Embezzling broker gets 51 months for his crimes.

OK, so it’s been a while.  What with Thanksgiving, Hannukah, Christmas, New Years and a family trip, I wasn’t that focused on sharing my thoughts with the world.  But today something struck me.  On Wall Street reported that a broker in Washington state was sentenced to 51 months for embezzlement.  How he did it was interesting to me.

First, he was barred from the securities industry and fired by LPL.  Then he convinced his clients (the article was silent on how) to move their accounts to TD Ameritrade.  He then kept their usernames and passwords so he had access to the accounts at any time.  Then, when TD Ameritrade got wind of a potential problem, they barred him from doing business with them.  For some of the victims, this flag wasn’t red enough.  They believed him when he told them that TDA was trying to force him to join their firm.  So the true believers moved their accounts to Etrade where the thievery continued.

This guy had a record.  It could be found on Brokercheck.  But it appeared that the victims didn’t look or didn’t care.  FINRA and the regulators have focused large amounts of time and energy on making sure that Brokercheck is accurate and extensive.  But do people use it?  I think a very small percentage.  I would be surprised if it’s more than single digits percentage-wise.  Instead, it is used by recruiters, lawyers and others in industry (including brokers competing for an account).  The Brokercheck system has been around in one for or another for 25 years (it used to be hard copy).  How much fraud and theft has this really stopped?  I’ll bet it costs more to run the system than the sum of the avoided losses.

So now that he’s been sentenced, he’s truly sorry.  Sorry that he caused pain or sorry that he got caught?

On a small world note, I know the judge.  Judge James Robart was a securities lawyer in Seattle back in the day.  He was a smart guy and a good person.  He said, “This is a crime of greed — pure unadulterated greed — plain and simple.”  He’s right.  Unfortunately, I think that some of the victims of this theft will have difficulties that will last far beyond the 51 months this guy is in jail.


That’s the first view of 2015 by one lawyer from Jupiter, Palm Beach County, Florida.  I’m Marc Dobin.


Print Friendly, PDF & Email

PIABA wants mandatory insurance. It won’t work.

Insurance is in the news.  Suzanne Barlyn writes in Reuters that our friends at PIABA want insurance to be mandatory.  Their solution to the unavailability of insurance? Don’t do the business.  My problem with this is that FINRA seems committed to allowing mom and pop small broker/dealers to exist.  The major wirehouses are not going into some town where the population is 1500 and it is under 6 feet of snow for 8 months out of the year.  But a person who decides that this is the business for them could set up an independent office in this fictional town and serve the town’s needs.  If that broker is required to have insurance, the cost may be too high to justify the business.  So we are then left with brokerage offices of only large and regional firms because the small firms’ insurance costs drove them out of business.

PIABA says they’re concerned about the unpaid awards for its constituents’ clients.  But for the most part, those clients are only seeing between 60% and 67% of the award.  The rest goes to the lawyer who may have put $100,000 of time and expenses into a case.  So let’s make sure we understand that the clients’ interests are not the only interests at play here.

When I first started in the securities business I had no idea that there was insurance available to cover brokers’ mistakes.  I worked a major New York wirehouse, Prudential Securities, which was self-insured (in insurance-speak) as far as I know.  In fact, we used to write in our arbitration answers “Prudential Securities is not an insurer against losses.”

So several years later I was surprised to learn about insurance in this business.  When I first learned about it, the coverage was very broad.  And as insurance companies paid out more money, the coverage narrowed.  I’ve represented insureds and claimants against insureds.  In my experience, insurance has its good points and its bad.

The good – a broker who makes an honest mistake has a backstop.  Just like car insurance, good drivers sometimes get into an accident.  That’s what insurance is therefore.  Sometimes you screw up.

It would also provide protection for customers doing business with small brokerage firms with little capital.  The caveat here is that the coverage may be exhausted before you get to the pot of gold.  Most policies use up the liability cap to pay expenses.  So a one million dollar policy, after litigation expenses, may only be worth $900,000.  Also, insurance companies may decide that a series of customer claims constitute one incident under the policy.  So if there is a higher overall limit and a lower per-claim limit, the lower limit would apply.  This leaves less money to pay claims from the policy but the broker or firm only has to pay one deductible.

From a claimants’ lawyer’s perspective, insurance is good because insurance companies don’t like risk.  So if a case has risk, an insurance company wants out.  So even if the case is defensible, the insurance company’s employees and stockholders will sleep better at night knowing that the risk was extinguished.

So that’s some of the good points.

Here’s some of the bad – Insurance companies hate risk.  Didn’t I just say this a good point? you may ask.  I did.  But because they hate risk, sometimes they settle cases for more than a claimant deserves.  Further, insurance companies are not interested in the effect of a settlement on a broker’s record.  They just want to extinguish the risk.  This can cause blowback for the broker in the form of a regulatory inquiry and a ding on his/her CRD report.

The existence of Insurance policies encourages specious claims.  I worked for a lawyer who did not have malpractice insurance for the longest time.  He said that not having insurance discouraged malpractice claims because he got to pick the fight.  Because of the risk-averse nature of insurance companies, a specious claim may still get paid, encouraging lawyers to file claims just to see if they can get a door prize.

Multiple claims could equal multiple deductibles.  Some broker-dealer policies have a low deductible, say $5,000, if only the broker is named but a higher deductible, say $25 or $50,000, if the firm is named.  But those same firms push the deductible back on the broker.  If there are multiple claims naming the firm, and they’re treated as separate incidents, just the deductible alone can crush the broker.

The broker can lose control of the case.  Most liability policies, broker-dealer or otherwise, have a cram-down provision.  The policy allows the insured some input, but the ultimate decision to settle is with the insurance company.  If the insurance company wants to settle and the broker vehemently objects, the insurance company can hand off the defense of the claim to the broker and walk away from any further expense or liability.  So the broker is left in a tough spot.  She/he either has to put their money where their mouth is and try the case on their own nickel or let the insurance company extinguish the debt.

From a pure dollars and cents perspective, if the premium is reasonable, having insurance makes sense.  But in practice, it can wreak havoc with a broker’s license and possibly even attract unwanted claims.  Like everything in life, there’s no clearcut answer.  But in my humble opinion, FINRA will never require insurance for every firm.

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

Print Friendly, PDF & Email

Be on the lookout for fake IRS calls.

For the second time in a week, I received a robocall claiming to be the IRS.  It was a computerized voice.  It wasn’t Stephen Hawking playing a joke on me, either.  I don’t know him.  But I guess he could easily disguise his voice.  I digress.

The computer proceeded to tell me that they have been trying to reach me for some time.  If I don’t respond, they will sue me. I was not frightened.

The number they called from was 217.398.9755.  I have not called it.  They called my cell phone, those ba$tards!

They told me to call another number, 323.786.0730, where I’m sure a very helpful “IRS Agent” will be glad to take payment for my tax debt by credit card.  And then buy stuff with it.

Here’s the thing folks.  Unless you moved and left no forwarding address, the IRS can find you.  Not only can they find you, but they will warn you before they get really pissed off.  It is rare that the IRS decides to sue without warning.  And since I pay my taxes, I was certain they were not about to sue me.

So do what I did, report the call to the FCC here.  It says that it is for the Do Not Call registry but they also take info for robocalls.  Take not of the number that called you and the number they asked you to call.  Give the FCC all the info you can.  The FTC recently shut down two tech support scams down here.  Let’s see what they can do about these new fraudsters.

That’s the ticked-off, but tax-compliant, view of one lawyer from Jupiter, Palm Beach County, Florida.  I’m Marc Dobin.

Print Friendly, PDF & Email

Regulatory double standards gall me.

I represent brokers in regulatory matters.  It always amazes me at the lengths to which a regulator might go to get a result that could be spun in their favor.  I have also dealt with reasonable regulators who take all the facts into consideration before making a decision that could affect an individual’s career and family.

The SEC just released news about a settlement with a city in Michigan that did something laughably awful.

First, these geniuses decided, in late 2008 as the economy is swirling the bowl, to build a “movie studio project.”  First, I was thinking this is going to be about porn, but I was wrong.  It’s about stupidity.

Then, the geniuses decided that their idea was so good that members of the general public would surely want to get in on financing it.  So they floated bond issues.  The “float” analogy will pay off later.

Finally, they decided that they should put up a vocational school worth significantly less than the $146 million dollar pie-in-the-sky movie studio.  By the way, the city is Allen Park, Michigan, a southwest suburb of Detroit.  It’s here –

So instead of a movie studio, this town got a school. They issued two tranches of bonds, the second of which was in June 2010. The project collapsed two months later. Oh, and the debt service was 10% of the city’s budget, which they didn’t bother to mention in their financials, or at least they left out the effect of the debt service on the city.

So the City paid a $10,000 fine and said they won’t lie again. The two city officials said they won’t lie again and won’t do municipal bond offerings again, either. Wow, they must feel really terrible. No more muni bond deals. Just awful.

In the meantime, a broker who bends a rule to facilitate a customer’s wishes, with the customer’s full knowledge, can lose his or her license and livelihood. No lies. No busted bond issue. One bent rule.

Where is the equity?

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

Print Friendly, PDF & Email

Ameriprise broker’s career survives alteration of computer records.

Suleman Din at On Wall Street reports that an Ameriprise broker, David Tysk, managed to keep his career, and his job, even though he was found to have committed a “capital” offense.

According to the FINRA Hearing Panel decision, Mr. Tysk altered his computer-based customer notes and produced them in discovery in arbitration.  He left out the part about altering the records when he produced them.  The arbitration panel took issue with this.  So did FINRA.

In a 53 page decision (I don’t count the lengthy list of people who received copies on page 54), the Hearing Panel described in detail just how badly a client can screw up his own case.  While doing this, he also put the ethics and careers of several people at risk.  The arbitration panel was not amused.  They awarded damages against Ameriprise and Tysk.  Then they referred the case to FINRA enforcement.  Frankly, you have to really anger an arbitration panel to buy yourself a referral.  Nice job there.

But what amazes me is that this guy is still employed at Ameriprise.  He’s now a target-rich environment for any customer or customer’s lawyer in a “he said/she said” type of case.  He’s proven that he’s willing to go over the line to shore up his past.  How can he be trusted in the future?

His manager needs to be extra vigilant in supervising him.  The firm’s compliance department needs to be on the lookout for anything he does.

But a 90 day suspension and a $50,000 fine will also cause problems with his state licensing.  And if he’s an Investment Advisor representative, that registration will be impacted as well.

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

Print Friendly, PDF & Email

Dobin Law Group Successfully Represents FONU2, Inc. in AAA Arbitration.

A single AAA arbitrator denied all claims for relief against Fonu2, Inc., a publicly-held company headquartered in Fort Lauderdale, Florida.  Summit Trading, Ltd., a Bahamian company owned by the Weast Family Trust, filed an arbitration related to a Consulting Agreement entered into by Summit and Cygnus Internet, Inc. (“Cygnus”).  Fonu2 purchased the majority of Cygnus’ assets in March 2012.  In the arbitration, Summit demanded the value of 10 percent of the issued and outstanding shares of FONU2, as well as punitive damages, interest and any other appropriate relief.  Marc Dobin represented Fonu2 in the arbitration.  Jon Lieber was involved in the pre-trial issues and did most of the briefing.

In its Answer, Fonu2 alleged that Summit was required to be registered as a business broker pursuant to Fla. Stat. 475.41.  Because the payment under the subject contract was only required if a transaction occurred, we argued that the contract was illegal and unenforceable.  The arbitrator agreed.  A Florida lawyer was not involved in the drafting of the contract.  Would this have changed the outcome?  Maybe.  We won’t know.

When the testimony concluded, the parties agreed to waive oral closing and make written submissions after receiving a list of questions from the arbitrator.  This way, the parties were able to clear up any issues that the arbitrator believed to be outstanding.  The briefs were submitted just over two weeks after the arbitration concluded and the award was issued on September 26, 2014.

This case did demonstrate some of the efficiencies of arbitration.  There were no depositions.  Interrogatories and Document Requests were limited in number.  The case was completed in less than one year from start to finish.  This likely kept the legal fees down from what a full-blown jury trial in court would have cost.

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

Print Friendly, PDF & Email

A scam email that I just have to share.

I received this one today.  I find it hard to believe that someone would fall for this, but if a woman thinks it’s smart to put their child in the trunk to avoid a car-seat ticket, then I guess there’s someone who would fall for this.

Here’s the email:


Attention Sir/M,

Please if you made any payment to any one in the past or present
through Western Union/Money Gram/Bank Transfer/ for any kind of
transaction contract payment/Inheritance Fund/Lottery Fund/Jackpot/and
so on.

