You know how you plan for months for a big party and then you send out invitations, and some folks don't get back with a "yes" or a "no" and others ask if they can bring a guest and then, the day of the party, there's a hurricane, so virtually no one can get to your house and even if they did, the caterer couldn't make it, and, of course, a few folks who told you that they couldn't come show up because they lost power to their house and figured since you were having a party and you had asked them that they may as well show up given how the storm had forced them out of their home? Yeah, I know, we've all been through that, right? Anyway, so . . . we got this FINRA arbitration in which a customer is seeking some $108,000 in losses and hired a lawyer but then his lawyer withdrew and a lawyer for some respondents withdrew and some of the respondents either got dismissed or filed for bankruptcy or got expelled by FINRA and then the public customer asks FINRA for help and, well, you've heard that whole thing before, right?
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2015, and as amended thereafter, public customer Claimant Hug asserted churning, suitability, unauthorized trading, negligence, breaches of fiduciary duty and of contract, misrepresentation, failure to supervise, disgorgement, and lost opportunity damages. Claimant sought $107,943.38 plus interest, lost opportunity damages, punitive damages, reasonable attorneys' fees, costs, including at least $7,500.00 paid in expert and witness fees. In the Matter of the FINRA Arbitration Between David Hug, Claimant, vs. Craig Scott Capital, LLC, Zachary T. Bader, Joseph Gentile, Brent Morgan Porges, Craig Scott Taddonio, and Richard H. Crockett, Respondents (FINRA Arbitration 15-00872, May 9, 2018).
Respondents Craig Scott Capital ("CSC"), Bader, Gentile, Porges, and Taddonio, and Crockett generally denied the allegations and asserted various affirmative defenses. Bader, Gentile, Porges, and Taddonio sought the expungement of all references of this matter from their Central Registration Depository records ("CRD").
Nobody Knows What I'm Doing Here
Before we even get to a Decision, we got some lawyers' comings and goings to deal with; we got some parties being named and then dropped; and we got some requests being made and then withdrawn. As set forth in the FINRA Arbitration Decision under "Representation of Parties":
Claimant David Hug ("Claimant") was represented by Hilton Wiener, Esq., Law Office of Hilton Wiener, New York, New York, until a Notice of Withdrawal was filed on or about February 22, 2018. Thereafter, Claimant appeared pro se.
For Respondents Craig Scott Capital, LLC ("CSC"), Zachary T. Bader ("Bader"), Joseph Gentile ("Gentile"), Brent Morgan Porges ("Porges"), and Craig Scott Taddonio ("Taddonio"): Robert M. Bursky, Esq., Melville, New York.
On or about October 23, 2015, Robert Bursky filed a Notice of Withdrawal for Gentile. On or about December 9, 2015, a Notice of Appearance was filed for Gentile by Harry Delagrammatikas, Esq., McCormick & O'Brien, LLP, New York, New York.
On or about January 29, 2016, Robert Bursky filed a Notice of Withdrawal for CSC, Taddonio, and Porges. Thereafter, CSC, Taddonio, and Porges appeared pro se. Respondent Richard H. Crockett ("Crockett") appeared pro se.
In February 2016, Claimant Hug filed a Stipulation Regarding Dismissal of Claims against Joseph Gentile, who thereafter confirmed that he would not seek an immediate expungement but would defer that request until the final hearing. In March 2018, Gentile discontinued his request for expungement.
On or about May 7, 2018, Respondent Bader confirmed that he withdrew his request for expungement.
Having failed to respond to the FINRA Arbitration Panel's request for the status of his requested expungement, the Panel apparently deemed Respondent Porges as having abandoned his expungement request and did not adjudicate that issue.
Around September 9, 2016, Taddonio filed for bankruptcy, and, accordingly all claims against him were stayed and the FINRA Arbitration Panel made no determination with respect to Claimant's claims against him or his requested expungement.
Since David Hug's attorney resigned on or about February 23, 2018, and repeated attempts by FINRA to contact Mr. Hug by email and phone have not elicited any response, and after consultation and communication by the Panel, the Panel now unanimously rules as follows:
1) The hearing on this case scheduled to commence on March 6, 2018, is hereby postponed. FINRA shall send mail, with return receipt, to Claimant, Mr. Hug, advising him that if he is interested in continuing his claim against respondents, he must notify the Panel (through FINRA) no later than April 15, 2018. In addition, FINRA may send Mr. Hug notice through email. If the Panel does not hear from Mr. Hug, or his attorney, by April 15, 2018, then this case shall be dismissed with prejudice.
2) If Mr. Gentile wishes to have this Panel hear a request to expunge this claim against him, he has until April 3, 2018, to notify the Panel (through FINRA). If the Panel does not hear from Mr. Gentile, the Panel will conclude that Mr. Gentile is not interested in having this Panel hear his request for expungement.
3) The Panel requests that no party be charged for the cancellation of the hearing scheduled to commence March 6, 2018, or for the issuance of this Order. If this is not possible, then the Panel allocates that the cancellation of the hearing scheduled to commence on March 6, 2018, should be assessed 100% against Claimant's former attorney, Mr. Hilton Wiener, for suddenly withdrawing from representing Claimant.
