Public Customer Rebuked In Two FINRA Arbitrations

January 4, 2018

This is an update of

Stockbrokers Sue Customer Over Unpaid Margin Debit"
(BrokeAndBroker.com Blog, July 16, 2015)

2015 Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2014, three associated persons alleged that public customer Wijk had failed to repay a debit balance that purportedly arose after he had traded an unspecified stock on margin and, thereafter, failed to repay the ensuing debit balance. Claimants sought $25,338.70 in compensatory damages plus interest, attorneys' fees, and costs. In the Matter of the FINRA Arbitration Between Steven Scott Baldassarra, Joseph Benjamin Baldassarra, and Carl Joseph Smith, Claimants, vs. Pieter Van Wijk, Respondent (FINRA Arbitration 14-03768, July 10, 2015).

Online FINRA BrokerCheck records as of July 16, 2015, disclosed that the three Claimants were then registered with FINRA member firm Newbridge Securities. Claimants were represented in the 2015 arbitration by "Carl Joseph Smith, President, CJS Financial Corp., Coral Springs, Florida" but there is no indication that he is a lawyer.

Repondent Wijk did not file an appearance and was apparently not represented by a lawyer.

Award

The sole non-public FINRA arbitrator found Respondent Wijk liable and ordered him to pay to Claimants $25,388.70 in compensatory damages; and a further $600 reimbursement for FINRA filing fees.

The FINRA Arbitration Decision asserts:

OTHER FEES: Newbridge Securities Corporation has paid to FINRA Dispute Resolution the $750.00 Member Surcharge previously invoiced

Bill Singer's Comment

No . . . you're right . . . not a particularly complicated or interesting case. It's a basic they-said-he-didn't-answer case; however, there were a few aspects of this matter that did catch my eye.

For starters, I have frequently mused in the BrokeAndBroker.com Blog as to why we don't see more FINRA arbitrations brought by member firms and registered representatives against public customers, particularly for defamation or non-payment. In this case, we have three individuals suing a non-paying public customer. Oddly, there is no FINRA member firm on the Claimant-side of the caption. I am, as such, curious as to the legal theory underpinning the Statement of Claim (which is not available online at FINRA's Arbitration website). Assuming that the public customer had an unpaid margin balance, that would typically be owed to the member firm. How did these individuals wind up suing for a debit typically carried on a firm's books? A possible answer is that they were charged by their employer firm for the debit or took an assignment of same, and then sued on their own behalf. One odd issue here is why member firm Newbridge Securities paid the FINRA member firm surcharge for the arbitration but didn't join as a Claimant -- or, to take the pondering a bit further, why Newbridge Securities wasn't the only Claimant.

Another aspect about this case that is worth noting is that the public customer lost and now owes the full amount for which he was sued. Of course, winning the award and collecting are two very different challenges.

Margin liquidations are a common source of customer complaints because many customer's misunderstand the legal and regulatory requirements pertaining to margin and margin calls. Let me briefly try to clarify some misconceptions.

Generally, when the equity in a margin account is deficient according to the maintenance levels in effect, your brokerage firm can sell securities in your account without your prior consent, agreement or authorization. Frankly, if you re-read your Margin Agreement, you will likely see buried among the thousands of words that you agreed to that circumstance as a condition precedent to opening that account. If the equity in your account falls below the legally proscribed margin maintenance requirements or the brokerage firm's "house" maintenance requirements, the firm can, without prior notice to you, sell the securities in your account to cover the margin deficiency. While many brokerage firms will send courtesy notices to clients prior to undertaking such margin liquidations, those notices are not legally required. If, however, you have negotiated a specific margin agreement that imposes different terms, that would be a different situation -- good luck trying to extract such concessions from most brokerage firms.

Similarly, many customers believe that they are entitled to an extension of time on a margin call if they simply ask for one. While an extension of time to meet initial margin requirements may be available to customers under certain conditions, a customer is not legally entitled to an extension nor is a brokerage firm obligated to grant one. What if the forced sale doesn't raise enough cash? You may be responsible for any resulting deficiency.

As the Securities and Exchange Commission warns in its online Investor Bulletin "Understanding Margin Accounts" (SEC Pub. No. 156 (8/13) ) :

Understand Margin Calls
You Can Lose Your Money Fast and With No Notice.

If your account falls below the firm's maintenance requirement, your firm generally will make a margin call to ask you to deposit more cash or securities into your account. If you are unable to meet the margin call, your firm will sell your securities to increase the equity in your account up to or above the firm's maintenance requirement.

However, your broker may not be required to make a margin call or otherwise tell you that your account has fallen below the firm's maintenance requirement. Your broker may be able to sell your securities at any time without consulting you first. under most margin agreements, even if your firm offers to give you time to increase the equity in your account, it can sell your securities without waiting for you to meet the margin call.

READ:

UPDATE January 2018

Apparently public customer Respondent Wijk was not prepared to go down without a fight and he filed an arbitration against the prevailing Claimants in the above-referenced 2015 FINRA arbitration.

2017 Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2015, public customer Wijk asserted churning, suitability, unauthorized trading, negligence, breaches of fiduciary duty and contract, misrepresentation, disciplinary history and failure to supervise, and quantum meruit. Claimant Wijk sought $185,035.75 in compensatory damages plus lost opportunity costs, punitive damages, costs; and reasonable attorneys' fees. In the Matter of the FINRA Arbitration Between Pieter Van Wijk, Claimant, vs. Joseph Benjamin Baldassarra, Steven Scott Baldassarra, Thomas Joseph Casolaro, CJS Financial Corp., Leslie Anne Moore, NewBridge Securities Corp., and Carl Joseph Smith, Respondents (FINRA Arbitration 16-00002, December 28, 2017).

Respondents generally denied the allegations and asserted various affirmative defenses.

This is the legal representation noted in the FINRA Arbitration Decision:

Claimant Pieter Van Wijk was represented by Hilton Wiener, Esq., Law Office of Hilton M. Wiener, New York, New York.
Respondents Joseph Benjamin Baldassarra , Steven Scott Baldassarra, CJS Financial Corp., and Carl Joseph Smith were represented by David Feingold, Esq., Feingold Morgan Sanchez, Palm Beach Gardens, Florida.
Respondents Thomas Joseph Casolaro, Leslie Anne Moore, and NewBridge Securities Corp. were represented by Gregg J. Breitbart, Esq., Kaufman Dolowich Voluck, LLP, Boca Raton, Florida.

SIDE BAR: In the 2015 FINRA Arbitration Decision, the firm's name is set forth as "Newbridge" but in the 2017 arbitration it is set forth as "NewBridge."

Settlement

By correspondence dated May 18, 2017, Claimant Wijk notified FINRA that he settled his claims against Respondents NewBridge, Casolaro, and Moore.

Award

The FINRA Arbitration Panel denied Claimant Wijk's claims and found him liable to and ordered him to pay to Respondents the Baldassarras, CJS Financial Corp., and Smith:

$99,450.00 in attorneys' fees pursuant to Florida Statute 57.105: Attorney's fee; sanctions for raising unsupported claims or defenses; exceptions; service of motions; damages for delay of litigation; and
$3,307.00 in costs.

Additionally, the Panel assessed the full $13,950.00 in hearing session fees against Claimant.

Bill Singer's Comment

Ouch!!! Wijk can't be a happy camper. Not only did he lose the 2015 FINRA arbitration brought against him but he also lost the 2017 FINRA arbitration that he filed.

Why did Respondents NewBridge, Casolaro, and Moore settle and for how much? I don't know and it's not stated in the FINRA Arbitration Decision. Maybe these three respondents simply settled for far less than what it would have cost in legal fees to fully contest the case? Maybe these three respondents paid "nuisance value" and never gave their settlement a second thought? Your guess is as good as mine.

On the other hand, Respondents Joseph and Steven Baldassara, CJS Financial, and Smith went the distance and came away with what amounts to a second KO of Wijk. Compliments to their lawyer David Feingold, Esq.!

Normally, I would say that's all folks but, you know, we got three feisty industry folks and one feisty firm and the way I'm reading the FINRA Arbitration Decision, in dismissing Wijk's claims and awarding about $117,000 in fees and costs against a public customer (who was seeking over $185,000 in damages), the arbitrators seemed to have found Claimant Wijk's claims baseless or malicious or otherwise without a reasonable basis. All of which would suggest that we may be preparing for a three-peat with Plaintiffs the Baldassrras, Smith, and CJS Financial retaining attorney Feingold to sue Wijk, yet again, for punitive damages attendant to something like malicious prosecution or abuse of process. We'll sort of have to wait to see if we hear the third shoe drop on this case.

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Public Customer Rebuked In Two FINRA Arbitrations

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