Illustration of a petard from "Sketchbook on military art, including geometry, fortifications, artillery, mechanics, and pyrotechnics" (Photo credit: Wikipedia)
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in June 2010 and thereafter amended, Claimant Pinnacle asserted fraud, defamation, intentional interference with business relations, violation of FINFRA Rule 2010, and civil conspiracy. Claimant sought at least $1 million in compensatory damages, punitive damages, attorneys' fees and costs.In the Matter of the FINRA Arbitration Between Pinnacle Investments, LLC, Claimant, vs. Thomas Corcoran, Richard Alan Garber, George Peter Koulouris, Ridgeway & Conger, Inc., and Anastasia Tkatschow, Respondents, AND John Bianchini, David Kamp, Gregg Kidd, Eric Krouse, and Daniel Raite, Third-Partv Respondents(FINRA Arbitration 10-02616, July 25, 2012)
Respondents denied the allegations, asserted various affirmative defenses, and sought damages including costs, fees, and expenses - also, they sought the expungement of Central Registration and Depository records ("CRD") and the referral of this arbitration matter to FINRA for a regulatory investigation.
In his Amended Answer, Counterclaim and Third-Party Claim, Respondent Koulouris asserted breach of contract, breach of implied covenant of good faith and fair dealing, fraudulent misrepresentation, negligent misrepresentation, fraudulent inducement, violation of New York Labor Law § 198, replevin, conversion, and declaratory judgment. Respondent Koulouris sought $550,000 in compensatory damages; the return of 60,000 shares of Pinnacle stock; amendment of his Uniform Termination Notice For Securities Industry Registration ("Form U5″); interest, fees, and costs.
In her Counterclaim and Third-Party Claim, Respondent Tkatschow asserted violations of Title VII of the Civil Rights Act of 1964, retaliation, replevin, conversion, declaratory judgment, malicious prosecution, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, prima facie tort, and negligence. Respondent Tkatschow sought at least $1.5 million in damages; the return of 10,000 shares of Pinnacle stock; amendment of her Form U5; and interest.
Motion To Sever
On or about December 18, 2010, Respondent Corcoran filed a Motion to Sever, which was granted by the FINRA Arbitration Panel. On or about August 8, 2011, Respondents Garber and Ridgeway filed a Motion to Sever, which was granted by the FINRA Arbitration Panel.
Motion To Dismiss
Respondents Tkatschow and Koulouris withdrew their Third-Party claims but continued their claims for legal fees against Claimant. After Claimant's case-in-chief, Respondents Tkatschow and Koulouris moved to dismiss, which was granted by the Panel; thereafter, the case proceeded with Respondents' Counterclaims and claims for legal fees against Claimant. In granting the dismissal, the Panel noted the following rationale:
[C]laimant had failed to present a case with any credible probative or dispositive substance sufficient to support its claims against the Respondents or to justify the need for proceeding to a presentation of Respondents' response to those unsupported charges. Claimant's case-in-chief lacked substance and merit on the charges proffered.
The Panel granted expungement of the Forms U5 of Respondents Tkatschow and Koulouris, and provided the following rationale:
[R]espondent Tkatschow was not the individual responsible for the solicitations for the private placement investments. Further, the individual about whom Claimant Pinnacle confronted Tkatschow as being an unaccredited investor was, in fact, a fully accredited investor for a private placement investment and confirmed that in discussions with Pinnacle. The credibility of Claimant Pinnacle's allegation against Tkatschow for violation of policies and procedures for not knowing her client was false, in that even assuming, arguendo, that Tkatschow was the responsible individual for the private placement investment, the client at the heart of the issue was, in fact fully qualified for such an investment, and testified to that at the hearing. Additionally, the testimony of two critical Pinnacle witnesses regarding reasons for the negative comment on Tkatschow's Form U5 was contradictory and not deemed credible on the matter.
[T]he information contained on Respondent Koulouris's Form U5 placed there by Claimant Pinnacle is unsupported by a preponderance of the evidence and fails to meet the burden of proof to demonstrate noncompliance with policies and procedures. Additionally, the testimony of two critical Pinnacle witnesses regarding reasons for the negative comment on Koulouris' Form U5 was contradictory and not deemed credible on the matter. It is inaccurate and unsustained to such an extent that it constitutes defamation of Respondent Koulouris.
The FINRA Arbitration Panel dismissed Claimant's claims in their entirety and found Claimant liable to and ordered the firm to pay to:
- $120,000 compensatory damages for loss of income plus 4.5% interest per annum from July 30, 2010 until payment of the award;
- $20,000 compensatory damages for the FKAPI shares plus 4.5% interest per annum from July 30, 2010 until payment of the award; and
- $75,000 in attorneys' fees
- $120,000 compensatory damages for the FKAPI shares plus 4.5% interest per annum from July 30, 2010 until payment of the award; and
- $125,000 in attorneys' fees
The Panel recommended the expungement of the Termination Explanation in Section 3 of Respondent Tkatschow's and of Respondent Koulouris's Forms U5 as filed by Claimant Pinnacle Investments, based on the defamatory nature of the information. The Panel recommended that the Reason For Termination remain unchanged but that the Termination Explanation be expunged and replaced with the following language (and conformed throughout the Form U5 and/or any amendments):
"BUSINESS DECISION - REDUCTION IN FORCE"
Bill Singer's Comment
OUCH!!! Keep in mind that this case was initiated by Claimant Pinnacle Investments, which sought over $1 million in damages as a result of what appears to have been a very nasty and contentious parting of the ways. Talk about getting hoisted on your own petard.
What went wrong here? Well, for starters, consider the FINRA Arbitration Panel's stinging rebuke of Claimant's case. The Panel concluded that Claimant failed to present "any credible probative or dispositive substance" in support of its claims. Once you eliminate credible, probative and dispositive evidence, there ain't much left. Of course, the Panel then followed up that stinging jab with a knockout of a roundhouse punch by finding that "Claimant's case-in-chief lacked substance and merit on the charges proffered." Talk aboutugggggggggggggggly.
"Street Sweeper" frequently reports about these intra-industry FINRA arbitrations, which happen all over - at Merrill Lynch, Morgan Stanley, UBS, JP Morgan, Wells Fargo - pick the firm and there are employment disputes. I believe that far too many employee-respondents approach these cases in an overly passive posture. Typically, the employee (or independent contractor) will merely file an Answer denying the charges and seeking fees and costs. As Pinnacle demonstrates, there are times when punching back is not only sensible but appropriate. The two respondents in Pinnacle not only deflected $1 million in damages sought by their former employer but turned that around into a nearly $500,000 award to themselves.
READ these additional Street Sweeper articles on intra-industry FINRA arbitrations: