. Curtis Joyner threw out the award after finding that the plaintiff’s legal rights as an investor were compromised because arbitrator Demetrio Timban did not give proper disclosure about being indicted for practicing law without authorization, which disqualified him from arbitrating the case. Goldman has since taken up the matter with the U.S. Court of Appeals for the Third Circuit.

Securities Arbitration Lawyer William Shepherd notes that “even within the legal community many believe that securities arbitration is simply an informal dispute resolution process where ‘mom and pop’ investors can try to recover some of their losses. While that is actually true, securities arbitration is also much more, and can involve cases of tens or even hundreds of millions of dollars.”

As an example, Mr. Shepherd points to a recent case in which a FINRA arbitration panel told Citigroup (C) and an ex-branch manager to pay over $11 million over losses involving an investment in a foreign bank. Read our previous institutional investor fraud blog post for more details.

Judge tosses out Goldman ruling, points to arbitrator, The Boston Journal, August 1, 2013


More Blog Posts:
FINRA Says Charles Schwab Corp. is Making Customers Waive Right to Pursue Class Action Lawsuits, Stockbroker Fraud Blog, February 8, 2012

Citigroup Must Pay $11M Claimant for Royal Bank of Scotland Investment Losses, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, August 7, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013


August 21, 2013

FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board

Goldman Sachs Wants Third Circuit To Look at Vacated Arbitration Award
Goldman Sachs (GS) wants the U.S. Court of Appeals for the Third Circuit to look at a decision by a lower court to vacate a FINRA securities award issued by a panel member that included arbitrator Demetrio Timban, who was indicted on criminal matters and suspended. The securities case is Goldman Sachs & Co. v. Athena Venture Partners LP and involves an investor accusing the firm of making misrepresentations. The U.S. District Court for the Eastern District of Pennsylvania remanded the award, which favored the financial firm.

The district court said FINRA didn’t give the parties three arbitrators who were qualified and said the respondent’s rights were prejudiced. Judge J. Curtis Joyner said that therefore, a “final and definite award” was not issued. Following the scandal involving Timban, FINRA said it now would perform yearly background checks of arbitrators and other reviews before they are given a case.


District Court Says Buyers Who Are Not Broker-Dealer’s “Customers” Cannot Compel Arbitration
A district court has preliminarily enjoined an arbitration proceeding involving real estate investments. In Orchard Sec. LLC v. Pavel, the U.S. District Court for the District of Utah said that buyers were not a managing brokerage firm’s “customers” and did not have the right to compel arbitration under the SRO’s rules. The court also said that as the plaintiff firm Orchard Securities clearly demonstrated that its chances of success on its claim’s merits.

Margaret and Michael Pavel had filed an arbitration proceeding with FINRA contending that they had securities claims involving their purchase of tenant-in-common interests, including a New York offering that Orchard Securities LLC managed as a brokerage firm. Orchard Securities contended that it could not be made to arbitrate because there was no arbitration agreement or facts showing that the Pavels were its customers and therefore could compel arbitration. The NY offering had been recommended by a registered rep. with Direct Capital, which was a third-party broker-dealer enlisted by Orchard Securities.


Three Governors Are Elected to SRO’s Board, Four Are Reappointed
FINRA says that its members have elected two industry governors: Robert Keenan, who is St. Bernard Financial Services CEO, and James D. Weddle, who is Edward Jones’s managing partner. Keenan was elected small firm governor, while Weddle will be his large firm counterpart. Shelly Lazarus, who is an ex- Ogilvy & Mather chairman and CEO, was named a public governor.

Four other governors received reappointments to the board, which oversees FINRA. The board is comprised of 22 people—10 industry governors and 11 public ones. FINRA’s CEO also has a seat.

Our FINRA arbitration lawyers represent investors with securities claims. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Goldman Sachs & Co. v. Athena Venture Partners LP

Purchasers Were Not ‘Customers’ Entitled to Compel FINRA Arbitration, Bloomberg BNA, August 14, 2013


Firms Elect Two Industry Governors to FINRA Board of Governors, New Public Governor Appointed, FINRA, August 6, 2013

FINRA Board of Governors


More Blog Posts:
Mandatory Securities Arbitration vs. Court? The Debate Rages Past the Quarter-Century Mark, Stockbroker Fraud Blog, July 4, 2013

FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches, Stockbroker Fraud Blog, June 28, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 28, 2013

July 4, 2013

Mandatory Securities Arbitration vs. Court? The Debate Rages Past the Quarter-Century Mark

Should investors have the option to resolve their securities claims not just in arbitration but also in court? Recently, Senator Al Franken (D-Minn) voiced his opinion that offering investors both options would be fairer. His comment came weeks after SEC Commissioner Luis Aguilar publicly spoke out against mandatory arbitration, noting that letting investors choose between the court system or Financial Industry Regulatory Authority arbitration would give them better protections. Right now, investors have to agree to resolve any disputes that arise with a brokerage firm or investment adviser through arbitration rather than litigation before their working relationship can go forward.

