In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 2009 and thereafter amended, Claimants alleged that Respondents had wrongfully handled the accounts of Felicitas Castaneda. Claimants sought $113,626.25 in compensatory damages, punitive damages, and double damages. Somewhat unusually, Claimant also sought:
Opinions of what the Panel thinks about this case with recommendations and referrals to other agencies, i.e. District Attorney's Office.
SIDE BAR: Under FINRA's Codes of Arbitration for both Public and Industry Disputes, respectively, Rules 12104(b) and 1310(b):
Only at the conclusion of an arbitration, any arbitrator may refer to FINRA for disciplinary investigation any matter that has come to the arbitrator's attention during and in connection with the arbitration, either from the record of the proceeding or from material or communications related to the arbitration, which the arbitrator has reason to believe may constitute a violation of FINRA's rules, the federal securities laws, or other applicable rules or laws.
That may not strike you as a dangerous landmine but it is. In essence, industry parties to a supposed "private dispute resolution" process may unexpectedly find themselves the subject of a FINRA regulatory investigation that was prompted by a referral from the FINRA Arbitration Panel. Frankly, it shouldn't be "unexpected" because there's a specific FINRA Rule providing for just such a knock on the regulator's door by the arbitrators.
As to the specific request in this case for a referral to a District Attorney's office, frankly, it just strikes me as a bit of too precious theatrics. I mean - like, what? - there was something stopping Claimants from phoning any criminal prosecutor and presenting their allegations of supposed criminality? With all due respect to the Claimants, such grandstanding doesn't exactly instill fear in most veteran defense lawyers and may well indicate that any settlement negotiations were stillborn amidst an atmosphere of such posturing. On the other hand, I wasn't there and who knows - maybe there was justification for this maneuver.
Respondent Chase generally denied the allegations and asserted various affirmative defenses. In the Matter of the FINRA Arbitration Between Estate of Felicltas Castaneda and Jose Castaneda, Claimants, vs. Chase Investment Services Corp., JP Morgan Chase Bank, WAMU Bank, Leonard Gzesh, Jack Christian Holt, LPL Financial LLC, and Paul Rudy Vega, Respondents (FINRA Arbitration 09-02583, November 29, 2011).
Respondents WAMU Bank and JP Morgan Chase Bank are not members or associated persons of FINRA and did not voluntarily submit to arbitration. Therefore, the Panel made no determination with respect to Claimants' claims against Respondents WAMU Bank and JP Morgan Chase Bank.
On December 17, 2009, Claimants notified FINRA that LPL Financial LLC had been named in error in this arbitration and withdrew their claims against LPL Financial LLC.
In March 2010, Claimants notified FINRA that they dismissed Respondent Gzesh with prejudice; and in May 2010, that they had dismissed Respondents Vega and Holt with prejudice.
During the evidentiary hearing, the FINRA Arbitration Decision states that "Mr. James Bloom was present as moral support and as an interpreter for Claimants."
SIDE BAR: Moral support? Since when do parties get to have third parties sit in as moral support? Not sure that I understand this situation. I'm not understanding the basis for allowing bystanders, spectators, or fans to pull up a seat and enjoy the fabulous entertainment that is a contested FINRA Arbitration. If there was a finding based upon the arbitration rules that resulted in Bloom's permitted attendance (or there was no opposition from the Respondents), then I would have preferred the Decision offer such an explanation.
Similarly, if Bloom was a qualified, certified interpreter, then I'm not sure why the Panel would not have been troubled by the potential bias/prejudice of using such an interpreter who is also appearing in the dual role of one of the parties' "moral support." If, in fact, Bloom was approved by the Panel as an interpreter during the hearing, the Decision should have clarified that determination and explained why the apparent bias was not a conclusive negative factor. After all, competent translation is a two-way street. It's important to have confidence that not only are the questions being accurately translated but that the speaker's answers are too - and that means without the translator injecting his or her enhancements.
During the evidentiary hearing, Respondent Chase made the following motions (all opposed by Claimants):
After the conclusion of Claimants' case in chief. Respondent Chase made a Motion to Dismiss based on the statute of limitations and lack of evidence, which Claimants opposed. The Panel granted all of Respondent Chase's motions, with the exception of the Motion to Dismiss.
During the recorded evidentiary hearing, the Panel heard testimony and considered evidence on Respondents Gzesh, Vega, and Holt's requests for expungement.
The FINRA Arbitration Panel denied Claimants claims and recommended the expungement of the arbitration from the Central Registration Depository records ("CRD") of Respondents Gzesh, Holt, and Vega.
The Panel determined that:
all combined to make it impossible for Respondent Gzesh to have been involved with subject account.
Moreover, the Panel found that Respondents Gzesh, Vega, and Holt were not involved in the transactions at issue. In fact, Respondent Holt never even met Mrs. Castaneda nor accomplished any trades for her. Similarly, the Panel determined that Respondents Gzesh, Holt and Vega never knew Mrs. Castaneda and never handled her account.
An interesting, if not frustrating, Decision. Claimants came on like a bat out of hell with all sorts of aggressive tactics - naming everyone in sight, seeking a regulatory referral, etc. - and given that all is fair in love and war, hats off to Claimants' lawyer, who gave his clients' their money's worth.
On the other hand, looking at the flotsam and jetsam in the wake of this case, one really has to wonder why some or all of the respondents didn't pursue counterclaims against the Claimants. Non-FINRA member respondents over whom the arbitration forum had no jurisdiction were named. Claimants withdrew their claims against Respondent LPL because that firm had been named in error. Claimants withdrew their claims against all three individual respondents. Even more troubling, the Arbitration Panel found that the three named individual respondents were not involved in the subject transactions or even handled the accounts at issue.
I mean, seriously, unless the Decision has overstated the dubious nature of this case (or I have wrongly inferred facts and circumstances), I'm puzzled as to why this all ended with a whimper and not a bang. A possible explanation is that we're dealing with a deceased client and there seems to be some issue of a language barrier - all of which may have motivated the respondents to pull things in a bit and simply let this case die a tortured death. If that's the case, respondents received intelligent legal counsel. However, in other cases, perhaps with less sympathetic claimants, it would be perfectly acceptable for respondents to return the volley with a withering salvo of counterclaims.
One important aspect of this case is that it serves as a useful opportunity to remind investors for whom English is not a language that they reasonably comprehend, to be careful - very careful - when opening up a brokerage account in the United States. Investors who cannot communicate in English should make arrangements to have someone that they trust and who is competent to translate financial documents, timely review all communications from the brokerage firm: trade confirmations, monthly statements, notices, letters, etc. Similarly, brokerage firms should be particularly sensitive to opening an account for anyone who clearly demonstrates a lack of facility in English.
Why such concern for a customer who lacks fluency or competency in English? For starters, so-called Affinity Fraud is a ongoing problem and those investors who come from a tightly knit community - be the bonds ethnicity, language, religion, or whatever - may be steered by their neighbors, families, and friends to a stockbroker who speaks their language and understands their customs. Sometimes that's a good thing. Sometimes that's a disaster. In the hands of a fraudster, such clients may be given false translations of documents that serve to hide the true nature of their investments or of the valuation of their portfolio. Similarly, queries and complaints being directed through that broker may not be properly communicated (if at all).
Although we live in an ever larger global village and international investing is growing, that does not mean that there are fewer predators in an ever larger ocean. Great Whites still circle and sniff for new blood. If you don't speak or write the language, make sure to retain the services of someone who does - or else consider holding on to your savings with both hands. Finally, there are many professional translation services that you can quickly find on the Internet and secure for a relatively affordable sum. Before you ask your nephew's ten-year-old daughter to translate the prospectus for you, and before you go to the local butcher for help deciphering your monthly statement (and this butcher is the same guy who referred you to the broker, and to whom the broker is giving a few hundred a month, off the books, for sending clients to him), please, hire a qualified, independent, professional translator.