Please you are hereby advised to send a copy of the payment mothered
you used if it’s Western Union/Money Gram or Bank Transfer, Just send
the copy the transaction to prove that you were scammed.

If you don’t keep any record of your payment then send to him the email
you have being receiving from the people or any office it maybe, That
will enable us to verify and then approve your compensation of
$800.000.00 USD. As it was instructed by the (UNN) Chairman to pay the
sum of USD$800.000.00 to each of the scam victim person,


So isn’t that great news?  The UNN Chairman has authorized payments of $800,000 to victims of scams.  I think the UNN is like the UN, except twice as good, hence the two “N”s.  Almost makes me wish I was a scam victim.  Now if I could only figure out what a “payment mothered” is.

These emails had slowed down for a while, but they’ve picked up again.  Maybe it was summer break.  The latest rash of emails contain requests for legal representation, sometimes just an amorphous request.  Other times, the inquirer is looking to start a collection lawsuit.  This is a scam that has actually worked on some unsuspecting lawyers.

Some tips.  If the English is bad, ignore the email.  If the email address is a free email service but the person writing to you claims to be from a large international corporation, ignore the email.  If the sender wants you to engage in a transaction that makes no sense for your type or size of practice, ignore the email.

Practice safe out there.

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

Print Friendly, PDF & Email

FINRA issues expungement guidance and gets its own rules wrong.

It has been so long that I can’t remember my first expungement request. If it’s for the client I think it is, he’s still working as a broker. FINRA, the organization that is overseeing the expungement process in arbitration, issued new guidance today regarding expungements. You can find it here.

Expungements, which are, at their core, a removal of disclosures on a broker’s CRD record, have been an issue for quite some time. Early on, it was a simple stipulation between the parties. A Stipulated Award was entered and that was sent to the CRD department for processing. Then NASAA got involved (and maybe PIABA) and started complaining that, since the CRD system was used jointly by FINRA and the state securities administrators, this amounted to FINRA changing a state’s record.

So a new plan was hatched. Brokers would now be required to get a court’s stamp of approval on the expungement and FINRA would require specific findings. This requirement was ultimately codified in FINRA Rule 2080. Rule 2080 says that FINRA may waive its right to object to the expungement if the arbitrator(s) make one of three findings. But the rule also says that FINRA may waive its right to object in one other scenario – “(A) the expungement relief and accompanying findings on which it is based are meritorious; and (B) the expungement would have no material adverse effect on investor protection, the integrity of the CRD system or regulatory requirements.”  Meritorious is not defined.

My example would be this, because this actually happened. My client was named by two separate clients in one arbitration. The total claim was approximately $2.5 million. The broker-dealer was bankrupt so my client was the only pocket. My client settled with each individual client for an amount that, if each client had filed a separate claim, would have been non-reportable. But in the aggregate, the total settlement payment went over the reportable amount. Since it was one claim and not two separate claim, this large claim with a nominal settlement would have been on his record forever. We presented to the panel, and the panel agreed, that the combination of the two claims resulted in a reportable event that was not fair to be reported. The expungement was granted and FINRA waived its objection. I’m guessing this counted as “meritorious”.

So it’s not just the three specified reasons in the first part of Rule 2080 that applies. FINRA arbitrators, sitting in equity, can still decide to do what’s right. FINRA’s new pronouncement on expungement ignores this second part of the rule, which is unfair to brokers seeking expungements. FINRA is under immense pressure from NASAA, I am sure. And then there are the plaintiffs’ lawyers who, for years, were signing off on expungement deals all the time while beating their chests about investor protection. There are a few lawyers out there who refused to agree to expungement deals, but they were rare. FINRA stepped in and made it easy, though, by recently issuing rule 2081 which prohibits a settlement that, basically, requires the customer to agree to an expungement or not oppose it.

So are expungements dead? I don’t think so. It just may take more of a fight to get there. And that’s what lawyers are for.

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

Print Friendly, PDF & Email

LVMH enters into agreement with Google, but does it go far enough?

I’ve had some dealings with Google and how it deals with customer trademarks. Google’s basic policy was that a trademark, or a recognizable variation of it, could not appear in an Adword display or paid search results. So if a user input “Ford Mustang” a Google display ad would not “Just like Ford Mustang” and advertise something else. Or a client I had that had its share of legal problems. If one searched that name, it would serve up a list of lawyers in the AdWords section that had the client’s trademarked name in the ad. Google would take that down.

