Today's blog features music videos by Carrie Underwood, Destiny's Child, and the Hollies. What kind of lawsuit, you may wonder, would prompt such an oddball array of tunes? Well, howsabaout I tease you with the fact that we got a wife suing Safra Securities LLC because she claims the firm's bank officer had an affair with her husband! Oh . . . so now you're intrigued? Oh . . . so now, maybe, just maybe, you're gonna make some time to read today's article? Oh . . . yeah, sure, it's only because there's an important legal-regulatory-compliance-jurisdictional issue involved and you're such a serious person. And why are you smiling and laughing when you say "jursidictional" -- as if you'd find "respondeat superior" anywhere near as funny?
Case In Point
In a FINRA Arbitration Statement of Claim filed in November 2017 and as amended, public customer Claimant Daniela Spinola Gonzalez asserted breach of fiduciary duty; violation of FINRA Rule 2010; suitability violations; failure to supervise under FINRA Rule 3010; negligent or fraudulent misrepresentations and omissions in violation of federal and state securities laws; FINRA Rule 2210 (communications); FINRA Rule 2020 (fraud); FINRA IM 2310-2 (fair dealing with customers); control person liability; and respondeat superior. The FINRA Arbitration Decisions characterizes the causes of action as relating to:
an alleged conspiracy, stemming from an extra-marital affair between Claimant's bank account officer and Claimant's husband, to defraud Claimant through unauthorized transactions in Claimant's account.
Claimant Gonzalez sought in excess of $350,000 in compensatory damages, punitive damages, interest, and fees. In the Matter of the Arbitration Between Daniela Spinola Gonzalez, Claimant, v. Safra Securities LLC, Respondent (FINRA Arbitration Decision 17-03181) http://www.finra.org/sites/default/files/aao_documents/17-03181.pdf
Respondent Safra Securities generally denied the allegations and asserted affirmative defenses.
The Bank Officer Made The Bed, So The Brokerage Firm Should Sleep In It!
Given the allegations and the underlying fact pattern, it should come as no surprise to BrokeAndBroker.com readers that this FINRA arbitration will take many twists and turns before arriving at an evidentiary hearing. For example, the FINRA Arbitration Decision asserts in part that:
On or about January 19, 2018, Respondent filed a Motion to Dismiss pursuant to Rule
12203 of the Code of Arbitration Procedure asserting, among
other things, that FINRA lacked jurisdiction because Claimant was not a customer of
Respondent but rather a customer of Safra National Bank of New York (the "Bank"), the
parent company for Respondent and a national bank not subject to FINRA regulation
and jurisdiction. Respondent further stated that Claimant had not made any allegations
about the Bank's account officer at issue in her capacity as an associated person of
Respondent. In her January 22, 2018, Opposition to Respondent's FINRA Rule 12203
Motion, Claimant argued, among other things, that the Statement of Claim contained
allegations regarding Respondent's duties and failures to supervise the Bank's account
officer who was also a registered representative with Respondent. In its January 24,
2018, Reply in Support of Motion to Dismiss, Respondent asserted, among other things,
that if FINRA failed to dismiss Claimant's claim, the result would be a vast and
unprecedented expansion of FINRA jurisdiction unsupported by law, rule or contract
based on the premise that FINRA may adjudicate claims concerning the internal affairs
of a national bank if the banker whose activities are challenged is also a registered
representative associated with a broker-dealer, even if the broker-dealer had no
relationship of any kind with the claimant or the challenged activity. On February 23,
2018, the Director of Arbitration issued a preliminary ruling reaffirming FINRA's Office of
Dispute Resolution as the proper forum for this action.
A few months after being rebuffed in its attempt to have FINRA deemed as an inappropriate forum for the pending arbitration, Respondent Safra took another tack, as explained in the FINRA Arbitration Decision;
On or about May 1, 2018, Respondent filed a Motion to Dismiss pursuant to Rule
12206(b) of the Code, in which it reasserted, among other things, that Claimant was
never a customer of Respondent and therefore did not have an agreement to arbitrate
her claims in the FINRA forum. In its May 25, 2018, Opposition to Motion to Dismiss,
Claimant argues, among other things, that Respondent had a duty and failed to
supervise its associated person, that Respondent signed the FINRA Uniform
Submission Agreement and that the Director of Arbitration previously reaffirmed FINRA
Office of Dispute Resolution as the proper forum. On June 1, 2018, Respondent filed a
Notice of Withdrawal of Motion to Dismiss and advised that it filed suit in the United
States District Court for the Southern District of New York to seek an injunction of this
Although the Decision does not provide us with details, we are informed that in early November 2018, Claimant Gonzalez asserted, in part, that Respondent Safra Securities "was seeking appeal in the Second Circuit in violation of Rule 12209 of the Code, after its loss in federal court on the issue of arbitrability."
SIDE BAR: In dismissing Safra's federal-court Complaint and closing the case before it, the United States District Court for the Southern District of New York stated in part in its Order of Dismissal dated July 9, 2018, http://brokeandbroker.com/PDF/SafraSDNY180709.pdf
Safra Securities LLC and its associate broker Valarie Trauer (who is alleged to have defrauded Ms. Spinola Gonzalez, her client at Safra National Bank of New York) are both FINRA members and subject to FINRA rules. FINRA arbitrators have Jurisdiction to determine on the facts whether Safra Securities LLC's business includes responsibility for Ms. Trauer's actions with respect to Ms. Spinola Gonzalez.
The Clerk will dismiss the complaint and close the case. . .
Evidentiary hearings were held before the FINRA Arbitration Panel starting in March 2019.
The FINRA Arbitration Panel found Respondent Safra Securities liable to and ordered it to pay to Claimant Gonzalez $50,000 in compensatory damages with interest plus $18,500 in attorneys' fees.
Bill Singer's Comment
Honestly, I can't say that I disagree with the FINRA member firm's jurisdictional argument. On the other hand, if you make your bed, you have to sleep in it, as does your boyfriend and perhaps all of your employers. Notwithstanding my skepticism (from a legal perspective) for SDNY's and FINRA's finding of jurisdiction, I'm glad that Claimant Gonzalez got her $68,500 in damages and fees. As far as I'm concerned, let Safra send the bill to its bank officer, and she can pay it back with interest!