October 2, 2013
A FINRA arbitration panel wrestles with a case involving three customer claimants and five industry respondents. Given the final outcome involving over $1.2 million in awards, the arbitrators clearly gave the disputes a lot of thought -- but it might have helped if they spent just a bit more time explaining the difference between dismissing with prejudice the claims against one respondent by only denying the claims against another. Dismissal? Denial? The difference is what?
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Master Statement of Claim filed in November 2011 and in the Subordinated Statement of Claim filed in July 2012, Claimants asserted breach of fiduciary duty; unsuitable investments; churning and excessive trading; failure to supervise; and gross negligence in connection with an allegedly unsuitable naked option trading strategy, combined with the use of margin. In the Matter of the FINRA Arbitration Between Felix Bernard-Diaz, Claimant, and Julian Rodriguez and Luz Rodriguez, Claimants, vs. BBVA Securities of Puerto Rico, Inc., Julio Cayere, Rafael Colon Ascar, Sonia Marbarak, and Jorge Bravo, Respondents (FINRA Master Arbitration 11-04271 consolidated with 12-02754, September 23, 2013)
Claimant Bernard-Diaz ultimately sought:
- $793,612 for unsuitable trading;
- $135,000 disgorgement of commissions;
- $196,154 legal interest;
- $358,247 legal fees; and
- $50,000 expenses and costs
Claimants Julian and Luz ultimately sought:
- $936,253 for unsuitable trading;
- $67,674 disgorgement of commissions;
- $243,425 legal interest;
- $411,626 legal fees; and
- $50,000 expenses and costs
Respondents generally denied the allegations, asserted various affirmative defenses, and requested the expungement of the Central Registration Depository files ("CRD") of Respondents Marbarak and Bravo. Claimants opposed Marbarak's request for expungement but did not oppose Bravo's.
Around August 2, 2012, Respondent Cayere filed for Chapter 13 bankruptcy, and, accordingly, the FINRA Arbitration Panel made no determination as against him.
Joint And Several Liability
The FINRA Arbitration Panel found Respondents BBVA and Ascar jointly and severally liable and ordered them to pay to Claimants damages and costs in the following amounts:
- Bernard-Diaz: $635,500.00 in compensatory damages and $15,000.00 in costs; and
- Julian Rodriguez and Luz Rodriguez: $547,000.00 in compensatory damages and $15,000.00 in costs.
All claims against Respondent Bravo were "dismissed with prejudice."
All claims against Respondent Marbarak were "denied."
The Panel recommended the expungement Respondent Bravo's CRD based upon a finding that:
Respondent Bravo's only connection to this case was the fact that his name appeared on the financial plan prepared for Claimants even though he was not involved in the preparation of the financial plan. Respondent Bravo did not have any relationship with Claimants or with Claimants' accounts.
The majority of the Panel recommended the expungement of Respondent Marbarak's CRD based upon a finding that:
Respondent Marbarak was not directly or indirectly involved with Claimants' accounts. The Panel determined, by testimony presented, that Respondent Marbarak's responsibilities did not include reviewing individual accounts or transactions. Rather, this responsibility was a function of the office manager. As compliance officer, Respondent Marbarak was responsible for those accounts that were randomly selected during the monthly/annual review performed as part of the compliance officer's function. Claimants' accounts were not randomly selected during this review process, as stated during testimony presented.
Bill Singer's Comment
I'm not sure that I fully understand the distinction or difference between dismissing with prejudice against Respondent Bravo versus denying all claims against Respondent Marbarak, particularly within the context of a FINRA arbitration. If the Panel specifically meant to dismiss the claims against Bravo with prejudice but to merely dismiss the claims against Barbarak without prejudice, that might have been clearer. If the Panel, however, wanted to distinguish between the dismissal with prejudice, on the one hand, and the mere denial, on the other hand, then the arbitrators should have offered us some explanation. As it is, I do not comprehend why the distinction was made and on what legal basis.