Articles Tagged with arbitration

On Friday, Malecki Law securities attorneys Jenice Malecki and Darryl Bouganim traveled to Washington D.C to lobby on behalf of investors as part of PIABA’s annual Hill Day. PIABA is an international bar association for securities attorneys representing investors in disputes within the financial services industry. As part of Hill Day, PIABA attorneys from across the nation met with representatives and their legislative aids on Capitol Hill to lobby for stronger investor protection. Following a day of discussing the issues amongst PIABA members, our attorneys met with officials across party lines including at the offices of Brian Higgins, John Katko, Tom Reed, Danny Davis, John Hawley, Tim Scott, and Patty Murray.  Alongside other PIABA members, Malecki Law securities attorneys lobbied for the FAIR Act; legislation to fund outstanding arbitration awards; and modification or clarification of the proposed Regulation Best Interest.

On Capitol Hill, Malecki Law attorneys lobbied for members of the House of Representatives and Senate to co-sponsor the Forced Arbitration and Repeal Act, known as the FAIR Act. U.S Rep. Hank Johnson (D-GA) and U.S Sen. Richard Blumental (D-CT) introduced the FAIR Act to end the use of mandatory arbitration in their effort to restore public accountability. As it stands now, investors must sign contracts with forced arbitration clauses when opening new brokerage accounts. The FAIR Act outlaws forced arbitration, thereby granting investors the freedom to choose venues besides private arbitration to adjudicate their disputes. Investors will still have the option to choose to use arbitration under FINRA rules, just as how it was before the historic Shearson/American Express v. McMahon case.

Mandatory arbitration clauses within investment account contracts undermine investors’ rights for fair process and their right to trial by jury under the 7th amendment. The industry’s self-regulatory agency, FINRA runs arbitrations as off the record legal proceedings. Instead of a judge and jury, one or three arbitrators decide on the verdict of cases. A major problem is that arbitrators are usually industry people who tend to be overwhelmingly older, white and male. Thus, the arbitration pool is not diverse enough for the diverse investors that use it to feel their case is being heard by their peers, which undermines the process. Additionally, arbitrators do not have to apply the law or include any reasoning behind their decisions. When only 40% of their cases win their cases, the process should be more transparent especially with the other forces that could foster bias. Even after winning their case in arbitration, investors sometimes cannot collect their damages from the wrongdoers found liable. This undermines self-regulation.

Arbitration is a formal alternative to courtroom litigation for resolving issues with neutral third party “arbitrators” issuing a binding decision after the litigants present their facts and argument. Compared to the usual courtroom procedures, arbitration is a faster, affordable and less formal legal proceeding.  FINRA, a self-regulatory-agency for the securities industry, controls the largest, most prominent arbitration forum for securities disputes. A full FINRA arbitration proceeding from initiation through hearing can take on average 16 months, but cases often are settled before the end. Sick or elderly claimants may request an expedited arbitration process within nine months.

There is a wide range of reasons that investors might want to make a legal claim against their broker-dealer and broker firm. When opening an account with brokerage firms, investors sign a contract that often contains a clause that makes handling disputes through FINRA arbitration mandatory. Notably, investors are bound to arbitrate their securities claim after the Supreme Court upheld binding arbitration provisions in Shearson/American Express Inc. v. McMahon. FINRA registered broker-dealers, and registered representatives are similarly obligated to handle disputes arising through their employment in FINRA arbitration.

The FINRA arbitration process commences when the plaintiff, known as the claimant, submits a statement of claim, outlining the case’s relevant facts, dates, names of involved parties, type of relief requested and name of accused parties. The statement of claim must be filed within the allotted time, which is within six years after the dispute. Compared with a courtroom complaint, a statement of claim is less formal and usually a more detailed account of the background story. In addition to the statement of claim, the claimant needs to pay fees and submit a Submission Agreement. The fees owed for filing a FINRA arbitration claim are based off the sought remedies, hearing sessions, discovery motions and postponement fees. Fortunately, some individuals with financial difficulties can request a fee waiver.

The securities fraud attorneys at Malecki Law are interested in hearing from investors who have complaints against stockbroker Solomon David Krispeal.  Since January 2016, Mr. Krispeal has been employed and registered with PHX Financial, Inc., a Hauppauge, New York broker-dealer, according to his publicly available BrokerCheck, as maintained by the Financial Industry Regulatory Authority (FINRA).  He was previously registered with Legend Securities, Inc. from March 2013 to February 2016, Aegis Capital Corp. from April 2012 to March 2013 and with John Thomas Financial from January 2008 to April 2012, according to BrokerCheck records.

In 2017, Mr. Krispeal was fined and suspended from association with any FINRA member broker-dealer for 30 days by FINRA, after submitting a Letter of Acceptance, Waiver and Consent No. 2014042764601.  According to the AWC, Mr. Krispeal violated FINRA Rule 1122 (Filing of Misleading Information as to Membership or Registration) and Rule 2010 (Standards of Commercial Honor and Principles of Trade) because he did not disclose an arbitration he was named as a respondent in, and when he did make the disclosure, he “inaccurately disclosed that the matter was ‘withdrawn,’ rather than ‘settled.’”  FINRA Rule 1122 require that brokers and brokerage firms accurately disclose information regarding membership and registration to FINRA and correct any filings when required.

