Wall Street Never Learns

When I was a young punk, just a few years out of New York Law School, Janney Montgomery Scott fired an analyst named Marvin Roffman. What offense did Mr. Roffman commit? None, said Janney.

Mr. Roffman disagreed. He said he was fired because he said negative things about the Trump Taj Mahal project, in particular its bonds. He said that the Trump Organization threatened Janney and that he was fired as a result of higher-level corporate interaction. He filed an arbitration and, in one of those rare perfect coincidences, the Taj Mahal filed for bankruptcy just before the arbitration. This was 20 years ago, but I think it was the week that the arbitration was supposed to start.

I remember calling the lawyer representing Mr. Roffman, Scott Vernick, and encouraging him, telling him that his case got a whole lot better. Mr. Roffman, I am sure, was able to testify that he not only was fired for giving his opinion, but that he was right in having the opinion. He was awarded $750,000.

Fast forward to today. An article by Jesse Eisinger in the New York Times Dealbook blog describes the treatment of David Maris by Bank of America. The article describes how Maris opined that a company’s financial statements were unreliable and that shareholders should sell.

Guess what? He was fired. According to BofA, he was not fired because of his sell opinion, but for other reasons. Right. Just because BofA is in Charlotte, doesn’t mean they’re not trying to sell the Brooklyn Bridge.

By the way, Maris turned out to be right. The company settled with the SEC due to inaccurate financial statements. Looks like another arbitration where an analyst will say “I was right and they fired me for it.”

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Chase Investment Services loses arbitration to Morgan Keegan

This is fun to talk about, because my firm (in the form of yours truly) represented Morgan Keegan. The firm was named in an arbitration by Chase Investment Services, Inc. because a former Washington Mutual investment representative left the firm just before Chase Investments and WaMu Investments merged in May 2009. Chase thought he shouldn’t have contacted his customers.

Chase filed for an injunction and an arbitration. The final FINRA arbitration hearing took place in early March. The result was a complete victory for Morgan Keegan and the broker, Todd Rozzo. In fact, Rozzo was awarded $50,000 in damages for a wrongful injunction and custody of notebooks he had created while at WaMu. Kudos to my co-counsel, Chuck Dalziel and Stuart Sims, from Brock, Clay in Marietta, Georgia. These guys were a lot of fun to work with, and Chuck and I go waaaay back.

One part that was particularly fun was that I got to refer to one of my favorite television commercials. It’s called Washington Mutual “head scan”.

Just remember the phrase – “I hate it when these things don’t scan.”

You might recognize Jane Lynch from Glee and Tim DeKay from White Collar.

That’s the joyous view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Securities America wants it both ways with Federal injunction strategy.

I am outraged. It’s no secret that I’m not a big fan of Securities America, the hapless offspring of American Express Financial Services (now Ameriprise). In fact, I’m kind of embarrassed that I own Ameriprise stock, if for the only reason that it owns Securities America. There may be other reasons, but I haven’t looked at the company that closely lately.

Those of you who know me will recall that, with my then-partner, my law firm obtained an arbitration award against Securities America for $5.4 million several years ago. In that case, the firm tried to assert, with a straight face, that a broker using a stolen identity was properly registered. The arbitrators disagreed.

This time around we have Medical Capital Holdings and Provident Royalties. Both of these companies turned out to be frauds and Securities America was a huge seller of these two products. The one at issue in the Federal case is MedCap.

Securities America is desperate. Even though the company is owned by a huge financial services company, it is claiming that there is not enough money in the pot to fund a class action settlement and pay potential arbitration claims. So the company asked a judge to stop the arbitrations and now is asking the same judge to stop state regulators. (See Suzanne Barlyn’s article here.) Huh?

I was outraged when the judge halted the arbitrations. To me it was the height of hypocrisy to tell clients that they must participate in a class action. Yet Securities America would not allow a class action arbitration I am certain. Further, if a client brought an individual action against the company in court, it’s first reaction would likely be a motion to compel arbitration of the claims. Then they would ask a class-action judge to stop the arbitration? How is that fair or logical.