The FINRA Arbitration Panel's May 7, 2018, Order, provided that:
1) Claimant, David Hug, called (FINRA Staff), on March 6, 2018, and confirmed that he had received the Panel's Order dated February 28, 2018. The Order indicated that if the Panel did not hear from Mr. Hug or a new attorney representing him by April 15, then the claims would be dismissed with prejudice. (FINRA Staff) advised Claimant of at least four options that he could pursue to continue his claims, but that he needed to respond by April 15, 2018.
On March 20, 2018, Mr. Hug called (FINRA Staff) wanting FINRA to help with his case. (FINRA Staff) explained that FINRA does not represent or advocate for either side, but did advise him that he could, if he wanted, make a request to appear telephonically. Mr. Hug wanted to know why his attorney did not file the forms. Mr. Hug was very disappointed to learn that his attorney had withdrawn from the case.
On April 11, 2018, (FINRA Staff) left a detailed voice message for Mr. Hug reminding him of the April 15, 2018, deadline and requested him to advise whether he wanted to proceed with his case or not. On April 16, 2018, (FINRA Staff) tried again to reach Mr. Hug and left a message. As of May 7, 2018, (FINRA Staff) had not received any response from Mr. Hug.
Therefore, the Panel declares and rules that Claimant Mr. Hug's claims against the Respondents are now dismissed with prejudice.
2) On March 7, 2018, (FINRA Staff) received an email from Gentile confirming that he was not interested in the Panel hearing his previous expungement request. On April 23, 2018, the Panel issued an order for the Panel ordering Bader and Porges to advise FINRA by May 7, 2018, whether they wish to have their request previously filed for expungement to be heard. If no response was received by the deadline, the Panel would assume that the Respondent was not interested in having the Panel hear their motion for expungement. (FINRA Staff) received an email from Mr. Bader's attorney on May 7, 2018, stating that Mr. Bader withdraws his request for an expungement. Mr. Porges did not respond by the deadline and Mr. Craig Scott Taddonio filed for Bankruptcy on September 9, 2016 and the case against him was postponed indefinitely.
Therefore, there being no further issues before the Panel, the Panel declares and rules that this Case is closed.
The FINRA Arbitration Panel dismissed Claimant Hug's claims.
Bill Singer's Comment
Ummmm . . . ummmm . . . omg!!! . . . ummm -- you know what, I don't even know where to begin with this one and, frankly, the arbitrators did an excellent job conveying the content, context, and lunacy of this case that I'm content to let the FINRA Arbitration Decision speak for itself. I will throw one more lit match into this volatile mix by noting that online FINRA BrokerCheck records as of May 15, 2018,
disclose that Craig Scott Capital, LLC was expelled from the securities
industry in September 2017. BrokerCheck discloses that Brent Morgan Porges was
the firm's Chief Operating Officer and Craig Scott Taddoninio was the firm's
Chief Executive officer and Chief Compliance Officer. As set forth in "Disciplinary
and Other FINRA Actions / November 2017"
Also READ: "FINRA Arbitrator Says Compliance Not A Call To Sainthood" (BrokeAndBroker.com Blog, April 24, 2017)
Craig Scott Capital, LLC (CRD #155924, Uniondale, New York) September 7, 2017 - An Office of Hearing Officers (OHO) decision became final in which the firm was expelled from FINRA membership. In light of the expulsion, no monetary sanctions were imposed. The sanction was based on findings that the firm, acting through three registered representatives, excessively traded in customer accounts. The findings stated the trading in the affected customer accounts was excessive based on the cost-to-equity ratios and turnover rates. The registered representatives had de facto control over the trading in the accounts. In light of the level of commissions, markups, markdowns and other charges to the customers, the level of trading was inconsistent with the customers' objectives and financial situations. The firm was responsible for the excessive trading of customer accounts by its registered representatives and was responsible for the representatives' excessive trading under principles of respondeat superior.
The findings also stated that the excessive trading in customer accounts constituted churning. Accordingly, by churning customer accounts, the firm violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5, and FINRA Rules 2010 and 2020. The findings also included that the firm failed to establish, maintain and enforce a reasonable supervisory system, including written supervisory procedures (WSPs) to prevent excessive trading and churning of customer accounts, and failed to reasonably supervise its registered representatives to prevent these behaviors. The firm's owners were aware of "red flags" indicating that registered representatives were, or might be, excessively trading and churning customer accounts. Nonetheless, the owners failed to reasonably respond to those red flags and thus failed to exercise reasonable supervision. FINRA found that the firm failed to establish a reasonable system and procedures to ensure that its sales force avoided contacting persons on the firm-specific do-not-call list and the national do-not-call list. The firm relied on an honor system, whereby members of the sales force would provide names to a sales assistant to place on the firm's do-not-call list, which was periodically circulated to the registered representatives. Generally, the firm's cold-callers routinely failed to check, or ignored, the internal list. FINRA also found that the firm provided false information to FINRA regarding the use of recording equipment and the recording of telephone calls at the firm. (FINRA Case #2015044823501) http://www.finra.org/sites/default/files/fda_documents/2015044823501_