In addition to this regulatory matter, Mr. Krispeal has been made the subject of seven customer complaints, including two matter that have resulted in a settlement or an award, according to BrokerCheck records.  In one case (FINRA Case No. 13-00830) where which Mr. Krispeal was listed as a respondent and the customer made allegations of unauthorized trading, unsuitability and churning, the customer was awarded $75,000 (nearly all of the stated damages of $95,000), according to FINRA Dispute Resolution records.  Mr. Krispeal’s BrokerCheck Report also disclosed that the second case resulting in settlement concerned a customer’s allegations of unauthorized trading and alleged forgery.

Ms. Malecki was a panelist recently at the Practising Law Institute’s (PLI) Securities Arbitration 2016 all-day seminar, where she spoke about ethical and other issues in securities arbitration. Ms. Malecki has spoken at PLI consistently for many years. Her panel Practicum on Experts and Closings focused on expert witnesses and closing arguments. The panel and the seminar had other distinguished securities industry members from the FINRA Dispute Resolution office, professors of law, litigators, mediators and wealth managers. Ms. Malecki is invited every year to participate in PLI’s securities arbitration seminars.

 

In the recent years, we witnessed a sharp decline in Puerto Rican municipal bond prices and related assets, resulting in an upsurge in FINRA claims, arbitrations and awards. This has revealed new insights into the bond market and we anticipate a wave of FINRA Arbitration cases linked to bonds and fixed income asset classes.

After the recession in 2008, there has been a massive movement away from equities towards the seemingly less-risky and volatile asset class of bonds, creating a spike in demand for U.S. treasuries, corporate and municipal bonds. More than $1 trillion has flowed into the U.S. bond market since 2008.

Bonds are sensitive to interest rates and it’s pricing inversely proportional to interest rates. Fed has explicitly stated their intent to hike interest rates going forward, therefore, a fall in bond prices can be reasonably anticipated. Rising interest rates will result in losses for bond investors, most immediate effect being paper losses, and the inability to sell those bonds without incurring actual losses for a long time. Majority of the impact will be felt by longer term bond investors with 10 years or more to maturity and by non-treasury bond holders that tend to fall faster as rates rise.

This month, Malecki Law attorneys were awarded full net out-of-pocket damages of $142,168.00 by a Financial Industry Regulatory Authority (FINRA) Arbitration Panel. There has been a series of media reports on this, initially appearing in the  InvestmentNews and followed by the Financial Times site Financial AdvisorIQ, and other websites. The claim was brought against Garden State Securities Inc. by Malecki Law on behalf of an elderly investor Anthony Romano on alleged charges of over-trading, over-concentration, and unsuitable investments.

This was another noteworthy investor case win for Malecki Law, who regularly brings claims against unscrupulous broker-dealers and holds them accountable for mismanaging investor’s accounts.

Elderly investors such as Mr. Romano find themselves especially at risk because once they lose their life’s savings to poor decisions made by brokers and securities firms, they do not have sufficient time to recoup their losses. The FINRA Arbitration panel also assessed that all forum fees in the amount of $14,400 will be paid by the respondent Garden State Securities, Inc.

 The securities fraud attorneys at Malecki Law would like to hear from investors who have complaints against John T. Keyser of Dawson James Securities in Florida. In the past, Keyser has been the subject of a FINRA suspension and customer dispute, as well as an outstanding tax lien. Since 1986 he has been at 16 brokerage firms, including 3 that were expelled from the industry. His current firm has 7 regulatory and 1 arbitration disclosure. Two other firms he has worked with had a combined 30 regulatory & 9 arbitration disclosures on BrokerCheck.

According to FINRA’s BrokerCheck, there were customer dispute cases against him in 2010, 2006, and 2002. Further, as per FINRA’s BrokerCheck, in 2010 there were allegations made against him for churning, intentional and negligent misrepresentation, unsuitability, breach of fiduciary duty, and unauthorized trading, seeking damages for $650,000. As per BrokerCheck, the firm and Keyser denied the wrongdoings and refuted the allegations. FINRA’s BrokerCheck shows that in 2006 there was another customer dispute against him, alleging that a stop loss order had not been executed timely to cover his client’s position. The same FINRA site reveals that in 2002, there was an unauthorized trading complaint made against him, demanding damages of 80,000.

There are other disclosure events, regulatory investment and judgement liens, against his records on BrokerCheck, one of which resulted in NASD suspending his license for failure to pay an arbitration award, which was resolved upon award payment. It is noteworthy that on BrokerCheck several Florida firms Mr. Keyser has worked for in the past have been expelled by FINRA including Sterling Financial Investment Group and Barron Chase Securities.

From Deutsche Bank to Credit Suisse and Barclays, brokers are in transition for a variety of reasons – some voluntary and some obligatory.  Either way, for a FINRA registered representative, leaving their broker-dealer can be a nerve-wracking time.  Regardless of the reason for leaving, the ultimate goal is always the same: get to your new firm and bring with you as many clients as you can without getting sued by your old broker-dealer in a FINRA Arbitration.

But, easier said than done.  In addition to the logistical challenges, there are also some legal hurdles that must be cleared first.

The first major question that should be asked is: “Does the Protocol for Broker Recruiting apply?”  If either your old firm or new firm are not signatories to it, then your answer should be “No.”  If both your old firm and your new firm are signatories to it, then the answer to that question should be “Yes” – but some restrictions may apply.