In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in July 2010, Claimant Lucchese sought $100,000 in compensatory damages plus treble damages, attorneys' fee, interest, and cost in connection with various causes of action arising out of his claim that Respondents failed to sell his position of Brothers, Inc. ("Lehman") preferred stock. In the Matter of the FINRA Arbitration Between Alphonse M. Lucchese, Claimant, v. Citi Smith Barney, Citigroup Global Markets, Inc., Robert Joseph Malenfant, and Alfred George Weaver, Respondents (FINRA Arbitration 10-03334, October 12, 2011).
On or about March 1, 2009, Claimant Lucchese filed a civil lawsuit in the Middlesex Superior Court of Massachusetts, but the Court dismissed the action and remanded the case to FINRA arbitration. Claimant Lucchese alleged that on February 6, 2008, he had purchased 4,000 shares of Lehman preferred, which was recommended to him over the phone by his Smith Barney stockbroker Respondent Weaver. Although Claimant asserted that he had initially expressed discomfort with the recommended purchase, he "reluctantly agreed" to enter the order at $25.00 per share, for a total cost of $100,000.00.
As those familiar with the Market Crash of 2008 and the ensuing Great Recession are likely aware of, the value of Lehman's stock declined during 2008 and by September 9, 2008, Claimant Lucchese's $100,000 investment was worth about $37,000 - a 63% drop. At this time, Claimant alleged that he told Respondent Weaver that he was "amenable to take a loss of $63,000.00" and he instructed Weaver to sell the position.
On September 15, 2008, Lehman filed for Chapter 11 bankruptcy. Following Lehman's Bankruptcy filing, Claimant's preferred shares were worthless, resulting in the loss of his $100,000 investment.
Respondents generally denied Claimant Lucchese's allegations, asserted various affirmative defenses, and sought an expungement of this matter from the Central Registration Depository record ("CRD") of Respondent Weaver and Respondent Malenfant .
Because Respondent Citi is not a FINRA member firm or associated person and did not voluntarily submit to arbitration, the sole FINRA Arbitrator hearing this matter made no determination with respect to Claimant's claims against Citi.
The sole FINRA Arbitrator hearing this case examined the circumstances surrounding Claimant Lucchese's "reluctant purchase" of the Lehman shares.
The Arbitrator noted Claimant's contention that he wasn't a "big fan" of Lehman at the time of his purchase and that the customer even believed that Lehman's preferred stock was "not in line" with similar shares of other companies.
Also taken into consideration was that by spring 2008, Claimant Lucchese had spoken to Respondent Weaver about the circumstances that had caused a then 20% loss - his 4,000 Lehman shares were worth about $80,000. Claimant alleged that he felt by then that there "must be something wrong" with Lehman. In response to those concerns, it appears that Respondent Weaver opined that Lehman was still a "good company."
By September 9, 2008, the Claimant's Lehman holdings are worth only $37,000. Frankly, Claimant's alleged queasiness about Lehman seemed to have been more accurate than Respondent Weaver's belief that the company still had merit.
All of which sets us up for that classic moment when a customer may have regretted not following his own instincts and deferred to his broker's advice. Yes, the very stuff that gives birth to lawsuits.
If you buy Claimant's version of events, on September 9th, he threw in the towel and told Respondent Weaver to dump the 4,000 shares and book the $63,000 loss. If you buy Respondents' version of events, there was no such sell order and, to the contrary, Claimant once again seemed to defer to Respondent Weaver's advice (sage or otherwise).
And what exactly were the pearls of wisdom that purportedly came out of Respondent Weaver's mouth. Allegedly, Respondent Weaver told Clamant Lucchese that Lehman was too big to fail, and that Lehman could fix the problem internally, or that the U.S. government could help, or that Lehman might be acquired, and that he should hold on to the stock. Ouch!
Okay, c'mon now, let's not be too harsh on the stockbroker. In all fairness, we're now taking pot shots at him from the comfortable vantage point of hindsight - during those fast-moving, dire days of September 2008, Weaver had lots of company and his opinion was shared by many market seers and pundits. Even today, there are those who argue that Lehman should not have been allowed to fail and that the government should have stepped in.
About September 15, 2008, Claimant Lucchese telephoned Weaver and told him he wanted to be made whole for his entire investment. At that point. Weaver transferred the call to his supervisor, Respondent Malenfant, who conveyed the client's demands to higher ups. Apparently no settlement offer was forthcoming - or at least not one to Claimant's satisfaction.
Thus, the sole FINRA Arbitrator is left with the task of parsing out the facts. Whether Claimant Lucchese was convinced about the winning prospects of his investment or harbored reservations, the Arbitrator seemed to have determined that in this case, the customer decided to buy the 4,000 shares and to retain them.
Respondent Weaver didn't claim, not even remotely, that his Lehman recommendation to Claimant Lucchese was his finest hour. Quite the opposite. Respondent Weaver admitted to telling Claimant that he had "messed up" by not selling the stock when Claimant said he would be willing to take a $63,000.00 loss. However, Weaver was adamant that he never received an unequivocal, direct order from Claimant to sell the 4,000 share position.
Although Respondent Weaver clearly got it wrong about Lehman's prospects, the FINRA Arbitrator apparently did not view the broker's opinion as fraudulent; it was simply wrong. Setting aside the concerns of the purchase or the choice to retain the shares up until September 9th, the sole Arbitrator moved on to whether there was a dishonored sell order. In addressing that question, the Arbitrator noted:
During Claimant's testimony, when asked why Weaver did not acknowledge he gave him an order to sell. Claimant said he lied. Weaver was asked if Claimant told him to sell. Weaver said emphatically he did not and that Claimant lied. The same response came from Malenfant.
The FINRA Arbitrator approached the ultimate weighing of the existence (or non-existence) of a firm sell order by noting that in a number of communications during the relevant time, Claimant Lucchesse stated that he was "amenable" to a sale of his Lehman position; however, in focusing on Claimant's amenability, the Arbitrator seemed struck by the absence of language instructing Respondents to sell the Lehman position. The Arbitrator explained that:
The evidence during the hearings lacks support of Claimant's assertion that a direct order to sell Lehman preferred stock was given to Weaver. The testimony covered in detail other issues-suitability, breach of contract, breach of promise, breach of fiduciary duty, and intentional and negligent misrepresentation. The testimony by Claimant did not support these issues.
The FINRA Arbitrator denied Claimant Lucchese's claims.
Moreover, (and talk about pouring salt into a wound!) the Arbitrator found Claimant Lucchese liable to and ordered him to pay to Respondents attorney's fees in the amount of $49,985.12.
Also, the Arbitrator recommended the expungement of the arbitration from Respondent Malenfant's and Respondent Weaver's CRD on the finding that there was no evidence supporting Claimant's allegation that either individual had been given a direct order to sell the Lehman shares.
Before you decide to pick up the torches and pitchforks and go after the supposed monster of a FINRA Arbitrator, you need to calm down and understand what prompted the attorneys' fee award. As part of the legal maneuvering in these disputes, both sides apparently went all-in and made a joint application (i.e., both parties agreed) to the Arbitrator that the prevailing party be awarded attorneys' fees. In retrospect, perhaps another reluctant decision that Claimant Lucchese made upon the advice of a professional?
One thing is for certain, for those who owned shares in Lehman, it is the investment that keeps on giving - or, in Claimant Lucchese's case, keeps on taking.