Today, LVMH and Google announced an agreement where LVMH could get Google to suppress search results that serve up counterfeit LVMH products. Bloomberg reports on it here. The terms of the settlement are not discussed, but it appears that this will suppress results when a user searches for, say, a Louis Vuitton handbag, Google won’t display “Just Like Louis Vuitton” handbags in the results. From what little I can find, LVMH will have to do its own policing and tell Google about it.

But this settlement does not seem to settle a more insidious problem. Google can sell, and has sold, trademarks as keywords to competitors. One of the more famous cases, which settled confidentially, was a lawsuit brought by American Airlines. American was made because users searching on Google for its airline would receive paid ads for other airlines and travel agencies. Why? Because Google was allowing these competitors to buy the term “American Airlines” as a keyword phrase. American Airlines was not pleased. Bloomberg describes the litigation and settlement here.

In a different article Google states that it did not make any special concessions related to keyword “sponsored ads.” But, magically, if you type American Airlines into a Google search bar, there are no sponsored ads and the American Airlines website appears at the top. It’s a miracle!

On the other hand, if you’re a small mom-and-pop company without the legions of resources of American (despite its bankruptcy), you’re hosed. Google, when I last dealt with the company, believes that it can sell trademarks as keywords to its heart’s content. That is, of course, it gets sued by a company with nearly bottomless pockets. Frankly, I don’t think Google’s policy was correct when I dealt with the company before and, if that policy is still in place, it seems unfair to me now. If a company goes to the trouble of protecting its trademark, why should a search engine make money selling that trademark as a keyword? The search engine couldn’t stick the name “Apple” on a phone and sell it. But it can sell the phrase “Apple computer” and serve up related results. Although, it seems, Apple has worked around this because I just did a Google search and the only thing that came up was the Apple website.

The law is trying to keep up with the technology. But sometimes, it just can’t. We need our government to step in and stop search engines from selling trademarks as keywords. Trademarks are not theirs to sell.

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

Print Friendly, PDF & Email

Carlos Ricca “-” we were all glad to know you.

My second “tour” at Prudential-Bache Securities began in August 1988. Even though I had worked there before, I was told I had to attend orientation. Another lawyer was starting at the same time. His name was Carlos Ricca. We didn’t know each other until then. Carlos was a big guy. He had a very expressive face and always had a smile for you. In a department with litigators with egos, Carlos stood out because he didn’t seem to have one. Or at least not the outsized ones possessed by others.

Because of his fabulous voice, Carlos was quite a presence. As I recall, he did some radio announcing in his life. But he was part of the group of crazies that was flying all over the country defending Prudential-Bache in arbitrations. We were comrades-in-arms. Whenever a group of us got together, there were stories.

We are all “kids” then. Some were single. Some newly-married. I might have been married the longest at that time, all 6 years of marriage. As I recall, Carlos married either just before or after I left the firm.

It was always good to see Carlos. He always smiled. In later years we talked about kids and family. With Carlos, as with many from that group, you felt like you could pick up right where you left off. Nothing seemed different about him.

I received a disheartening email this morning from an old friend. He told me that Carlos passed away this morning. I was stunned, speechless. I am dumbfounded. I know it’s part of life, but there are so many jerks out there, why would the fates claim a good guy? I’ve written before about how I feel like I’m becoming part of the “old guard.” Another friend told me that this is part of the process. I don’t like it, not one bit.

So I passed the information on to some friends who I thought would want to know. The reaction was universal shock. Then one friend reminded me of an incident where Carlos, I believe with some liquid encouragement, danced with a goat. I wasn’t there so I can’t remember if it was a fake or real goat. He did end up with a papier-mache goat in his office as a result. So I think the first goat was real. Then I remembered that, for a while, the joke was that Carlos’ Indian name would be “Dances with Goats.” (If you don’t understand the movie reference, then you’re not old enough). I chuckled to myself and I smiled. Because those really were “the days” and frequently the nights, too. Carlos will be missed by all who knew him.

Rest in peace, Carlos. When you see Generelli, tell him we all say hi.

Print Friendly, PDF & Email