In a Statement of Claim filed in March 2009 and amended thereafter, Craig Kneisly as the Successor Trustee of the Alf Co., Inc. Retirement Trusts and as Trustee of the Marietta Kneisly Trust sought betweeen $100,000 to $500,000 in compensatory damages, rescission, and other damages and costs as a result of alleged unauthorized investments in the DVS group for Claimants' accounts. Among the specific causes of action were unauthorized trading, breach of contract, and negligence.In the Matter of the Arbitration Between Craig Kneisly as the Successor Trustee of the Alf Co., Inc. Retirement Trusts and as Trustee of the Marietta Kneisly Trust, Claimants, versus Morgan Keegan & Co., Inc., Respondent (FINRA Arbitration 09-01592 September 9, 2010). Respondent generally denied the allegations and asserted affirmative defenses.
Original Claimant Dies
On June 12, 2009, after the claim was filed, Robert Kneisly passed away and Claimants sought to amend the Statement of Claim to replace the deceased with Craig Kneisly, which was so ordered in August 2009 by the FINRA Arbitration Panel. Respondent Morgan Keegan then moved to bar testimony or evidence regarding statements by Robert Kneisly pursuant to the Tennessee Dead Man's Statute and federal and state rules of evidence. Claimants argued that formal rules of evidence to not apply in FINRA arbitrations and that the motion to bar the deceased's testimony or evidence were improper.
Dead Man's Statutes
A number of states have Dead Man's Statutes which prohibit in civil cases (in contradistinction to criminal cases) the testimony about communications or transactions with the deceased by a party who has an interest in the outcome of the proceedings. The prohibition generally comes into play when the witness is testifying favorably for his interests and negatively for those of the deceased. The motivation behind limiting such conflicted testimony is to avoid the self-serving and often perjurious nature of the evidence presented.Notwithstanding the Dead Man's Statute, such prohibited testimony may be given if the decedent's representatives does not object. Moreover, if the decedent's representatives testify as to the same communication for which the interested party seeks to testify, that could result in a waiver of the Statute. Finally, if the decedent's testimony was preserved as a deposition or other reliable form and is presented to a jury, that too could result in a waiver of the Dead Man's Statute.
FINRA Panel Rulings
After approving the substitution of Craig Kneisly for Robert Kneisly, in August 2010, the FINRA arbitration panel also denied Respondent's motion to bar the testimony or evidence regarding statements by Robert Kneisly pursuant to the Tennessee Dead Man's Statute.
Ultimately, the FINRA Panel determined that Respondent Morgan Keegan was liable and ordered to pay Claimants:
The Panel further ordered Claimants to assign to Respondent all right, title, and interest in each of the nine separate DVS securities at issue.
Bill Singer's Comment: Many public customers and industry members are surprised to learn that there are no formal rules of evidence in FINRA arbitration proceedings. In federal and state courts, there are lengthy codified rules of evidence that constitute the rules of the road. In the case of FINRA arbitrations, below is about all there is when it comes to written rules:
FINRA Code of Arbitration Procedure
Section 12604 (Public Customer Disputes)
Section 13604 (Industry Disputes)
a) The panel will decide what evidence to admit. The panel is not required to follow state or federal rules of evidence.
(b) Production of documents in discovery does not create a presumption that the documents are admissible at the hearing. A party may state objections to the introduction of any document as evidence at the hearing to the same extent that any other objection may be raised in arbitration.
Rodman & Renshaw and other Claimants filed a FINRA Arbitration Statement of Claim (initially in October 2006 and thereafter as amended) against Respondent Matthew N. Murray. Among other claims, Claimants alleged defamation, tortious interference with business relations, breach of fiduciary duty, conversion, breach of contract, and prima facie tort, trademark infringement, and cybersquatting. In the Matter of the Arbitration Between Rodman & Renshaw, LLC, John Borer, Edward Rubin, Michael Vasinkevich, and Wesley K. Clark, Claimants, vs. Matthew N. Murray, Respondent (FINRA Arbitration 06-04643, August 26, 2010).
The FINRA Arbitrators found Respondent Murray liable for and ordered him to pay to Rodman & Renshaw, LLC, compensatory damages in the amount of $10,700,000.00 plus interest at 9% per annum from August 9, 2006 until August 12, 2010. Respondent's Counterclaim request for expungement were denied.
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There is an obligation upon those drafting laws and regulations to do so with sufficient clarity so as to convey what precise conduct is proscribed or prohibited. Failing to discharge that task with clarity builds speed-traps that catch the unwary and burden our judicial system. Recently, Congress has churned out a flurry of laws for the financial services industry (and various governmental agencies will be charged with further rulemaking), and it is imperative that the new rules of the road are concise. A stop sign must look like one. The speed limits must be clearly posted. Sadly, as appellate courts have ruled in recent months, our lawmakers do not always say what they mean, and those charged with enforcing our laws do not always do so in the spirit of equal justice for allRead Bill Singer's Entire Huffington Post Article at: