Claimant Sues RBC for $37 Million -- BUT FINRA Arbitration Panel Whacks Him for $1.8 Million

February 23, 2011

In a Financial Industry Regulatory Authority (FINRA) Arbitration Statement of Claim filed in September 2009, Claimant Gilbert Kuta asserted numerous causes of action relating to what appears to have been a very acrimonious end to his employment with RBC Capital Markets LLC. Among Claimant Kuta's allegations were fraud, breach of contract, and defamation. Claimant Kuta sought $37,760,232.00 in damages and attorney's fees; and he requested an expungement of his Central Registration Depository (the "CRD") Form U5. In the Matter of the Arbitration Between Gilbert Anthony Kuta, Claimant, vs. RBC Capital Markets LLC, Patrick James Vaughan, Shannon Moran Sorensen, Walter Michael Crowell, Todd Wayne Schnell, and John Taft, Respondents (FINRA Arbitration 09-05236, February 9, 2011).

Dramatic Foreshadowing

According to FINRA records, Kuta appears to have entered Wall Street in 1982 with Merrill Lynch, Pierce, Fenner & Smith, Inc. and subsequently became registered at five other brokerage firms (including the likes of A.G. Edwards, PaineWebber, Lehman, and Smith Barney) until he joined Ferris, Baker Watts, LLC ("FBW") in February 1994, where he remained for some 15 years. In 2008, Royal Bank of Canada and FBW announced a merger agreement whereby RBC Dain Rauscher Inc. acquired FBW. Subsequently, Kuta subsequently was registered with FINRA member firm RBC Capital Markets Corporation from March through September 2009.

According to FINRA documents, among matters both pending and resolved, in 1993, Kuta was "permitted to resign" from Smith Barney Shearson as a result of his reimbursement of $1,500 in losses to a client. 

Kuta's regulatory history includes a 1995 settlement with the New York Stock Exchange (entered into without his admitting or denying the facts) in which it was alleged that he effected unauthorized trades and shared in losses with a customer. The NYSE accepted a Censure and one-month suspension.

Among other items, FBW alleged that on April 4, 2007, it received a customer complaint alleging that Kuta had engaged in an unsuitable investment strategy and also improperly used discretion and generated high commissions. In June 2007, FBW settled the complaint for $60,000 based upon what the firm characterized as a "business decision." Although FBW asserted that the customer's signature was almost certainly forged by an unknown person, the firm disputed and ultimately denied the balance of the allegations.

On June 11, 2009, FINRA initiated an investigation of Kuta for potential violations of its former NASD Rules 2310: Recommendations to Customers (Suitability) and 2110: Standards of Commercial Honor and Principles of Trade, and as of February 23, 2011, that investigation is denoted as "pending."

More recently, on June 4, 2010, former customers of Kuta's claimed that their RBC accounts were excessively traded and sought $500,000 in damages. As of February 23, 2011, that matter is denoted as "pending."

RBC Respondents Fight Back

In Kuta v. RBC et al., the Respondents generally denied Claimant Kuta's allegations and asserted various affirmative defenses. Additionally, Respondent RBC counterclaimed concerning, among other issues, repayment of a promissory note that was part of Claimant's Retention Agreement. RBC requested $1,808,410.00 in damages, interest at the rate of 3.15% per annum from August 27, 2009, costs, and attorney's fees.

During the final hearing, Claimant Kuta dismissed all claims against Respondent Sorenson, with prejudice.

FINRA Decision

The FINRA Arbitration Panel found all Respondents not liable and dismissed Claimant's claim with prejudice. 

Alas, so much for Claimant Kuta's $38 million claim. Sadly, for Kuta, the FINRA Panel was not finished ruling.

In addressing Respondent RBC's Counterclaim, the Panel found Claimant Kuta liable and ordered him to pay to Respondent RBC:

  • $1,700,903.75, plus interest at the rate of 3,15% per annum from February 1, 2011 until payment of the Award
  • $160,000.00 in attorney's fees; and
  • $2,000 as reimbursement for filing fees.

Expungement

But, hold on - all is not a total loss for Claimant Kuta.  

The FINRA Panel recommended the expungement of the "Termination Comment" in Section 3 of Kuta's Form U5 dated September 8, 2009, and of the Internal Review Disclosure Reporting page at Part I, Sections 3 and 5(B). That offending language stated Kuta had been terminated for the:

use of discretion in a client account without written authorization.

The Panel recommended that the following language replace the expunged language:

failure to properly mark a trade ticket as solicited, and accepting trading instructions from a third party prior to obtaining written authority, in violation of firm policy.

The reason for termination shall remain, "Discharged."