In the Matter of the FINRA Arbitration Between Stavros Oscar Cid and Teresa Cid JTWROS, Claimants, vs. John Joseph Abadiotakis and Citigroup Global Markets, Inc., Respondents (FINRA Arbitration 10-04784, July 3, 2012).
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2011, and as thereafter amended, Claimants asserted causes of action in negligence, unauthorized trading, unsuitable recommendations, churning, failure to supervise, breach of fiduciary duty, misrepresentations and omissions. The claims involved investments in unspecified equities and mutual funds. Claimants sought $294,000.00 in compensatory damages; $100,000 in punitive damages; $73,525.00 in attorneys' fees; and $3,925 in costs.
Respondents generally denied the allegations, asserted various affirmative defenses, and sought an expungement of Respondent Abadiotakis's Central Registration Depository records ("CRD").
On or about November 14, 2011, Claimants filed a Motion to Postpone the December 6, 7, and 8, 2011 hearings. Respondents filed an Opposition and Motion for Sanctions. The Panel denied the Motion to Postpone and threatened to impose $10,000 in sanctions plus forum fees, costs, and Respondents' attendant legal fees if Claimants failed to appear at the scheduled December hearings.
Claimants did not appear at the December 6, 2011 hearing, which was adjourned and rescheduled for June 5, 6, and 7, 2012.
On or about February 10, 2012, Claimants submitted a Request for the Panel's Reconsideration of Sanctions, with documents and information explaining why
Claimants were not able to appear at the December 2011 hearings. After reviewing the submissions and respondents's opposition, the Panel found Claimants's documentation insufficient and Claimants were given until April 20, 2012 to produce additional documentation.
On or about May 16, 2012, Respondents filed aMotion to Enforce the Sanctions for Failure to Appear and Motion for Sanctions for Failing to Comply with Discovery Order. Claimants filed anOpposition dated May 22, 2012. The Panel ordered Claimants to pay to the Respondents the sum of $10,000.00 upon the conclusion of the case. The Panel deferred ruling on Respondents' Motion to Extend the Order of Sanctions until the hearing in this matter.
Claimants' counsel, but not Claimants, attended the June 5, 2012 hearing, at which time, Respondents moved to dismiss.
The FINRA Arbitration Panel dismissed Claimant's claims in their entirety with prejudice. The Panel found Claimants jointly and severally liable and ordered them to pay to Respondents $10,000.00 as sanctions pursuant to the panel's previous Orders.
SIDE BAR: It is not an unusual occurrence for a party to seek an extension of time or an adjournment - things happen in all of our lives that necessitate last-minute cancellations. On the other hand, in litigation one typically expects the respondent/defendant to engage in delay as a means of forestalling the inevitable, painful outcome - when a claimant/plaintiff starts asking for delays, it raises a whole different set of concerns. Among the more common questions that arise when those initiating lawsuits start applying the brakes is whether the claims were brought solely to force a settlement and with the finality of the preliminaries now looming, has that bluff been called and the case beginning to evaporate for lack of proof.
Of course, those who represent public customer or industry claimants will quickly interject that the big boys don't always play fair and many motions for additional time are caused by the failure to turn over discoverable materials that constitute the very proof needed to sustain one's case. As such, it's typically firms such as Citigroup, Merrill Lynch, Morgan Stanley, JP Morgan, and Wells Fargo that are on the stinging end of a Panel's rebuke for not timely responding in FINRA arbitrations; however, more than a few public customers's lawyers have perfected the art of delay.
The response of most arbitrators when faced with contested requests for delay is typically to ask for an explanation as to what compelled the need to move things to a later date. Among the more common explanations are a death in the family, illness, another case fast-tracked in the courts, unavailability of a key witness, and ongoing settlement discussions. The closer in time to the date at issue, the more scrutiny to the bona fides of the excuses or explanations.
In considering the Claimants's requests and conduct, this FINRA Arbitration Panel explained that:
Because of Claimants failure to appear at any scheduled hearing, the Claimants being out of the country at the time of the scheduled hearings, and apparently planning now to remain out of the country and not to return for an indeterminate period of time, and sanctions in the amount of $10,000.00 having already been imposed by the Panel for Claimants' material and apparently intentional failure to adequately and credibly document their reasons for their non-appearance at any hearing; and further because of Claimants failure to respond adequately to discovery orders of the Panel, the Panel chose, at the time of the hearing on June 5, 2012, to dismiss the claim against Respondents with prejudice, as a sanction pursuant to FINRA Rule 12212(c).
The Panel recommended the expungement of Respondent Abadiotakis' CRD and provided the following rationale:
In the absence of any appearance by Claimants at any hearing or prehearing in this matter, and in order to determine the truth or falsity of the allegations contained in the Claimants' Statement of Claim, the Panel reviewed extensive documentary exhibits produced in evidence, which documents included Claimants' tax returns, account P/L client statements, new account documents, bank statements (foreign and domestic), annuity documents, and trade confirmations. With respect to the allegation of unauthorized trading, we found that (with the exception of a small trading account managed by the Claimants) the accounts were third-party discretionary accounts. We further found that all trade confirmations were routinely provided to Claimants. We considered, also, that throughout the relevant period. Claimants made neither verbal nor written complaints to management concerning trading in these accounts. Accordingly, the Panel found no evidence of unauthorized trading and therefore rules this allegation to be false. With respect to the allegation of churning, because we found no evidence of excessive trading and because (except as noted above) the accounts were fee based and thus not generating commissions compensation to Respondent Abadiotakis, there was neither indication of nor basis for an allegation of churning. Accordingly, we found the allegation of churning to be false. With respect to the allegation of unsuitability, given Claimants' investment history, investment objectives, risk tolerance and other information contained in the new account documents, we found no evidence of trading that was unsuitable for these Claimants. Accordingly, the Panel found the allegation of unsuitability to be false. Claimants' Statement of Claim also makes allegations of negligence and misrepresentation/omission. The Panel found nothing in the exhibits presented to show that the accounts were maintained by Respondent Abadiotakis in a negligent manner and all disclosures, notices, trade confirmations, etc., were consistent with responsible, appropriate and customary industry practice. Accordingly, the Panel found the allegations of negligence, misrepresentation/omission to be false.