Claimants' Non-Lawyer Representative Muzzled by FINRA Arbitration Panel

July 13, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 2010, Claimants Robert and Susan Ralston asserted causes of action including Respondent Syndicated's liability for Respondent Heckler's alleged "selling away"; suitability; fraud, and failure to supervise.  The claims arose from the private placement of a promissory note from a company called Saveonline.com Financial, Inc. (the "SYNCAP Note"). Claimants' sought at least $200,000 in compensatory damages plus the disgorgement of Heckler's commission on the SYNCAP Note and rescission interest at the Califomia legal rate of 10% per annum from the date of loss to the date of award. Claimants further sought punitive damages, costs, and fees.

In the Matter of the FINRA Arbitration Between Robert W. Ralston and Susan B. Ralston, Claimants, vs. Syndicated Capital, Inc. and Paul H. Heckler d/b/a Yosemite Capital Management, Respondents (FINRA Arbitration 10-02276, July 7, 2011).

Respondents generally denied the allegations and asserted affirmative defenses.

SIDE BAR: Claimants Robert W. Ralston and Susan B. Ralston were represented by Martin B. Greenbaum, Esq., Greenbaum Law Group, LLC, Newport Beach, California; and Ronald E. Miller, Loss Recovery Center, Inc., Reno, Nevada.

Respondent Syndicated Capital, Inc. was represented by Thomas Rittenburg, Esq., Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, Califomia.

Respondent Paul H. Heckler d/b/a Yosemite Capital Management was represented by Sylvia M. Scott, Esq., Freeman Freeman & Smiley, LLP, Los Angeles,Califomia.

Non-Lawyer Representative

At the commencement of the evidentiary hearing held on June 6, 2011, before opening statements, counsel for both Respondents orally moved for disqualification of Claimants' representative Ronald E. Miller of the Loss Recovery Center, Inc., Reno, based upon his status as a nonlawyer.

Following deliberations, the FINRA Arbitration Panel ruled that Miller:

  • would be allowed to examine Claimants' witnesses, but
  • would not be allowed to examine the Respondents or Respondents' witnesses.

Partial Settlement

On June 7, 2011, the second day of the evidentiary hearing. Claimants and Respondent Syndicated entered into an undisclosed confidential settlement of all issues except  forum fees, resulting in the stipulated dismissal of Syndicated.

DECISION

The FINRA Arbitration Panel found Respondent Heckler liable and ordered him to pay to Claimants compensatory damages in the sum of $200,000.00. Respondent Heckler's request for expungement is denied.

SIDE BAR: Selling Away generally describes a situation where a registered representative (stockbroker) of the brokerage firm where you maintain a securities account attempts to solicit your investment in a product that is not directly offered from/by the brokerage firm - typically private placements but other investments fall under this term.  The danger with undertaking such an investment is that you may not be covered under SIPC, the brokerage firm may disclaim any liability for your losses, the offering may be illegal or sold subject to material misrepresentations, and your broker may be receiving commissions/fees that were not disclosed to you.

As to the use of non-legal representation in prosecuting or defending a FINRA Arbitration, there are many consulting firms that offer services (often in conjunction with an affiliation with a lawyer or law firm).  It is not uncommon for issues relating to the "unauthorized practice of law" to arise when a non-lawyer serves as a representative to a party - although corporations often appear in arbitrations represented by a non-lawyer "corporate representative." Given the constraints imposed by the FINRA Panel in this case, investors and industry parties seeking to retain such consultants should fully inquire as to the limits of the non-legal representation and also inquire as to any and all ties between such organizations and attorneys to which you are referred. You should also determine whether you are paying a premium for using both the consulting firm and the law firm, or whether the net fee is competitive with that quoted solely by a lawyer. As was demonstrated in this case, the Claimants fully recovered the $200,000 in sought compensatory damages, so you may wish to consider this consulting option.