September 20, 2019
In a recent FINRA arbitration, an unhappy Citigroup customer was seeking between $1 million and $5 million in damages as a result of losses he sustained via investing in a variety of cryptocurrencies. Except the customer wasn't complaining about trades done at Citigroup -- no, the customer accused the brokerage firm of negligence, breach of fiduciary duty, failure to supervise, and selling away. As best we can figure out from the tidbits of facts in the FINRA Arbitration Decision, the customer was referred by his stockbroker to an outside lawyer, who, in turn, referred the customer to a purported crypto investment genius. The crypto trades didn't go well for the customer but it didn't seem that the stockbroker had entered a single order. All of which prompted the stockbroker to try and clear his name via an expungement hearing. In the end, what did and didn't happen is far more complex and nuanced than the case set out in the FINRA Arbitration Decision.
2019 FINRA Arbitration Decision
In a FINRA Arbitration Statement of Claim filed in November 2018, public customer Carlos Martinangeli asserted negligence; gross negligence; breaches of fiduciary duty and of contract; negligent failure to supervise; and selling away. Claimant sought between $1,000,000.00 and $5,000,000.00, or any greater amount according to proof; interest, fees; and costs.
In the Matter of the Arbitration Between Carlos Martinangeli, Claimant, v. Citigroup Global Markets, Inc. d/b/a Citi Personal Wealth Management, a New York corporation and Gonzalo Perez-Verdia, Respondents (FINRA Arbitration Decision 18-04087 / September 13, 2019)
Respondents generally denied the allegations, asserted affirmative defenses, and sought the expungement of the customer complaint from the Central Registration Depository record ("CRD") of Respondent Perez-Verdia.
On or about July 1, 2019, Claimant Martinangeli filed a notice of settlement; and, accordingly, the FINRA Arbitration Panel made no determinations with respect to any of the claims. Respondent Perez-Verdia did not contribute to the settlement.
FINRA Expungement Hearing
In July 2019, Respondent Perez-Verdia filed a Motion for Expungement. Claimant Martinangeli did not contest the requested relief and did not participate in the expungement hearing conducted by the FINRA Arbitration Panel on September 10, 2019.
The FINRA Arbitration Panel recommended the expungement of the customer complaint from Perez-Verdia's CRD based upon a FINRA Rule 2080 finding that he was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; and the claim, allegation, or information is false. The Panel offers this rationale:
Respondent Perez-Verdia's testimony was consistent with the allegations made in the District Court Complaint filed by Claimant, which named a law firm ("Law Firm") and one of its attorneys (the "Attorney") as the only defendants. The Complaint is in the book of exhibits presented at the hearing.
Paragraph two of the Complaint states "[Attorney], through his position as an attorney at [the Law Firm] - one of Florida's largest and most reputable law firms - provided Plaintiff investment advisory consultation and services. These services included introducing Plaintiff to [a third person] a client of [the Law Firm] whom [Attorney] claimed to be his business partner, for the purpose of investing in a variety of cryptocurrencies."
As also stated in the Complaint, Claimant had contacted Respondent Perez-Verdia and asked him to invest Claimant's funds in cryptocurrencies. Respondent Perez-Verdia told Claimant that he and his firm did not have the ability to purchase cryptocurrencies, and told Claimant that the Attorney provided cryptocurrency investment advisory services. Claimant contacted the Attorney directly and made his investments. Respondent Perez-Verdia had no part in those investments nor the subsequent theft of funds.
Bill Singer's Comment
An Initial Reaction: Grrrrr
My initial reaction to this FINRA Arbitration was along the lines of grrrrr. Yes, I know, I am an incredibly articulate lawyer. Be that as it may, I was somewhat angered to see that the public customer had named Perez-Verdia and that the registered rep was required to incur the cost and expense of clearing his name -- and those costs and expenses will mount through the submission of the Panel's recommendation of arbitration to a court, which will be required to enter an order, which will then need to be presented to CRD for implementation. I was outraged, in large part, because I focused on the Panel's finding that "Perez-Verdia had no part in those investments nor the subsequent theft of funds."
Online FINRA BrokerCheck records as of September 20, 2019, disclose that Perez-Verdia was first registered in 2004. The only disclosure on his BrokerCheck record is the arbitration referenced above and this entry will presumably be expunged after submission to a court. As noted under the BrokerCheck heading "Customer Dispute - Settled," the customer initially sought $1,310,000; and the matter was purportedly settled on June 27, 2019 for $125,000. Consistent with the assertion in the FINRA Arbitration Decision, Perez-Verdia's BrokerCheck record discloses that he did not contribute to the $125,000 settlement.
A Brief Recap
What happened to public customer Martinangeli? If we go solely by the minimal presentation of facts in the FINRA Arbitration Decision, we are told via the arbitrators' rationale that:
- Martinangeli had contacted Respondent Perez-Verdia and asked him to invest his funds in cryptocurrencies;
- Perez-Verdia told Martinangeli that he and Citigroup did not have the ability to purchase cryptocurrencies;
- Perez-Verdia told Martinangeli that an "attorney" (who is not named in the FINRA Arbitration Decision) provided cryptocurrency investment advisory services; and
- Martinangeli contacted the attorney directly and made his investments.
All of the above prompted many reactions from me -- some disapproving, then approving, then annoyed. Ultimately, I think the Panel got it right, and I think that the arbitrators sent an important message to registered reps who frequently try to provide excellent customer service but, at times, may take that effort a bit too far. Which brings us back to the Panel's finding that "Perez-Verdia had no part in those investments nor the subsequent theft of funds."
The Panel found that Perez-Verdia told Martinangeli that he and Citigroup did not have the ability to purchase cryptocurrencies. That turned out to be an important statement. In hindsight, it may have been best for Perez-Verdia to simply have said "no, we don't handle cryptocurrency investments," and left it at that. It was his referral to the lawyer that enmeshed Citigroup and Perez-Verdia in a customer complaint and FINRA arbitration. Not stated in the FINRA Arbitration Decision was "why" Perez-Verdia referred Martinangeli to the the specific attorney cited. Not stated in the Decision was whether Perez-Verdia expected any referral fee or whether the attorney had some business relationship with Citigroup or Perez-Verdia. Since none of that is said, we should properly infer that none of that existed or happened. On the other hand, imagine how very different things might have progressed and ended had Perez-Verdia been paid a referral fee or if the attorney had an arrangement whereby he referred customers to Citigroup in exchange for referrals of potential law-firm clients back to him.
And that's all the FINRA Arbitration Panel wrote! But that's not the whole story. Not by a long shot.
2018 Martinangeli Amended SDFL Complaint
In pertinent part, the Amended Complaint alleges:
16. Mr. Perez-Verdia ("Perez-Verdia") informed Plaintiff that Citi Personal Wealth
Management did not have the ability to purchase cryptocurrencies at that time.
17. On Plaintiff's behalf, Perez-Verdia contacted KAUFMAN based on his past
experience that KAUFMAN, through his position at AKERMAN, provided cryptocurrency
investment advisory services and could do the same for Plaintiff.
18. As noted above, KAUFMAN is an attorney in AKERMAN's Naples, Florida office.
According to a professional biography AKERMAN published on its website to promote
KAUFMAN's qualifications and Defendants' ability to service clients' needs, KAUFMAN "has
experience with all facets of estate planning and estate administration, as well as investment advisory
and insurance consulting services." In addition, KAUFMAN's biography on the AKERMAN website
represents that he has expertise in "Privacy, Cybersecurity, and Emerging Technologies."
19. Perez-Verdia and KAUFMAN spoke on or about November 29, 2017, and
KAUFMAN confirmed at that time that he would be able to provide Plaintiff investment advisory
20. KAUFMAN told Perez-Verdia to instruct Plaintiff to call KAUFMAN directly and
that KAUFMAN was expecting his call and had confirmed that he could help.
21. On or about November 30, 2017, Plaintiff contacted KAUFMAN.
22. During their initial conversation, KAUFMAN confirmed that Plaintiff would be in
good hands, enthusiastically endorsed Plaintiff investing his money into cryptocurrencies, and advised
Plaintiff that investing in cryptocurrencies was a great idea.
23. KAUFMAN further represented that he would introduce Plaintiff to his business
partners, which would provide the best avenue for Plaintiff to invest in cryptocurrencies.
24. KAUFMAN represented to Plaintiff that KAUFMAN had assisted many AKERMAN
clients, and provided them professional services, in a manner identical to the services requested by
25. In providing Plaintiff the recommended investment opportunity and professional
services discussed, KAUFMAN was acting within the scope of his employment at AKERMAN by providing investment advisory consulting services -- specifically in the emerging field of cryptocurrency
investing -- just as he had purportedly done for multiple AKERMAN clients before Plaintiff.
26. KAUFMAN introduced Plaintiff to Lovette, a South Florida resident who was an
AKERMAN client for whom KAUFMAN and other attorneys at AKERMAN had provided their
professional services in the cryptocurrency environment both inside and outside the United States.
27. KAUFMAN -- and thus AKERMAN -- represented to Plaintiff that LOVETTE was
qualified, that the commissions to be charged to Plaintiff were appropriate, and that Plaintiff could
trust Lovette to safely store the cryptocurrency assets Plaintiff would be purchasing.
28. KAUFMAN -- and thus AKERMAN -- further represented to Plaintiff that
KAUFMAN would remain involved with the investment, oversee its performance, and would remain
in contact with Perez-Verdia about Plaintiff's investment.
As the investment and relationships progressed, we pick up the tale sometime in December 2017:
32. Based exclusively on KAUFMAN's -- and thus AKERMAN's -- advice and
endorsement of Lovette and his history with AKERMAN, Plaintiff instructed Perez-Verdia to wire
$1,310,000.00 of Plaintiff's funds to a corporate bank account at BofA using wire instructions
provided by Lovette, with those funds to be used for the investments and commissions.
