This is an update of "Non-Attorney Representatives Involved In FINRA Arbitration Blight" (BrokeAndBroker.com Blog, March 1, 2018)
For Claimants Paul Hessong and Beatrice Hessong: Hilton Wiener, Esq., Law Office of Hilton Wiener, New York, New York.The sole FINRA Arbitrator denied Claimants' claims.
Case In Point: 2017 FINRA Arbitration#15-01225
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 21, 2015, Claimants Paul and Beatrice Hessong asserted churning; suitability; unauthorized trading; breaches of fiduciary duty and contract; elder abuse; disciplinary history and failure to supervise and disgorgement (quantum meruit). Claimants sought $123,553.46 in compensatory damages, interest; lost opportunity damages; punitive damages; attorneys' fees; costs including expert and witness fees. In the Matter of the FINRA Arbitration Between Paul Hessong and Beatrice Hessong, Claimant, vs. Cape Securities Inc., Costa Tzotzis, Buda Yao, Jeff Bodner, James Randall Webb, and Michael Allen Lovett, Respondents (FINRA Arbitration 15-01225, January 6, 2017). Three days after the Hessongs filed their Statement of Claim in FINRA Arbitration #15-01205 against the eight respondents noted above, the public customers filed a second FINRA Arbitration Statement of Claim #15-01225 against six different respondents. Perhaps the Hessongs will enjoy a better outcome with their second case. Perhaps the second time is the charm?
Three days after the Hessongs filed their Statement of Claim in FINRA Arbitration #15-01205 against the eight respondents noted above, the public customers filed a second FINRA Arbitration Statement of Claim #15-01225 against six different respondents. Perhaps the Hessongs will enjoy a better outcome with their second case. Perhaps the second time is the charm?
For Claimants Paul Hessong and Beatrice Hessong, hereinafter collectively referred to as "Claimants": Jennifer Tarr, Cold Spring Advisory Group, New York, New York.Respondents generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting breach of contract; defamation; interference with business relationships or expected relationships; abuse of process; and slander. Respondents sought costs, fees, and the expungement of the matter from the Respondents' Central Registration Depository records ("CRD").In July 2016, Claimants and Respondents filed motions for discovery sanctions, which the FINRA Arbitration Panel denied.No Show
Notwithstanding my puzzlement, the Panel denied the Respondents' motions to dismiss but granted their motions for sanctions and ordered Claimants to pay $7,500.00.SIDE BAR: The FINRA Arbitration Decision curiously states that the Claimants objected to the motions for sanctions and dismissal but I'm sort of puzzled as to how they objected if they failed to appear at the hearings (perhaps they objected telephonically?).
The Panel does not find the Claimants' allegations credible. Mr. Hessong's claim that he did not have an email account and did not contact Respondent Tzotzis by email was clearly false. Records presented by Respondents, including a copy of an email message from Mr. Hessong contradict with the Hessong's claim that they were elderly unsophisticated investors naive to modern electronic communications and investment strategies. Over half of the purchases made by the Hessongs were unsolicited. Records show that with regards to a number of trades, Respondent Tzotzis recommended that "stop loss" orders be used. Respondent Tzotzis contacted Cape Securities' Compliance Department for advice before completing certain trades.AwardThe FINRA Arbitration Panel found Claimants Paul and Beatrice Hessong liable and ordered them to pay to Respondents Cape Securities and Tzotzis:
The Petitioners, Paul and Beatrice Hessong, age 77 and 74, lost their lives' savings, approximately $133,000 by investing with Cape Securities, Inc. from 2013 to 2014, and on May 21, 2015, the Petitioners submitted their claims to FINRA Arbitration. After extensive negotiations, the Petitioners were willing to avoid the expense of arbitration by signing a settlement agreement on August 8, 2016, which resolved all issues. Unbeknownst to the Petitioners, the Respondents appeared at the August 8, 2016 hearing and failed to apprise the Arbitrators that the matter had settled. Instead, the Respondents demanded and were awarded damages for the Petitioners failure to appear as well as the Petitioners' purported failure to obey a subpoena compelling their attendance. From the records below, it appears that FINRA, the Arbitrators, and the Respondents knew that Petitioners were not represented by attorneys but by a consulting group called Cold Spring Advisory Group, LLC, in violation of the Maryland rules prohibiting the unauthorized practice of law. At the conclusion of arbitration, the Arbitrators elected to punish the Petitioners for the sins of their unlicensed representatives by entering a baseless award against the Petitioners in the amount of $45,000 for the failure of their representatives to appear at a hearing the Petitioners believed had been settled and failing to obey a subpoena compelling their attendance. Notwithstanding that the Respondents' qualification to do business in Maryland had been forfeited since 2009, the Respondents used a mandatory arbitration clause to file their Petition to Confirm the Arbitration Award in the Superior Court of Henry County, Georgia ("Georgia") on February 20, 2017, and not the U.S. District Court of Maryland, the jurisdiction where the Award was entered. In recent months, the Financial Industry Regulatory Authority ("FINRA") has taken steps to address nationwide concerns regarding non-attorney representatives appearing on behalf of claimants in FINRA Arbitration proceedings. Exhibit 1 FINRA Rule 12208(c) of the FINRA Code of Arbitration Procedure for Customer Disputes ("Arbitration Code") provides that, "parties to a FINRA arbitration maybe represented by a person who is not an attorney, unless state law prohibits such representation . . ." However, Maryland, like many states have laws that prohibit an individual who is not an attorney from representing a claimant in a binding arbitration proceeding. Maryland Rule 19-305.1 specifically prohibits non-attorneys from giving legal advice, preparing documents, and/or appearing before a tribunal that adjudicates the rights of the parties involved. These actions are defined as the practice of law in Maryland pursuant to MD Bus Occ & Prof Code §10-101 et seq. and prohibited by the Maryland Rules of Professional Conduct. Maryland lawyers are subject to oversight by the Attorney Grievance Commission who ensure that attorneys licensed in the Maryland comply with Rules of Professional Conduct such as Competence, Due Diligence, and Candor to a Tribunal. Non-lawyers are not subject to any oversight save the criminal laws prohibiting the unauthorized practice of law. For the reasons enumerated below both the Award and the subsequent judgments are void for lack of subject matter jurisdiction, personal jurisdiction, and fraud. Furthermore, the Petitioners believe that the enforcement of the Georgia judgment violates the Due Process Clause of the 14th Amendment and also violates the FAA by allowing arbitrators to exercise contempt powers reserved for the U.S. District Court. This Court retains jurisdiction to set aside judgments for fraud, misrepresentation, or misconduct, and to provide relief from final judgments when the prospective application is no longer equitable. For the reasons, below, the Petitioners request such relief under the Federal Arbitration Act 9 U.S.C.1 et seq, and Federal Rule of Civil Procedure 60(b).The Hessongs further allege that:
32. Throughout the Arbitration, Petitioners were represented by Cold Spring Advisory Group, LLC, ("Cold Spring") a "consulting group" recently cited by several FINRA Arbitration panels nationwide for compromising the integrity of the various arbitration proceedings by sending Non-attorney representatives ("NARS") on behalf of FINRA claimants in proceedings. Many of these FINRA panels prohibited Cold Spring from representing claimants once their NARS status was revealed. See Exhibit 12 Report from the Public Investors Arbitration Bar Association 33. The Petitioners' SOC was initially filed with FINRA by, New York licensed attorney, Hilton Wiener, Esquire referred by Cold Spring.Finally, as set forth in the "Conclusion" to the Hessongs' Motion:
The Petitioners trusted the Respondents with their lives' savings. The Petitioners trusted Cold Spring to represent their interests before the FINRA Arbitrators. The Petitioners trusted the FINRA Arbitrators to provide a forum in which each side could present their claims to a neutral but knowledge [sic] third party. The Petitioners trusted the attorneys who negotiated for both sides to inform the Arbitrators that the matter had settled. The Petitioners trusted the Respondents to keep their nonpublic information private. This Arbitration Award is a blight on FINRA Arbitration proceedings. The Award that was obtained by the Respondents was procured by fraud and deceit when the Arbitrators turned a blind eye to needs of the individuals, the elderly public investors, that FINRA is charged with protecting. The relief that is requested is extraordinary but so are the facts of this case.Also READ:
[T]he FINRA Award was served upon the Plaintiffs on January 6, 2017. Therefore, Plaintiffs had until April 6, 2017, to file a motion to vacate. Plaintiffs did not file their motion to vacate until February 19, 2018, over thirteen (13) months after the Award was served upon them. Thus, their Motion to Vacate is untimely.
Pages 5 - 6 of the DMD Opinion
The Plaintiffs allege that the Defendants procured the Award by fraud because a settlement had occurred between the parties before the arbitration process began. To prove that an award was procured by fraud "the party seeking vacatur must show that the fraud was not discoverable upon the exercise of due diligence prior to the arbitration." MCI Constructors, LLC v. City Of Greensboro, 610 F.3d 849, 858 (4th Cir. 2010) (citing A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1404 (9th Cir. 1992)). The Plaintiffs knew however that the Defendants disputed the existence of a settlement before the November, 2016 arbitration hearings. (ECF No. 1 at ¶ 41-44.) The Plaintiffs brought this issue up before the FINRA arbitration panel and it was denied after due deliberation. (ECF No. 1 at ¶ 41-47; ECF No. 14-2.) Additionally, the settlement agreement was not signed by the Defendants. (ECF No. 1-14.) Thus, the Plaintiffs may not seek vacatur due to the alleged fraud.
[P]laintiffs knew Tarr and Ottimo were not licensed attorneys during the arbitration process, and the Georgia state court was an appropriate forum for the Defendants to confirm the arbitration Award. It is unclear how a Declaratory Judgment could "serve a useful purpose," as Plaintiffs' claims are without merit and rest on conclusory statements. . .