FINRA Underpants Gnomes Miss Arbitration Phase 2

September 5, 2014

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2013, FINRA member firm Claimant Kovack Securities Inc. asserted breach of contract and unjust enrichment in connection with its former registered person Respondent Ascani's alleged failure to complete a form specifying a volume discount for the sale of three REITs to a customer. Apparently, that purported omission resulted in Claimant Kovack Securties having to reimburse the customer and also resulted in a commission overpayment to Respondent Ascani. Claimant sought:

  • $19,846.44 as reimbursed volume discount paid to customer;
  • $1,131.00 in excess paid commission to Respondent; and
  • Attorneys' fee, costs, interest, and expenses.

In the Matter of the FINRA Arbitration Between Kovack Securities Inc., Claimant, vs. Daniel Leonard Ascani, Respondent (FINRA Arbitration 13-02548, September 2, 2014).

Respondent Ascani, proceeding pro se, generally denied the allegations and asserted various affirmative defenses.

Motion To Dismiss

In January 2014, Respondent Ascani filed a Motion to Dismiss asserting, among other things, that he was not "connected to the conduct at issue" and was not employed by Claimant Kovack Securities "during the time of the dispute." 

In its February 2014 Opposition to Respondent's Motion to Dismiss, among other things, Claimant asserted that, in fact, "Respondent was a Registered Representative with Claimant at the time of the conduct at issue."

In his Reply in Support of his Motion to Dismiss, Respondent countered that among other points, that "there was never a disagreement or controversy at the time he was employed by Respondent."

Following a hearing on the motions, the sole FINRA Arbitrator denied Respondent's motion.

SIDE BAR: Okay, so . . . Respondent Ascani says he wasn't "connected" to the conduct underlying this dispute and, moreover, was not employed during the "time of the dispute;" and, finally, during his employment there was no disagreement or controversy. In contrast, Claimant Kovack Securities says that Ascani was, in fact, with the firm during the time of the "conduct" at issue.  

To some degree the parties may be parsing language and somewhat preciously defining events. Is there a distinction among the circumstances of being "connected" or "employed" during the relevant times? Is there an artificial distinction being asserted when one says that "I wasn't there" in terms of the date when a customer finally complains versus being there when the underlying acts of alleged misconduct occurred? 

Clearly, we are all awaiting the FINRA Arbitrator's explanations and rationale in order to clarify the dueling positions.

Motion To Strike

In July 2014, Respondent Ascani filed a Motion to Strike Claimant Kovack Securitie's final submission of documents, exhibits and declarations contesting that, among other things, Claimant's final submission contained documents that had not been previously provided to him. 

Claimant filed an August 2014 Opposition to the Motion to Strike asserting, among other things, that Discovery did not impose upon it an obligation to provide to Respondent supporting declarations. 

Thereafter, in his Reply in Support of his Motion to Strike, Respondent asserted, among other things, that Claimant has submitted new documents in its final submission that were not exchanged during Discovery

And in this tit-for-tat motion practice, Claimant submitted correspondence claiming that Respondent's Reply "impermissibly goes beyond the scope of Claimant's response."

Once the dust had settled, the FINRA Arbitrator deemed Respondent's Motion to Strike moot pursuant to the Decision that would be rendered.


The FINRA Arbitrator denied Claimant's claims.

Bill Singer's Comment

My, that's nice - but for the fact that I have no idea as to how the Arbitrator got from Point A to Point C (and where was the intervening Point B?).

According to online FINRA records as of September 5, 2014, Ascani was first registered in 1983, and from January 2009 to April 2012, he was registered with Claimant Kovack Securities. Commendably, given that 30-plus-year career, Respondent Ascani's FINRA BrokerCheck Report has no disclosures - that means, in pertinent part, no customer complaint or any relevant regulatory disclosure.

I note Ascani's clean record because it's puzzling that not only did the Arbitration Decision fail to note that circumstance but the arbitrator left us dangling in mid air. Pointedly, what the hell was this dispute about?  Did the Claimant employer receive a customer complaint during the Respondent employee's tenure or didn't it?  If, in fact, there was a "dispute" (as is not-so clear from the Decision but by way of inference "likely"), did the disagreement arise during Ascani's registration with the firm or is the distinction that the complaint (if any was filed) came in only after he had left?

Ultimately, either Ascani was registered and servicing the customer at issue, or he wasn't. Either he was registered with Claimant Kovack when any complaint arose, or he wasn't. Similarly, Ascani was blameless or at fault; and Claimant undertook reimbursement mistakenly or out of a sense of placating a customer.

In the end, this arbitration must be taken as an exoneration of a veteran registered person with an unblemished industry record. It might have been helpful had the Arbitrator offered some analysis and rationale so that any cloud over this stockbroker would be removed. 

All of which reminds me of that "South Park" episode in which the boys catch a gnome who has been stealing their underpants. The gnome takes them back to the gnomes' mountain headquarters, where he explains to them the get-rich-quick scheme behind the underpants theft.  You got your Phase 1. Your Phase 2. And your Phase 3.  Taken together, this is the gnomes' formula for profit! Phase 1: You steal underwear. Phase 3: You make profit.

WARNING: Some shocking language used by animated characters. If you are offended by cartoon cursing, please don't click on the video below.