Pick your venue, boys. Class action or arbitration. But you don’t get the choice of stopping an arbitration (or regulator) in favor of the class action. If you don’t have the money, then file for bankruptcy and let everyone pick over the carcass. I’m betting there’s a good financial reason not to do it.

I have clients on both sides of the arbitration aisle. What I’m looking for is consistency in the application of laws regarding arbitration. I don’t see it here. Once again, Securities America seems to be making up the rules in its favor as it tries to deal with a problem. Good luck with that.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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Marketwatch article by Suzanne Barlyn describes use of BrokerCheck system

The FINRA BrokerCheck system has been around for years. “In the old days” it was a manual system. A customer called a toll-free number and asked for the broker’s information. The information was mailed to the customer and a copy was sent tot he brokerage firm. This was good for the customer (kind of) and a nightmare for the brokerage firm since they were receiving many copies of requests for which they had no use.

Then came the internet. Clients were able to request information over the internet, without human intervention. At the same time, it meant that a competitor could steer a client to BrokerCheck to look at the report of another broker the client was considering. This still happens today. BrokerCheck reports were, and still are, limited in scope. But changes have been made.

As Suzanne Barlyn reports here, the BrokerCheck system has changed again. There is more depth to what is reported and former brokers with certain “marks” on their record will remain on the system even after the passage of two years’ time (the old cutoff). This will allow the investing public to check out the unregistered investment counselor’s background and the reason why he/she is not with a brokerage firm.

Overall, disclosure is good. My position on U-5 filings is stated in the article – specifics are generally much better than generalities, provided they are true.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida.

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FINRA Promissory Note Decisions Reflect Market Forces.

Early on in my legal career, I was a collection lawyer. In fact, I did collection work as a legal assistant while I was in law school. When I started doing collections in the securities business, I immediately starting working on promissory note cases. They go by many names, we called them Transitional Compensation.

At UBS (PaineWebber), they were called EFLs – for employee forgivable loans. Every firm on Wall Street had a different name. But one thing was for certain, in good markets, everyone got big money, even lower-end producers. And when acquisitions were on the way, even more money flowed. I called it “fattening the turkey”.
Well, those turkeys have come back to the turkey ranch. In an unscientific review of a large batch of recent arbitration awards, it sure felt like close to half of the awards were for promissory note cases. The excesses, and mergers, of just a few years ago have come home to roost. Producers that were hired to fill seats and desks washed out pretty quickly. Or, even worse, they were made to feel so unwelcome through a cut in support staff access and payout, they walked out because they couldn’t afford to work for peanuts any more.
Then there are the retention agreements. Firms provide “loans” or “bonuses” to employees to encourage them to stay after the merger of alleged equals (which it never is). A number of employees, who placed their faith in the smooth-talking executives whose bonuses counted on the short-term success of the merger, left their firms for many reasons. Most of the time it turned out that the grass was not greener on the other side.
For many years, one of my brokerage firm clients never gave out loans. They had an open door policy, meaning that the door was always open if the broker no longer wanted to work there. That firm was swallowed up – twice. It bears no resemblance to the firm it once was. And that’s a real shame. Because one never knows if the broker is moving for the culture or the money. And when the honeymoon is over, all that’s left is an arbitration to sort out the damage.
That’s the near-frozen view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.
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The Other Shoe Falls – Jesup & Lamont Securities Files for Bankruptcy.

To anyone with a pulse and half a brain, this should come as no surprise. Jesup & Lamont Securities Corp., the poorly-run broker-dealer that swallowed up other broker-dealers, has filed for bankruptcy protection under Chapter 11. Using Chapter 11, the firm could reorganize and emerge from the other side. Frankly, it should convert to Chapter 7 and be euthanized.

There are enough broker-dealers on this earth. There are certainly plenty with the questionable reputation of Jesup & Lamont. Much of that has to do with the firm’s former management, most of whom have lost their jobs. It’s unfortunate that they’ve lost their jobs, but if they had done their jobs in the first place, like controlling the firm’s general counsel, perhaps they wouldn’t have ended up on FINRA‘s radar screen.

But all that is behind Jesup now. The firm will go through bankruptcy and, perhaps, end up being owned by the very people who hold judgments and awards against it. Wouldn’t that be ironic?

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc S. Dobin.

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Is the FINRA Proposal for Public Arbitrators a Good Idea?

My initial answer is no. Suzanne Barlyn, a reporter with Dow Jones and the Wall Street Journal, reports that FINRA is planning to make its “pilot” program permanent.

The pilot program provided the opportunity for public investors to have three public arbitrators and no industry-affiliated arbitrators. The results of the pilot program are that 17 of 23 cases resulted in an award to the customer. This is viewed as a 70% “win” rate. I’m not sure this is a statistically significant number when compared with FINRA’s much larger universe of over 4,800 cases heard to completion since January 2005. The win rate over time is less than 50%.

Again, I’m not sure that’s a bad thing. On average, during the same time period, approximately 20% of all filed cases went to hearing. This means that, on average, 80% settled or went away in some fashion. (I think that involuntarily dismissed cases are few and far between.) But this is a big sample, not like looking at 23 cases and declaring a trend.

There could be a number of reasons why the number is higher in the pilot program. Statistical anomalies for one thing. Another could be the types of cases being handled in the pilot program. I also have concerns that a purely public panel may lose the benefit of the knowledge of an industry panelist’s experience.

Vociferous plaintiff’s lawyers and their pals at NASAA say that the process is unfair because of the industry panelist. But how about switching it around? Is the process now fair because one party, the brokerage firm and its broker, will be judged by 3 people with no industry experience. Or does fairness only exist when the process is stripped of any industry insider experience? This makes no sense to me.

Will I choose an all-public panel for cases where I’m representing customers? I don’t know. I’m still not convinced that it helps me. I’m sure someone will be keeping score.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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A reasoned award results in vacatur.

I’m not a big fan of reasoned arbitration awards. I think that they provide fodder for a motion to vacate (what others might call an appeal). What they really do is answer the age-old question “What were the arbitrators thinking?” Having served as an arbitrator, trust me, you don’t want to know.

But the arbitrators in a breach of contract case involving Raymond James Financial Services and three former brokers felt a need to share their opinions. In doing that, not only did they get it wrong (and sully the name of a very good in-house lawyer at Raymond James), but they bought and paid for a motion to vacate. The tortured reasoning of this arbitration panel deserved to be put under a microscope. They didn’t seem to have a clue.

It was clear that the arbitrators wanted to award money to the brokers. They could have done so without explaining themselves. Had they not provided an explanation, which they were entitled to do, the brokers would have gotten their money. But noooooo, the arbitrators wanted to “share”. And in doing so, the case found its way through the District Court, where the award was vacated, and the Fourth Circuit Court of Appeals, where the opinion is lengthy but comes down to this simple analysis – the arbitrators blew it. And how does the court know? Because the arbitrators demonstrated it in their award.

For those of you that want reasoned awards, here’s the poster child for why they have no business in arbitration.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I am Marc Dobin.

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FINRA to propose Brokercheck expansion.

FINRA, the securities industry watchdog, has had a public disclosure program for nearly 20 years. It might actually be 20 years, but my memory is starting to get fuzzy. FINRA’s memory, however, is not.

FINRA wants to expand the level of disclosure on the Brokercheck website to include certain disclosure items as far back as 1999 and other matters for 10 years back. The FINRA press release describes this in better detail.

The upshot is this — once again accurate U-4 and U-5 reporting will be put on the front burner. Once again, brokers will be hounded by items from their past, but this time the past will be a longer period of time. So, if you are a registered representative, be careful about what is disclosed about you. You could be living with it for a very long time.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. My name is Marc Dobin.

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