In the Matter of the FINRA Arbitration Between UBS Financial Services, Inc., Claimant, vs. David Kinnear, Kathleen Bakas, Steven Fryman, Alexander Freund, and Wells Fargo Advisors, LLC, Respondents-- AND --David Kinnear, Counter-Claimant, v. UBS Financial Services, Inc., Counter-Respondent-- AND --Wells Fargo Advisors, LLC, Counter-Claimant, v. UBS Financial Services, Inc., Counter-Respondent (FINRA Arbitration 12-00554, May 12, 2016).
1. David Kinnear and Wells Fargo Advisors, LLC are jointly and severally liable for and shall pay to UBS Financial Services, Inc. the sum of $1,500,000.00 in compensatory damages.2. UBS Financial Services, Inc. is liable for and shall pay to Wells Fargo Advisors, LLC the sum of $400,000.00 in compensatory damages.3. The above amounts are offset. David Kinnear and Wells Fargo Advisors, LLC are jointly and severally liable for and shall pay to UBS Financial Services, Inc. the sum of $1,100,000.00 in compensatory damages.4. David Kinnear and Wells Fargo Advisors, LLC are jointly and severally liable for and shall pay to UBS Financial Services, Inc. the sum of $1,250.00 in costs as reimbursement for the non-refundable portion of the filing fee.5. David Kinnear's Counterclaim is denied.6. Any and all relief not specifically addressed herein, including punitive damages and attorneys' fees, is denied.
Bill Singer's Comment
So . . . let's see here: Kinnear apparently quit UBS in February 2012. The FINRA Arbitration Decision was rendered in May 2016 -- so that's a lapse of some 4 1/4 years from resignation to Award. Now that's a fairly profitable and sensible use of nearly one-half of a decade, no?
And just exactly what was the bottom line, fully netted out result among all these warring parties? We start with a credit to UBS of $1.5 million but then deduct $400,000 in an offsetting award, so UBS comes out ahead by $1.1 million plus another $1,250 in awarded costs.
Not mentioned at all in the FINRA Arbitration was this 2015 disciplinary settlement that Kinnear had entered into with FINRA:
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, David Stephen Kinnear submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of David Stephen Kinnear, Respondent (AWC 2012031496901, April 13, 2015).
The AWC asserts that Kinnear was first registered in 1997 and joined UBS in 2005. The AWC asserts that he had no prior disciplinary history in the securities industry.
As set forth under the "FACTS AND VIOLATIVE CONDUCT" section of the AWC:
On February 13, 2012, Kinnear submitted his resignation to UBS and on the same day became associated with Wells Fargo. Kinnear was only permitted to bring limited information about his UBS customers pursuant to a Protocol for Broker Recruiting, of which both UBS and Wells Fargo were signatories. Additionally, UBS's policies and procedures prohibited Kinnear from taking UBS customer information following his resignation. On or about February 9, 2012, in anticipation of his resignation from UBS and his move to Wells Fargo, Kinnear transferred customer account information for approximately 47 of his UBS customers from UBS systems to USB thumb drives, which were encrypted and password protected. On or about February 9, 2012, Kinnear sent these thumb drives to his customers with the expectation that he would retrieve the information after he joined Wells Fargo if he reestablished his relationships with these customers.
Kinnear did not have permission to transfer and send this UBS customer information for the purpose of recapturing it after he joined Wells Fargo. In taking these actions, Kinnear violated UBS's policies and procedures. FINRA Rule 2010 requires associated persons to observe high standards of commercial honor and just and equitable principles of trade. By reason of the forgoing, Kinnear failed to comply with these standards and thereby violated FINRA Rule 2010
In accordance with the terms of the AWC, FINRA imposed upon Kinnear a $5,000 fine and a five-business-day-suspension in all capacities with any FINRA member firm.
Okay . . . so . . . if nothing else we have a bit more color as to what Kinnear purportedly did in terms of leaving UBS. If, in fact, the FINRA arbitration is largely about thumb drives containing customer information of "47 of his UBS customers" and he "sent these thumb drives to his customers," I'm not so sure that I necessarily understand the regulatory action, the fine and suspension, and how that all served to undo Kinnear in the arbitration but we may not necessarily be getting the whole picture. You should feel free to draw your own conclusions and if you disagree with me, that's fine. I'm merely offering you more information on which to form an opinion.
Retroactive Mandatory Arbitration
Speaking of more information, for those of you who still haven't had enough, consider Alexander Freund, Plaintiff, v. UBS Financial Services, Inc., Defendant (Memorandum Opinion and Order, 15-CV-7965, United States District Court for the Northern District of Illinois, October 23, 2015), in which we are offered the following synopsis:
An interesting aspect of Freund v. UBS is set forth in the Opinion and Order:
Plaintiff Alexander Freund filed this action against Defendant UBS Financial Services, Inc. ("UBS") pursuant to 28 U.S.C. § 1332 to enjoin an arbitration proceeding before the Financial Industry Regulatory Authority ("FINRA") Office of Dispute Resolution. Plaintiff seeks a declaration that FINRA does not have jurisdiction over him and cannot require him to participate in the FINRA arbitration because there is no valid arbitration agreement between Plaintiff and UBS. Before the Court is Plaintiff's motion for a preliminary injunction and expedited ruling . For the reasons set forth below, the Court denies Plaintiff's motion for a preliminary injunction, but grants the motion for expedited ruling .
UBS argues that Plaintiff agreed to have FINRA decide UBS's claims against him because, approximately two months after leaving UBS, Plaintiff signed a Form U-4 submitting to FINRA's jurisdiction. Plaintiff argues, on the other hand, that the Form U-4 does not apply retroactively to UBS's claims against him, which Plaintiff argues arose before Plaintiff signed the U-4.. . .The parties apparently agree that their dispute would be subject to arbitration if Plaintiff had signed the U-4 before their dispute arose, because UBS is a FINRA "member" and Plaintiff would be an "associated person." However, Plaintiff signed the U-4 approximately two months after leaving UBS, while he was an employee at Wells Fargo. Plaintiff argues that by signing the U-4 on April 19, 2012, he did not agree retroactively to arbitrate claims that arose prior to that date. UBS responds that "the timing of an alleged tort or breach is not significant in determining whether a dispute should be submitted to arbitration in FINRA under the Form U-4."  at 6. Instead, UBS asserts, the "proper inquiry is whether UBS's claims for relief against [Plaintiff] arose out of his employment or termination of his employment with UBS, which they do." Id. UBS also argues, as a factual matter, that Plaintiff's "misconduct continued after he went to Wells Fargo over many months as Freund worked with Kinnear in illegally soliciting UBS clients, aided by the use of information and records misappropriated from UBS." Id. at 9.
[P]laintiff's U-4 requires him to arbitrate his dispute with "any other person" if that dispute is "required to be arbitrated" under FINRA's rules. FINRA requires the arbitration of a dispute if it "arises out of the business activities of a member or an associated person and is between or among: Members; Members and Associated Persons; or Associated Persons." UBS is a "Member" of FINRA. Plaintiff, like Marcus, became an "associated person," at the latest, when he "applied for registration under the Rules of FINRA." UBS's claims "arise out of the business activities" of UBS and Plaintiff: namely, UBS's sale of securities to its customers and Plaintiff's alleged theft and transmission to the Kinnear team of confidential information concerning those customers. No language in the U-4 or FINRA's arbitration rules expressly prohibits the arbitration of disputes that arose before the party resisting arbitration signed a U-4. Considering all of these circumstances, because the Court cannot say "with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute," Seventh Circuit precedent teaches that the proper course is to apply the presumption in favor of arbitration . . .