However, as Claimant Investors' Attorney William Shepherd noted, the debate of whether to go to the court or arbitration is a debate that has going on for some time now: “This dispute began in 1987 when the U.S. Supreme Court first decided that, because arbitration had become 'fair,' investors could no longer choose court if an arbitration agreement had been signed.”

Is it fair to let investors choose between having their claims heard in arbitration or by the judicial system? We definitely need a legal process that lets investors get redress efficiently and with the least amount of struggle.

FINRA Arbitration or The Court?
Getting rid of mandatory arbitration and letting investors choose what forum they’d prefer would be a huge change because FINRA arbitration and the court differ significantly. FINRA arbitrations tend to be more private, limits discovery and pre-hearing dismissals, and doesn’t obligate participants to obey the rules of evidence. Whereas courts will throw claims out over different reasons even before an investor gets his/her day in the, in a FINRA arbitration case, unless a settlement is reached first, an investor with a dispute will generally get to go before the arbitration panel even if the matters involved are the ones that a court would have dismissed.

That said, it is the advisers that have more to gain from the privacy granted by FINRA arbitrations, which are not open to the public. Also the paper trail accompanying such cases tend to be limited to a short summary on FINRA’s BrokerCheck that will include any award amount granted—unlike with a lot of courts, which will publish not just the names of the plaintiffs and defendants, potentially providing bad publicity for the latter. Also, when a lawsuit is resolved in a manner that doesn’t favor a firm or adviser, this can open the doorway for more securities lawsuits to follow. (Having to battle out a securities case before the public in court might even encourage some advisers to settle rather than go through the fallout that comes with losing litigation.)

Since each securities case is unique, it is hard to know in general whether FINRA arbitration or the court is the better option. However, if an investor has the choice, then he/she can pick the venue most favorable for his/her claims.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our securities lawyers represent investors in both FINRA arbitration and the courts. Contact us today.

Details missing in the arbitration versus court debate, Investment News, July 7, 2013

SEC's Aguilar Calls for End to Mandatory Arbitration Clauses, The Wall Street Journal, April 16, 2013

Sen. Franken Leads Charge to Protect Consumers' Legal Rights Against Wall Street, Franken.Senate.Gov, April 30, 2013


More Blog Posts:
FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches, Stockbroker Fraud Blog, June 28, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013

FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

June 28, 2013

FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches

FINRA Wants Broker-Firms to Provide More Data About Social Media Use
The Financial Industry Regulatory Authority has sent target examination letters to broker dealer members regarding their use of social media. The SRO warned that electronic and written communication may be subject to spot checks and it wants to know how the firms are using social media, what platforms they employ, and the names of the people that post on these sites. FINRA is also interested in each firm’s written supervisory procedures about this type of online communication that were in effect between February 4 and May 4, as well as what steps were taken to make sure that compliance was in effect.

SEC Seeks Comments on Proposed FINRA Arbitration Changes
In other FINRA news, the Securities and Exchange Commission has put out two proposed changes to the SRO’s arbitration and is seeking comment. One change would make panel selection in FINRA arbitration with three arbitrators easier by no longer mandating that a customer select a method for choosing the panel. Instead, all parties involved with cases that are presided over by three-member panels would use the same selection method: Every party would get lists of 10 public arbitrators, 10 chair-qualified public arbitrators, and 10-non public arbitrators. A party would be allowed to eliminate four arbitrators from the public list, as well as from the chair-qualified public list. Any party could establish a panel made up of all-public arbitrators by eliminating the names of all the arbitrators found on the nonpublic list.

The second proposed rule change would modify the broker-customer proceeding’s discovery guide. It describes the process for discovery and provides explanation for how arbitrators should use the guide in arbitration. Commenters have 21 days from Federal Register publication to make their remarks.

Increase in Cybersecurity Breaches Place Investors Funds in Peril
At a recent Insured Retirement Institute event, FINRA member regulation EVP Daniel Sibears says there has been a “proliferation” of complaints regarding cybersecurity breaches at broker-dealers firms and there are now dozens of complaints about customer information being compromised, especially data that is used to access online accounts, make transactions, and move funds. Sibears says this typically involves hackers who get into FINRA member clients’ private e-mail accounts where they can obtain access to their exchanges with the firms. They then reach out to the firms, pretending there is an emergency and asking that thousands of dollars in securities or cash be moved.

Siebers said that some firms end up sending money to hackers because firm employees are in a rush to help clients. Improper customer validation procedures is another reason this happens.

SROs Report a Delay in the Consolidated Audit Trail
Meantime, FINRA, Nasdaq, the New York Stock Exchange, and other self-regulatory organizations are now saying that there has been a delay in the development of what is being called the “consolidated audit trail,” and the deadline of June 20 for vendors to turn in their CAT request-for-proposal responses has been delayed by longer than six weeks. Per Regulation National Market System Rule 613, the SROs have to implement the CAT system, which will identify, gather orders, exchanges, and cancellations for all-exchange listed options and equities in US markets. The system will let regulators supervise and keep track of market transactions in an improved way.

Call the FINRA arbitration law firm of Shepherd Smith Edwards at (800)-259-9010 today and ask for your free case consultation.

FINRA Sees ‘Proliferation' of Complaints About Cybersecurity Breaches, Bloomberg, June 25, 2013

Audit Trail Won’t Be Fully Delivered Until 2017, Securities Technology Monitor, March 15, 2013

FINRA Requests Data on Firms' Social Media Use, Reuters, June 19, 2013

FINRA's Proposed Arbitration Rule Change, FINRA (PDF)


More Blog Posts:
FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

FINRA Chief Ketchum Calls for Brokers To Better Inform Investors of Fixed Income, Structured Product Risks, Stockbroker Fraud Blog, May 29, 2013

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

June 20, 2013

“Ask and It Shall Be Received": Securities Brokers Can Wipe Complaints and Even Legal Claims Off Their Public Records

The New York Times is reporting that on May 24, a Financial Industry Regulatory Authority panel of arbitrators granted Wells Fargo (WFC) broker Michele Kief ‘s request that it recommend that the securities complaint, in which the bank settled for $125,000 allegations of fraud and negligence related to her actions, be deleted from her record. They also agreed that it be noted that the investments at issue were “suitable and safe. “There at least eight other client disputes on BrokerCheck against Kief. BrokerCheck is FINRA’s regulatory database.

Just two months before, FINRA arbitrators also consented to recommend the deletion of a securities arbitration complaint against ex-Charles Schwab (SCHW) executive Kimon P. Daifotis. This was the eighth such recommendation against Daifotis, who ran the Schwab Yield Plus fund that led investors to lose hundreds of millions of dollars.

“As FINRA publishes, advertises and encourages investors to check a broker’s record to gain information about their broker or a prospective broker, FINRA arbitrators often wipe that record clean.” Says William S, Shepherd, a securities attorney who represents investors in cases against brokers. “Everyone would like to wipe our credit record clean, maybe we just need to ask. Also, there is no educational requirement to become a securities broker, not even a high school degree. The only requirements are a 4-month apprenticeship and passing a multi-state state and a FINRA examination. Yet, securities brokers manage millions, some even hundreds of millions, of investors’ money. Their average six-figure income brokers places them in the highest percentiles of earnings in the U.S, along with other licensed professionals. Public disclosures are, and should be, important for those who often turn over their retirement accounts and even entire life savings to be handled by those who call to extoll their expertise.”

Some investor advocates say they wouldn’t criticize brokers’ efforts to clean up their records if only the latter were forced to contend with the same legal exposure as the defendants of lawsuits. Instead, brokers can insist that before setting up an account, customers agree to surrender their right to file a legal complaint in court, which means that Wall Street firms and their employees don’t have to deal with having a court record and allegations are resolved via private arbitration.

This means that broker check is the only place where an investor can find a record of securities allegations made against a broker, including client complaints, criminal histories, bankruptcies, liens, and regulatory actions. However, these brokers can get recommendations for deletions from FINRA if arbitrators conclude that a securities claim was wrong or false or the broker wasn’t’ actually involved in the alleged wrongdoing despite being named in association to it. A court has to confirm the recommendation.

In 2012, brokers sent state regulators, who are given the opportunity to protest when a broker requests to have information from BrokerCheck expunged, 519 requests that a FINRA panel’s expungement recommendation be allowed to proceed. That’s significantly up from 2011 when there were 110 expungement requests. The increase in expungement requests is in part a result of new disclosure demands that require that brokers report complaints if they were involved even though they weren’t named as respondents. Baruch College's Zicklin School of Business Professor Seth E. Lipner examined 150 expungement requests during the 2011 and 2012 fourth quarters, respectively, which were settled prior to there being a hearing and discovered in every case but five, arbitrators granted expungement.

Meantime, the SRO is expected to put out a proposal making it less difficult for accused brokers to expunge their records when a hearing and an actual arbitration decision are involved.

A Rise in Requests From Brokers to Wipe the Slate Clean, NY Times, June 10, 2013

BrokerCheck, FINRA

FORMER CHIEF INVESTMENT OFFICER AND PORTFOLIO MANAGER FOR THE SCHWAB YIELDPLUS FUND AGREES TO SETTLE CHARGES, SEC, July 16, 2012


More Blog Posts:
SEC Commissioner Aguilar Calls For the Abolishment of Mandatory Arbitration Agreements, Stockbroker Fraud Blog, April 21, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013

June 5, 2013

FINRA Headlines: New ATSs Sweep Letters Issued, SRO to Provide Surveillance for Direct Edge Market Exchanges, Court Says Ex-AP of Defunct Member Firm Can Enforce Arbitration Pact, & Madoff Feeder Funds Are Not Required to Arbitrate Claims Against KPMG

FINRA Issues Sweep Letters About Alternative Trading Systems
The Financial Industry Regulatory Authority has put out a new round of sweeps letters asking for more information about its review of alternative trading systems. The SRO’s Trading Examinations Unit is reviewing the off-exchange trading venues.

FINRA wants firms to provide information about how subscriber order flow is identified within the ATS, whether they are tracking the different kinds of order types in use, and where the ATSs orders are routed. Sweep letters let the regulator determine how to better focus its exams and discover what new issues may have arisen.

FINRA to Provide Market Surveillance Services for Two Direct Edge Licensed Stock Exchanges
FINRA and Direct Edge, which is the biggest stock exchange operator in the country, have arrived at an agreement in which the SRO will provide market surveillance services for two licensed stock exchanges. This will give FINRA surveillance of over 90% of U.S. equities trading volume. Already, the agency conducts examination and disciplinary services for Direct Edge.

The agreement will go into effect during this year’s fourth quarter. Richard Ketchum, FINRA’s CEO and Chairman, said that not only does this strengthen the SRO’s ability to make sure that the market is integrity while protecting investors, but also, it will allow the regulator to do a better job of going after possible cross-market abuses. FINRA currently conducts market oversight and surveillance services for NYSE Euronext, Nasdaq, and others.


Ex-Associated Member of Defunct FINRA Member Firm CapWest Securities Inc. Can Enforce Arbitration Pact
The Fourth District of the California Court of Appeal held that third party beneficiaries of agents of a FINRA arbitration agreement can enforce that agreement by compelling arbitration even if the contracting member firm is not allowed to because its membership status with the SRO lapsed. Plaintiff Ronay Family Limited Partnership is suing Robert R. Tweed and Tweed Financial Services, Inc. over securities it bought that were offered by CapWest Securities, Inc. Tweed and his firm served as CapWest registered agents.

When the plaintiff opened an account with CapWest, it signed an agreement that included an arbitration clause with the defendants. However, after Ronay Family Limited Partnership sustained losses, it sued Tweed, his firm, and others, contending that the clause could not be enforced because CapWest had gone defunct and its membership with FINRA cancelled. The trial court agreed with the plaintiff. However, the California Court of Appeal disagreed.


Madoff Feeder Funds Not Required to Arbitrate Claims Against KPMG
The Massachusetts Court of Appeals says that investors in two Bernard Madoff feeder funds don’t have to arbitrate their claims against external auditor KPMG and, instead, they can proceed with their lawsuit. The plaintiffs, limited partners of the Rye Funds, sued fund manager Tremont Partners, its parent company Tremont Capital Management Inc., KPMG, and others after they lost $20 million in the wake of the Madoff Ponzi scam collapse. They are accusing KPMG of negligent misrepresentation, fraudulent inducement, and fraudulent inducement.

KPMG sought to throw out the claims against it, aruing that they were derivative and belonged only to the Rye Funds, which has arbitration agreements with Tremont. The court, however, says that the plaintiffs claims are direct, rather than derivative, and are therefore not subject to the arbitration terms noted in the engagement letter between Tremont and KPMG.

Targeted Examination Letters, FINRA

Direct Edge Selects FINRA for Market Surveillance, FINRA

Ronay Family Limited Partnership v. Tweed (PDF)

Askenazy v. KPMG LLP (PDF)


More Blog Posts:
FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

FINRA Chief Ketchum Calls for Brokers To Better Inform Investors of Fixed Income, Structured Product Risks, Stockbroker Fraud Blog, May 29, 2013

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog,

May 15, 2013

FINRA Securities Activities: SRO Withdraws Proposal to Make Financial Firms Link to BrokerCheck, Gets Request from SIFMA to Modify ‘Inability to Pay’ Rule, and Says Broker-Dealers Can Give Investors PIP Data About ETPs

SRO Says Brokerage Can Institutional Customers PIP Data About ETPs Under Certain Conditions
Financial Industry Regulatory Authority staff have determined that under certain conditions, broker-dealers are permitted to include pre-inception performance information in communications with institutional investors about exchange-traded products, also known as ETPs. Staffers said that FINRA Rule 2210, which governs institutional communications, allows for the use of this data in the way that a fund company is proposing. ALPA Distributors is proposing using the PIP information just in institutional communications, per FINRA Rule 2210 and subject to certain criteria.

However, in “applying the suitability standards” for recommendations to institutional customers,” the SRO said brokerage firms should be cautious about putting too much “weight” on PIP information, while taking into consideration the correlation between performance of other, similar ETPs managed by the investment adviser, sponsor, or index provider and the PIP data. The staff’s letter was in response to a letter written by the fund company, which sees value in giving institutional investors the information for ETPs analysis.


FINRA Withdraws Proposed Rule Change Mandating That Firms Add BrokerCheck Web Link
FINRA has temporarily withdrawn its proposed rule change to Rule 2267 that would have upped investor use of information from BrokerCheck and mandated that member firms include a link and reference to the free online database on their respective websites. This resource, found on the SRO’s website, provides information about brokerage firms, brokers, investment adviser firms, and investment advisers. FINRA said it took back the filing to have more time to look at the comments it received regarding proposed rule change but that it intends to refile.

Although North American Securities Administrators Association, the Public Investor Arbitration Bar Association, and certain lawyers commented with their support of the proposal, the Investment Company Institute, the Securities Industry and Financial Markets Association, and a number of financial firms found the proposal “vague” and “unworkable.” They believe that the proposed rule change should be modified.

SIFMA Wants ‘Inability-to-Pay’ Rule Modified
The Securities Industry and Financial Markets Association wants FINRA to amend its Rule 9554 so that respondents would be precluded from making an “inability-to-pay defense” against a claimant. SIFMA says that should a respondent successfully bring up the defense, this should be reported to the public for the good of retail customers, regulators, and prospective employees.

Brokerage firms/a financial adviser can invoke the “inability to pay” defense when they are told to pay an arbitration award in expedited proceedings involving industry and customer claimants. While the SEC did approve FINRA’s proposal to preclude a respondent from raising this defense against a customer claimant., now SIFMA wants FINRA to amend the rule so respondents also are barred from raising this defense against industry claimants.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers represent investors with claims against financial advisers and brokerage firms.

Read the FUND company letter

BrokerCheck, FINRA

SIFMA's letter (PDF)


More Blog Posts:
Medical Capital Fraud Lawsuit Against Wells Fargo Must Proceed, Institutional Investor Securities Blog, April 10, 2013

Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

April 28, 2013

Controversial Democratic Appointee Pushes SEC for Less Talk About Investor and Securities Market Protections and More Action

According to Securities and Exchange Commissioner Luis Aguilar, the growing number of registered investment advisers, the increasing complexity of the financial instruments they use, and the recent trends in securities examinations show that there is a need for the regulator to up the vigorousness of its investment adviser examinations and enforcement activities. He noted that even as the SEC is working to give the regulated community best practices and guidance to enhance compliance, it also intends to increase its scrutiny of advisers, including more exams (especially for private fund advisers). Alternative investment managers will also get more attention.

Aguilar pointed out that with the number SEC registered investment advisers having gone up about 50% to over 10,000 last year, the value of the assets that they manage also increasing from about $22 trillion in 2002 to approximately $44 trillion in 2011, as well as a rise in the number of complex financial instruments that advisers use, there are more chances for “mischief” to happen. Hence, there is the need for more robust enforcement.

Also, as our securities fraud law firm mentioned in a previous blog post, the SEC commissioner wants there to be an end to mandatory arbitration agreements. Per the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC now can prohibit or limit pre-dispute arbitration agreements, which have become standard fare for brokerage firms. Aguilar is concerned that they are also becoming routine for investment advisory firms. He wants the government to ponder the possibility of adopting rules that would stop or limit broker-dealers and investment advisers from mandating that customers sign clauses in their agreements with one another that prevents them from filing securities fraud lawsuits and instead only resolve their disputes via arbitration.

Regarding retail investors, Commissioner Aguilar doesn’t believe they are getting the same degree of protections in both the corporate bond and municipal securities markets. While corporate bonds that the investing public can buy have to be registered with the SEC, no statutory authority exists that requires the same of municipal securities. Also, before municipal securities offering documents are made available to the public, the SEC does not get or even look at these documents. Aguilar says investor protections in this arena are mainly through the regulation of municipal securities dealers and brokerage firms.

Further scrutinizing the SEC, Commissioner Aguilar recently said that the regulator is still missing the mark on certain important initiatives involving investor protection, including the lack of regard he says it exhibited for regulators and investor’ suggestions about the lifting of the ban on private offering-related general advertising. Per the Jumpstart Our Business Startups Act, the Commission has to amend the 1933 Securities Act’s Rule 506 to get rid of the existing ban on general advertising in specific situations. However, the ban’s removal has led to fear that offerings that are mass-marketed under the rule will place investors at even more risk of abuse and financial fraud.

Aguilar Says SEC Will Ramp Up Examinations To Deal With Increases in Violative Behavior, Bloomberg/BNA, April 19, 2013

Aguilar Speech: Outmanned and Outgunned: Fighting on Behalf of Investors Despite Efforts to Weaken Investor Protections, SEC, April 16, 2013

Aguilar Speech: Keeping a Retail Investor Focus in Overseeing the Fixed Income Market
, SEC, April 16, 2013


More Blog Posts:
SEC Commissioner Aguilar Calls For the Abolishment of Mandatory Arbitration Agreements, Stockbroker Fraud Blog, April 21, 2013

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

US Supreme Court Once Again Upholds Enforcement of Arbitration Agreements, Institutional Investor Securities Blog, February 17, 2013

April 21, 2013

SEC Commissioner Aguilar Calls For the Abolishment of Mandatory Arbitration Agreements

U.S. Securities and Exchange Commission member Luis Aguilar is pressing the government to think about adopting rules that would limit or bar investment advisers and brokers from making customers sign away their right to file a securities fraud case. He made his statements in front of the he North America Securities Administrators Association’s yearly conference.

Aguilar spoke about how it was important to advocate for investor choice. He said that by giving investors the chance to choose how they wish to protect their legal rights and file their legal claims, the government would be enhancing federal securities laws while creating better investor protections.

The 2010 Dodd-Frank Act gives the Commission new powers to strengthen investor protections, including the authority to restrict pre-dispute arbitration agreements, which brokers routinely use. The agreements bar an investor from being able to sue the financial firm should a disagreement arise. Meantime, corporations generally remain in favor of arbitration as a venue for resolution because they believe this is less costly.

A few months back, Massachusetts Secretary of the Commonwealth William F. Galvin made a similar request, this time to the SEC. Galvin asked that investment advisers be prevented from including pre-dispute mandatory arbitration clauses in contracts. He said that nearly 50% of investment advisers surveyed that are registered in his state admitted to using these agreements.

At Shepherd Smith Edwards and Kantas, LTD, LLP our FINRA arbitration lawyers and securities fraud attorneys represent institutional and individual investors in both arbitration and the courts. Contact us today and ask for your free case assessment.

Read SEC Commissioner Aguilar's Speech at the North American Securities Administrators Association's Annual Conference in DC, April 16, 2013

More Blog Posts:
OmniVision Technologies Investors’ Securities Lawsuit Can Proceed, Says District Court, Stockbroker Fraud Blog, April 20, 2013

Federal Reserve Board Establishes Key Rule That Will Let Regulator Identify Systemically Important Nonbank Financial Institutions, Institutional Investor Securities Fraud Blog, April 19, 2013

April 19, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud

A FINRA arbitration panel is ordering ex-broker Karl Hahn, who previously worked with Bank of America Corp's (BAC) Merrill Lynch (MER), Oppenheimer & Co. (OPY), and Deutsche Bank AG’s (DB) Deutsche Bank Securities, to pay investor Chase Bailey $11 million because he sustained about $6 million in losses allegedly caused by securities fraud. Bailey contends that Hahn made excessive trades and misrepresented securities related to transactions involving a number of investments, including a variable annuity, approximately $2.3 million in fraudulent real estate financing involving East Coast properties, and covered calls.

In the filmmaker/Internet entrepreneur’s securities arbitration claim, Bailey named the three financial firms where Hahn previously worked. It is during this period that Bailey was allegedly defrauded. (He had moved his funds from one brokerage firm to the other each time Hahn was hired by that employer.) Bailey settled his case with Merrill for $700,000, while claims against Deutsche Bank and Oppenheimer were tossed out.

Per the FINRA arbitration ruling, Bailey is awarded $6.4 million in punitive damages and $4.1 million in compensatory damage. Ordering brokers to pay punitive damages is uncommon.

In February, Deutsche Bank & Hahn were ordered to pay $934,000 to Susan and Michael Myers. The couple, who had sued on their behalf and for a number of trusts, had claimed civil fraud, while contending that financial firm had negligently supervised Hahn, who worked in its private wealth management division between 2008 and 2009.

The Myerses had bought high-risk life insurance in which policyholders use loans usually tied to variable interest rates to finance premiums. Hahn, who advised the couple via Deutsche Bank, allegedly failed to tell them that his dad would get a “significant” commission from that life insurance policy. They said that this might have been the reason he recommended that they invest in the policy. (Brokers are not supposed to make investment recommendations that will benefit them or those that they know.) The Myerses claimed substantial losses.

Hahn has been involved in other securities cases. He was charged with wire fraud involving an alleged $1.1 million real estate scam in 2010. He also was involved in a $2.55 million federal court judgment that Deutsche Bank obtained in 2012. That lawsuit involved the unpaid balance of a $2.8 million bonus he got when he joined the financial firm.

Contact Our Securities Fraud Law Firm
If you believe that you too were the victim of securities fraud involving Mr. Hahn or another broker, please contact Shepherd Smith Edwards and Kantas, LTD LLP today to request your free case evaluation. You may have reason to file your own stockbroker fraud claim.

Ex-Merrill, Deutsche Bank Broker Ordered to Pay Client $11 Million, Fox, April 5, 2013

U.S. panel orders Deutsche Bank, ex-adviser to pay $934,000, Reuters, February 14, 2013


More Blog Posts:
Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

UBS Loses Appeal to Have FHFA’s $6.4 Billion MBS Fraud Lawsuit Dismissed, Institutional Investor Securities Blog, April 18, 2013

April 8, 2013

Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court

The U.S. District Court for the Middle District of Florida is holding that an arbitration award granted to investors cannot be vacated under the Federal Arbitration Act just because an arbitrator exhibited obvious partiality when failing to reveal that he wrote a dissent in an unrelated arbitration that allegedly showed he had prejudged issues of law. The securities case is Antietam Industries Inc. v. Morgan Keegan & Co.

Petitioners Antietam Industries Inc., Janice Warfel, and William Warfel contend they sustained financial losses over their RMK fund investments. In 2011, they filed a Financial Industry Regulatory Authority arbitration case claiming that their money was lost because Morgan Keegan had made misrepresentations while failing to disclose how risky the funds were.

Last year, the panel awarded the petitioners $100,000 in compensatory damages and $100,000 in punitive damages, plus fees and interest, for negligence, breach of fiduciary duty, and other claims. When they sought to confirm the award, Morgan Keegan submitted a motion to vacate, pointing to FAA and contending that arbitrator Christopher Mass allegedly showed partiality and “misbehavior” with his failure to disclose his previous dissent. The court, however, rejected Morgan Keegan’s argument, saying it was not convinced that Mass was predisposed or had prejudged.

“Many investors do not realize that the securities arbitration process is much different than court, said Shepherd Smith Edwards and Kantas, LTD, LLP and Securities Fraud Lawyer William Shepherd. “When investors open a brokerage account, they agree to resolve disputes in arbitration and will not be able to file a lawsuit against the firm or broker. However, this has some advantages to the investor. Court cases can last for years, but the arbitration process is usually completed in just over a year. As well, it is more difficult to overturn an arbitration decision than a court case. In this case, the investor was able to avoid losing a victory on appeal.”

To schedule your free consultation, contact our FINRA arbitration law firm today.

Antietam Industries Inc. v. Morgan Keegan & Co.


More Blog Posts:
Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

February 15, 2013

Texas Courts Show Preference for Arbitration to Resolve Securities Fraud Claims and Other Business Disputes

Over the years, the Texas courts have followed federal courts in that they are now showing a preference that business disputes be resolved in arbitration rather than with a trial. Many view arbitration as a less costly, faster, and more logical way to solve conflicts between a company’s employees and its clients.

This willingness to have disputes be resolved outside a courtroom took on even more fervor in 2009, when the Texas Supreme Court determined that non-signatories in an arbitration agreement could be made to deal with their problems between each other away from the courtroom. The court held that an arbitration agreement between an employee and employer that was signed prior to the employee’s passing binds that employee’s wrongful death beneficiaries even if they didn’t sign the agreement. The state’s highest court said that in states where wrongful death actions are derivative, these are bound by the agreement of the decedent.

Then, in 2012, the Texas Supreme Court again exhibited its approval for dispute resolution methods not having to require a jury when it found in an employment dispute that a threat by an employer to use its legal right to fire an at-will employee if he didn’t sign a jury waiver is not coercion that would render a jury waiver agreement not valid. Also, a standalone arbitration agreement is still valid even if an employer keeps its right to unilaterally change or take back an employment policy in its employee manual. This includes arbitration policies (and even if the arbitration agreement doesn’t talk about the right to modify its terms or of incorporating the employment manual by reference.) Also, mutual promises to bring employment disputes to arbitration are satisfactory consideration for the agreements.

Meantime, the US Supreme Court also continues to express preference for arbitration. In 2010, the nation’s highest court held that arbitrators and not judges are the ones with the authority to decide whether unconscionability exists when the agreement gives the former that authority. Responding to a discrimination lawsuit by an employee, the court sided with employer Rent-A. Center. Inc., which had sought a motion to compel arbitration due to an agreement that the plaintiff had signed as part of terms for employment.

"Since landmark decisions in 1987, arbitration agreements in investors' account documents have been strictly enforced,” said Texas securities arbitration lawyer William Shepherd. “Since that time virtually all disputes between securities firms and their clients have been decided in arbitration, not courts. Arbitration decisions, including in securities arbitration, are fully binding on the parties. In fact, is far more difficult to appeal or 'vacate' an arbitration award than it is to appeal a court decision. This can be bad for investors if the decision is unfavorable, but this is good for investors who win because they only rarely have to face years of appeals before they are paid."


More Blog Posts:

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Alleged Houston, Texas Affinity Fraud Scam Targeting Druze and Lebanese Communities Leads to SEC Charges Against Day Trader, Stockbroker Fraud Blog, January 28, 2013

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

January 22, 2013

FINRA News Roudup: FINRA Unveils Telephone Mediation Pilot and Proposes A More Stringent Definition of Public Arbitrator

FINRA Unveils Telephone Mediation Pilot
The Financial Industry Regulatory Authority says it now has a pilot program that allows parties with simplified cases to choose reduced-fee or pro bono phone mediation. Volunteers with arbitration claims involving $50,000 or under are welcome to participate. In cases involving damage claims of $25,000 or under, mediators would work on a pro bono basis. For cases between $25,001 and $50,000, there would be a reduced fee mediation rate of $50/hour. No administrative fees will be charged.

Benefits to this phone mediation pilot include getting rid of in-person mediation preparation and travel costs, as well as more flexibility and convenience. The pilot was launched on January 15.

FINRA Proposes A More Stringent Definition of Public Arbitrator
According to the Securities and Exchange Commission, FINRA is proposing that the definition of “public” arbitrator not include persons with associations to a hedge fund or mutual fund. The SRO is also proposing that there be a “cooling off period” of two years before individuals that have terminated certain affiliations can take on this arbitrator role.

FINRA wants to make the rule changes because of worries by investor representatives that they don’t consider certain arbitrators that have a specific experience or background and are listed on the public roster to actually be public. The SRO also thinks that the cooling off period will allow certain persons that have had certain affiliations to regain an impression of neutrality in the eyes of constituents.


FINRA Securities Cases

If you are an investor that has sustained losses due to securities fraud, you may be able to recover your investment by going through FINRA arbitration. It is a good do have good securities representation with a FINRA securities law firm that is experienced in handling such cases. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

FINRA Launches Small Claims Telephonic Mediation Pilot Program, FINRA, January 16, 2013

Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to Amendments to the Customer and Industry Codes of Arbitration Procedure to Revise the Public Arbitrator Definition, SEC, January 11, 2013 (PDF)


More Blog Posts:
After SCOTUS Overturns Oklahoma Supreme Court Decision Over Enforceability of an Arbitration Agreement’s Non-Complete Cause, Case Now Goes to Houston, Texas, Stockbroker Fraud Blog, November 12, 2012

US Supreme Court's Janus Ruling May Compel SEC to File More Aiding, Abetting, and Control Person Liability Securities Claims, Institutional Investor Securities Blog, March 7, 2012

Securities Fraud: Mutual Funds Investment Adviser Cannot Be Sued Over Misstatement in Prospectuses, Says US Supreme Court, Stockbroker Fraud Blog, June 16, 2011

November 30, 2012

After SCOTUS Overturns Oklahoma Supreme Court Decision Over Enforceability of an Arbitration Agreement’s Non-Complete Cause, Case Now Goes to Houston, Texas

For the third time in two years, the US Supreme Court has stood up for arbitration agreements, overturning yet another decision by a state court. The case is Nitro-Lift Technologies v. Howard. The Oklahoma State Court had ruled that the non-compete provision in an employment arbitration agreement was unenforceable because it is unconscionable.

Per the specifics of the case, Nitro-Lift Technologies, an oil well servicing company based in Louisiana, had given two of its ex-Oklahoma employees a demand for arbitration after they resigned and went to work for a competitor. Nitro contended that the former employees had violated a non-compete clause and that because of this they must now arbitrate. Meantime, the two ex-employees filed a lawsuit in Oklahoma state court seeking a declaratory judgment that the non-compete provisions could not be enforced.

The Oklahoma Supreme Court would go on to rule in the ex-Nitro employees’ favor, finding that state precedent allows the court jurisdiction over arbitration agreement provisions and that the non-compete clause is a violation of public policy there. Therefore, the court found, the clauses could not be enforced and are void.

Nitro’s attorney would go on to argue that this ruling was not consistent with SCOTUS precedent regarding arbitration’s primacy, per the Federal Arbitration Act. The company submitted a cert petition noting that the US Supreme Court had recently reversed the Florida’s state court ruling in KPMB v. Cocchi after the lower court had decided that Ponzi fraud victims could sue the auditor. The Supreme Court had also found in Marmet Health Care v. Brown that under the Federal Arbitration Act, West Virginia cannot bar arbitration in nursing home cases involving wrongful death and personal injury. Other lawsuits in which the nation’s highest court made similar determinations include Buckey Check Cashing v. Cardegna and AT & T Mobility v. Concepcion.

The Supreme Court’s justices apparently remain adamant that states cannot impose their own ideas regarding public policy on arbitration agreements. The court has described the FAA as the “supreme Law of the Land,” and they interpret the act in a manner that lets businesses make employees and consumers arbitrate instead of go to court. This can be a benefit for businesses, especially as a cost-saving measure (and especially when class actions are involved).

The ex-Nitro employees will now arbitrate their non-compete claims in Houston. According to their attorney, the two of them did not know that they had given up certain rights when they signed the agreement.

Texas Securities Fraud
Our Houston securities lawyers represent both clients with Texas arbitration claims and investor fraud lawsuits. Please contact Shepherd Smith Edwards and Kantas, LTD, LLP today. Your first case evaluation is free.

US Supreme Court Scolds Oklahoma Supremes for Discounting Arbitration Precedent, ABA Journal, November 26, 2012

Nitro-Lift Technologies v. Howard, US Supreme Court, (PDF)


More Blog Posts:

SEC Clawback Lawsuit Against Two Former Arthrocare Corp. Executives Over Fraud Scheme Can Proceed, Says District Court in Texas, Stockbroker Fraud Blog, November 24, 2012
Texas Securities Fraud: Investors Bilked in $68M Dallas Ponzi Scam Hope To Recover Some Funds Via Rare Guitar Auction, Stockbroker Fraud Blog, October 25, 2012

US Supreme Court's Janus Ruling May Compel SEC to File More Aiding, Abetting, and Control Person Liability Securities Claims, Institutional Investor Securities Blog, March 7, 2012