by Bill Singer
Merrill Lynch Selling Away Case Goes Back To The Future
March 27, 2013
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in 2008, and as amended thereafter, Claimants asserted causes of action among which were breaches of contract and fiduciary duty; negligence; and fraud in connection with investments in, among other securities, E*Trade Financial, Blackstone Group, and Countrywide Financial. Claimants sought at least $1 million in compensatory damages, punitive damages, interest, costs, and attorneys' fees. In the Matter of the FINRA Arbitration Between Yizhak Toledano, individually and as Trustee of the Yizhak Toledano Trust and Liat Toledano, Claimants, vs. Merrill Lynch, Pierce, Fenner & Smith Inc., Respondent (FINRA Arbitration 08-04804, March 22, 2013).
Respondent Merrill Lynch generally denied the allegations, asserted various affirmative defenses, and sought the expungement of the arbitration from the Central Registration Depository records ("CRD") for non-party Sam Moshe.
Back In Time
Bill Singer
Okay, so, let's just put this 2013 iteration of Toledano et al. v. Merrill Lynch Pierce Fenner & Smith on hold and take a little travel back in time.
Apparently, this arbitration first found its way before a FINRA Arbitration Panel in 2009 and, at that time, Sam Moshe had originally been named as a Respondent. On or about September 10, 2009, Claimants filed a Motion for Leave to File an Amended Statement of Claim requesting that:
1) a change be made to the names of the Claimants from "Yizhak Toledano and Liat Toledano, as Trustees" to "Yizhak Toledano. individually and as trustee of the Yizhak Toledano Trust and Liat Toledano;" and
2) the claims be asserted against Respondent Merrill Lynch only.
On or about September 8, 2009, the first FINRA Arbitration Panel issued an order that granted Claimants' motion and, consequently, Moshe exits the arbitration as a named party.
During the first iteration of this arbitration, Respondent Merrill Lynch conducted a voir dire of Claimants' expert witness and, thereafter, opposed the expert's testimony - to which Claimants objected. The FINRA Arbitration Panel concurred with Merrill Lynch's objection and Claimants' expert was precluded from giving the desired testimony during the evidentiary hearing.
Sometime around November 2010, the first FINRA Arbitration Panel denied Claimants' claims. The Panel noted that it had not addressed or made any findings against Moshe, who had been removed as a respondent; consequently, Moshe's request for expungement was not considered.
On Appeal
Not satisfied with the first FINRA Arbitration Panel's ruling or conduct, the Claimants petitioned the Circuit Court of the 17th Judicial Circuit, Broward County, FL, and requested a vacatur of the FINRA arbitration award based upon the allegation that the Panel had wrongfully excluded their expert's testimony. The Court found that:
The arbitrators herein refused to permit Petitioners' expert to testify as to "supervision and compliance requirements." This testimony was central to Petitioners' case. The refusal by the arbitrators to receive the testimony precluded a fair hearing and resulted in substantial prejudice to Petitioners. . .
Consequently, on September 28, 2011, the Court granted the Motion to Vacate and remanded the matter back to FINRA with an order to convene a new arbitration panel.
Back To The Future
On remand, a new FINRA Arbitration Panel denied Claimants' claim and recommended the expungement of all reference to the arbitration from non-party Moshe's CRD because the arbitrators found no merit in Claimants' principal allegation that Moshe had engaged in selling away and breached his fiduciary duty. Pointedly, the Panel found that there was no selling away and that all of the transactions took place through Respondent Merrill.