33. Prior to Perez-Verdia wiring the $1,310,000.00 to Lovette on behalf of the Plaintiff,
Perez-Verdia confirmed with KAUFMAN -- and thus AKERMAN -- on Plaintiff's behalf, the above
representations. KAUFMAN likewise confirmed to Perez-Verdia the representations KAUFMAN
made to Plaintiff, reiterating that AKERMAN frequently performs these types of investment advisory
services and had used Lovette for that purpose on previous occasions.
34. KAUFMAN -- and thus AKERMAN -- further confirmed to Perez-Verdia that he
(i.e., KAUFMAN) had conferred with Lovette and had successfully negotiated with Lovette a discount
for Plaintiff on Lovette's commission.
35. Over the course of multiple December 2017 - February 2018 wire transfers from
Plaintiff's Citibank bank account to the BofA bank account managed by Lovette and his business
entities, Plaintiff's $1,310,000.00 was transferred to fund Plaintiff's investments and pay the
commissions for the services being provided to Plaintiff.
36. As promised, following the initial wire transfer, KAUFMAN spoke with Perez-Verdia
about the investments and account status.
37. From December 2017 to February 2018, a diverse assortment of cryptocurrencies
(bitcoin, Litecoin, Ethereum Classic) valued at the time at $1,310,000.00 (minus professional service
commissions) were allegedly purchased for Plaintiff's benefit.
38. In June 2018, Lovette solicited Plaintiff to invest $500,000.00 or more in an Initial
Coin Offering (ICO) pre-sale for a company named Edgewater Markets LLC, which purported to
leverage its proprietary technology, business processes, and institutional trading expertise with the
launch of a new cryptocurrency called Edgewater Coin.
39. Upon information and belief, KAUFMAN is associated with Edgewater Markets LLC
through his Florida limited liability company Edgewater Research, LLC, of which KAUFMAN is the
Registered Agent and sole Manager.
40. KAUFMAN never disclosed any conflict-of-interest to either Plaintiff or Plaintiff's
41. Approximately one month later (July 2018), Plaintiff learned that all of his money had
42. Upon information and belief, Lovette was not properly qualified to render to Plaintiff
the services for which Plaintiff retained Lovette; nor could Lovette be trusted to safely manage or
oversee the cryptocurrency assets in which Plaintiff invested.
43. Moreover, since the theft of his assets, Plaintiff has learned that Lovette has a history
of criminal convictions, including convictions for grand larceny, petit larceny, and possession of stolen
44. Upon information and belief, multiple lawyers at AKERMAN have long-standing
relationships with Lovette.
45. Upon further information and belief, sometime in late-2017 or early-2018,
AKERMAN had a falling-out with Lovette and terminated its relationship with Lovette. Neither
KAUFMAN nor AKERMAN advised Plaintiff of the disagreement or fallout.
46. Had Plaintiff been informed by Defendants that Lovette had a history of criminal
convictions for theft of property -- which was the exact opposite of KAUFMAN's representations
that Lovette was reliable and could be trusted to properly invest and safeguard Plaintiff's finances and
cryptocurrency assets -- Plaintiff would not have transferred any of his funds to either Lovette or any
entity with which he was purportedly connected.
2018 SDFL Order of Dismissal
Citigroup's Cryptic Cryptocurrency Case (BrokeAndBroker.com Blog)
Federal Courts Compel Arbitration of Dodd‐Frank Whistleblower Retaliation Claim. Erin Daly, Plaintiff/Appellant, v. Citigroup, Inc., Citigroup Global Markets Inc., and Citibank, N.A., Defendants/Appellees (Opinion, 2Cir, 18-665 / September 19, 2019)
New York Man Is Sentenced To Six Years For Investment Scheme That Defrauded Retired Victims Of More Than $440,000 / The Defendant Executed the Scheme while He Was Being Prosecuted for a Similar Scam in another State (DOJ Release)
Former Austin Bank Employee Sentenced to Federal Prison for Stealing over One Million Dollars from Customer (DOJ Release)
SEC Charges ICO Incubator and Founder for Unregistered Offering and Unregistered Broker Activity (SEC Release)
Penny Stock "Mailman" and His Two Companies Agree to Settle Scalping Charges (SEC Release)
SEC Charges Los Angeles County School District and Two Officials with Defrauding Investors in $100 Million Bond Offering (SEC Release)
Prudential Rep Wins Expungement of Customer Complaint in Tax Advice Dispute. In the Matter of the Arbitration Between Robert Alan Schwarz, Claimant, v. Prudential Equity Group, LLC, Respondent (FINRA Arbitration Decision)
FINRA EVP of Enforcement Susan Schroeder Announces Departure (FINRA Release)
Update to June 2019 Joint Statement on Opportunistic Strategies in the Credit Derivatives Market (Statement by SEC Chairman Jay Clayton)
Statement of Commissioner Allison Herren Lee on Amendments to the Volcker Rule by Commissioner Allison Herren Lee (SEC Statement)
Statement on Volcker Rule Amendments by Commissioner Robert J. Jackson Jr. (SEC Statement)