In a FINRA Arbitration Statement of Claim filed in June 2008, public customer Sean Greene alleged that he sustained in excess of $600,000 in compensatory damages from purchases of limited partnership units in the Horizon Fund LP hedge fund. Claimant Greene asserted causes of action including breaches of contract and fiduciary duty, negligence, and fraud. In the Matter of the Arbitration Between Sean E. Greene, Claimant, versus California United Capital Markets, Inc., Dennis John Devaney, and United Capital Asset Management, LLC, Respondents (FINRA Arbitration 08-02014, October 15, 2010)
Respondents generally denied the allegations and asserted various affirmative defenses.
A Jurisdictional Oops or Clever Plan?
Respondent United Capital Asset Management, LLC ("UCAM") is not a FINRA Member and did not file a properly executed Submission Agreement. As such, that would ordinarily be enough to dismiss the case against that non-FINRA entity for lack of jurisdiction. However, it seems that UCAM filed an Answer to Claimant's Amended Statement of Claim. On top of that, UCAM appeared at the recorded expungement hearing involving Respondent Devaney. Oddly, but not without some justification, the FINRA Arbitration Panel determined that UCAM's acts constituted a voluntary submission to the jurisdiction of the Panel in the matter.
On or about February 12, 2010, FINRA Dispute Resolution received notice from Claimant that the parties had settled the matter.
On or about April 22, 2010, Respondent Devaney filed an Unopposed Motion for Expungement, on which the Panel subsequently heard evidence. Following a July 14, 2010 expungement hearing, the Panel requested that Claimant Greene submit an affidavit, which he subsequently provided.
The FINRA Arbitration Panel recommended the expungement of all reference to the Greene v. California United Capital Markets et al. arbitration from Respondent Devaney's Central Registration Depository ("CRD") records, with the understanding that pursuant to Notice to Members 04-16, Respondent Devaney must obtain confirmation from a court of competent jurisdiction before the CRD will execute the expungement directive. Unless specifically waived in writing by FINRA, parties seeking judicial confirmation of an arbitiation award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents.
Pursuant to Rules 12805 and 2080, the Panel made the affirmative finding of fact that Respondent Devaney was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. The Panel determnined that Claimant's affidavit conroborates his statement as quoted on page 14 of the Respondents' Motion to Dismiss and Response to Statement of Claim, in which Claimant states
John, I don't hold what happened in the market against you and I don't blame you for it.
The Panel found that the above statement contradicted Claimant's other allegations of misconduct by Devaney, and concluded that it was a persuasive factor in granting the expungement -- you think?
Bill Singer's Comment: The oddball jurisdictional issue with UCAM may have some logic behind it. UCAM may have decided that since the case looked like it was settling, that it would be advantageous to enter an appearance and submit to FINRA's jurisdiction rather than contest the arbitration forum's reach. Consequently, upon settlement of the case, UCAM may be deemed to have been a covered party, and, as such, Claimant may be precluded from walking across the street and filing a similar case in court against UCAM. In theory, it may make sense. Nonetheless, if something should subsequently go amiss, UCAM may no longer be able to argue that it hasn't volunatrily submitted to FINRA arbitration jurisdiction in this case.