In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2011, the Claimants asserted:
- breach of contract;
- conspiracy to commit fraud;
- aiding and abetting fraud and breach of fiduciary duty;
- violation of California Securities Act, NASD and NYSE Rules;
- conversion; and
- breach of fiduciary duty.
According to the FINRA Arbitration Decision: "The causes of action relate to Claimants' investment in QRP."
SIDE BAR: A quibble that I have with this FINRA Arbitration Decision is its somewhat flip reference to the disputed "investment in QRP." Now, is that "QRP" a stock symbol? Is that an abbreviation for a "qualified retirement plan?" Was the dispute about the plan itself and/or the investments within that plan? If you're going to use an abbreviation, at least spell out the term prior to the first iteration of the abbreviation and offer some brief context.
Claimants sought at least $3,772,334.18 in punitive/exemplary damages; and at least $1,257,444.73 for the loss of the investment in QRP and the actual QRP, earnings and appreciation on such QRP, and injuries resulting from humiliation, mental anguish and emotional distress. Additionally, Claimants sought attorneys' fees, costs, prejudgment interest and other damages. In the Matter of the FINRA Arbitration Between Thomas L. Baker and Linda S. Baker, Claimants, vs. Janney Montgomery Scott, LLC, Jesup & Lamont Securities Corp, Wachovia Securities Financial Network, LLC, and Wachovia Securities, LLC, Respondents (FINRA Arbitration 11-03007, July 26, 2012).
Respondents Wachovia Securities, LLC and Wachovia Securities Financial Network, LLC denied the allegations and asserted various affirmative defenses.
As a result of the September 2010 bankruptcy filing by Respondent Jesup & Lamont Securities Corp, all claims against that respondent were stayed and the FINRA Arbitration Panel made no determination with respect to any claims against that party.
On September 29, 2011, Claimants notified FINRA that they had dismissed with prejudice their claims against Respondent Janney Montgomery Scott, LLC.
Motion To Dismiss
On October 31, 2011, Respondents Wachovia Securities, LLC and Wachovia Securities Financial Network, LLC filed a Motion to Dismiss pursuant to eligibility rules of the Code of Arbitration Procedure (the "Code").
SIDE BAR: FINRA's Rule 12206 (also known as the "Eligibility Rule") provides that no claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim. The determination of whether FINRA's Eligibility Rule applies is left for the FINRA Arbitration Panel. The six-year eligibility rule is not a statute of limitations and not subject to tolling; and the period runs from the date of the transaction giving rise to the claim, not from the date of discovery of the alleged claims.
After consideration of the pleadings, "including the stipulation by counsel that the last transaction between the parties occurred in September of 2004 and that this claim was filed in August of 2011," the Panel dismissed the claims against Respondents Wachovia Securities, LLC and Wachovia Securities Financial Network, LLC, on eligibility grounds because the underlying transactions giving rise to the claim occurred in August and September of 2004, more than six years prior to the filing of this claim.
Claimants' claims are dismissed without prejudice.
An interesting case if only for the amount of damages sought and the ever-puzzling question of what took so long to bring this on? For starters, Claimants are seeking a whopping $5 million or so in punitive and compensatory damages - so this was not a case to be taken lightly by the respondents. On the other hand, if, as stipulated to, the disputed transactions first occurred in 2004 why did six years pass without any formal action by Claimants to recover their losses?
Some possible answers are that the bulk of losses were at the feet of Jesup & Lamont Securities Corp. and claimants figured that it would be a wild goose chase to go after a firm that was first reported to be in financial distress and then filing for bankruptcy protection. Those claims are best filed under the old "hey, let's at least give it a shot - who knows?" Unfortunately, the door was slammed shut with the bankruptcy filing.
Then there is the dismissal against Janney Montgomery Scott. Was that part of a non-disclosed settlement? Were there any concessions or consideration involved in that dismissal? We just don't know and the Decision does not indicate anything about any settlement.
Finally, the Claimants here may have opted to handle things on their own, unaware of the ticking time bomb inherent in not timely filing and preserving your claim; or, they may have had a lousy case that no prior lawyer would take; or, they may have been victimized by malpractice by prior legal counsel; or, the whole strategy here might have been to fling enough crap against a wall and hope that something sticks. Your guess is as good as mine, so have at it as you will.
One thing for certain, this $5 million case ended not with a bang but with a whimper.
For similar fact patterns, READ these "Street Sweeper" columns: