The Mad Hatter, Alice, And The Sale Of A Stockbroker's Business

November 10, 2014

It's an important moment for many stockbrokers. For whatever reason -- age, retirement, market conditions -- you decide to sell your book of business.  Someone likes your client list and the next thing you know, legal documents are prepared, signatures added, and money exchanged. Sometimes all goes well. Sometimes not. Sometimes it's a disaster. In today's Blog we consider the 2006 sale of Claimant's book to Respondent for $150,000. Up to a point, Respondent made the required quarterly payments. Then Respondent terminated Claimant, or so it's suggested; and then Respondent refused to directly pay Claimant the balance due of $105,000 and put the funds in escrow. Dueling six-figure arbitration claims followed. Sadly, exactly what happened here and how everything resolved remains largely a mystery because the FINRA Arbitration Decision fails to provide sufficient context and content. Except, you know, there is that question about ravens and writing desks.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in July 2013 and as amended thereafter, associated person Claimant Pinkus asserted breaches of contract and fiduciary duty, and defamation. Moreover, Claimant sought an accounting of the profits of an alleged partnership with Respondent Furnary; and dissolution and appointment of a receiver or award of that partnership interest. Claimant sought in excess of $450,000 in compensatory damages, $250,000 in compensatory/punitive damages for slander and defamation; interest, attorneys' fees, and costs. In the Matter of the FINRA Arbitration Between Allan Paul Pinkus, Claimant, vs. James T. Furnary, Respondent (FINRA Arbitration 13-02238, November 4, 2014).


Respondent Furnary generally denied the allegations; asserted various affirmative defenses; and filed a Counterclaim on February 28, 2014, asserting tortious interference with both contractual and economic relations; breach of third-party beneficiary contract, and defamation. Respondent sought in excess of $100,000 in compensatory damages; $100,000 in general damages; $100,000 in punitive damages; interest; attorneys' fees and costs. 

Fire, Aim, Ready

So . . . what exactly is this apparent defamation case about and what the hell went on between Claimant Pinkus and Respondent Furnary?  Alas, there just isn't any meaningful statement of facts that precedes the FINRA Arbitration Panel's rationale for its ruling. As such, we have a somewhat unfortunate cart-before-the- horse Decision in which we find some of the facts in dispute oddly intertwined within the arbitrators' final ruling. Think of it as raising the question as part of the answer.

And The Answer Is . . .

The FINRA Arbitration Panel provide what seems, at first glance, a thoughtful and comprehensive rationale, which I reprint in full-text for the relevant part below:

1. Claimant failed to prove that a partnership existed between Claimant and Respondent. The Panel finds that Claimant sold his client base to Respondent pursuant to a Buy/Sell Agreement dated August 7, 2006, (Claimant's Exhibit 2) and became an Associate Financial Advisor under Respondent. On June 11, 2012, Respondent terminated Claimant, effective June 13, 2012, under the final paragraph of the Financial Advisor Practice Agreement (the "Agreement") entered into between the parties on October 3, 2007, (Claimant's Exhibit 3) due to Claimant's knowing violation of Ameriprise (the employing firm) rules. 
2. Respondent is obligated and has acknowledged his obligation to pay Claimant $150,000.00 payable in twenty (20) quarterly payments of $7,500.00 over a five (5) year period under the provisions of the Agreement. To date. Respondent has paid Claimant $45,000.00 under the Agreement and has escrowed payments which came due since the filing of his Counterclaim in this matter. No claim has been asserted that Respondent is in breach of this obligation. 
3. Accordingly, Claimant has failed to prove Count I (breach of contract), Count II (seeking an accounting), or Count III (seeking dissolution and appointment of a receiver or award of partnership interest) of his Amended Statement of Claim. Claimant also asserted claims for breach of fiduciary duty (Count IV) and for defamation (Count V), which claims the Panel also finds have not been proven. 
4. Respondent has failed to prove his Counterclaims against Claimant (Counts I - IV) for tortious interference with prospective contractual relations and prospective economic relations, breach of third-party beneficiary contract and defamation, respectively. 
5. Based upon the testimony and evidence presented and the findings and conclusions as stated above, all claims asserted by both Claimant and Respondent are denied, with prejudice. 
6. Any and all relief not specifically addressed herein, including the parties' respective requests for attorneys' fees and punitive damages, is denied. 
7. The explanation provided by the Panel is for the information of the parties only and is not precedential in nature. 

Bill Singer's Comment

Ummm . . . okay . . . so the FINRA arbitrators declined to find that a legal partnership existed between Claimant Pinkus and Respondent Furnary.  No one gets a dime. Respondent agrees he owes $105,000 to Claimant. Maybe he has already paid or will soon pay that balance due. Regardless, case closed. Go home boys and lick your wounds.

Reading enumerated paragraph #1 above, however, I see that the arbitrators assert that "Respondent terminated Claimant, effective June 13, 2012 . . . due to Claimant's knowing violation of Ameriprise (the employing firm) rules." In strict securities industry parlance, a "termination" generally does not mean that a registered person was fired (as in "discharged") but that the individual's registration with the member firm was terminated -- which can occur when you voluntarily resign.  This FINRA Arbitration Panel raises the suggestion, however, that Claimant Pinkus was "terminated" as a result of his alleged "knowing violation" of his employer's rules. That recitation in the Decision sort of puts the term in a somewhat more ominous context. I think it fair to infer implies that Pinkus was "discharged" by Furnary for some intentional misconduct. According to FINRA's   online BrokerCheck records as of November 10, 2014:

  • Claimant Pinkus was  registered with IDS Life Insurance Company from May 1993 to July 2006; and with Ameriprise Financial Services, Inc. from May 1993 to June 2012. There is no indication of any "Discharge" or allegation of misconduct. There is no indication of any investigation of any alleged misconduct by Ameriprise or any industry regulatory. There is no disclosed regulatory history indicating any charges or sanctions.
  • Respondent Furnary was registered with IDS Life Insurance Company from January 1998 to July 2006; and with Ameriprise Financial Services, Inc. From January 1998 to the present. He has no disclosed regulatory history.
Consequently, the FINRA Arbitration Panel does a disservice to Claimant Pinkus by not clarifying the uncorroborated nature of the allegations concerning the nature and condition of his termination. 

The Arbitration Panel further raises a factual circumstance that just doesn't make sense. What we know from the Decision is that there was a, August 2006 Buy/Sell Agreement that called for $150,000 in equal quarterly payments over five years -- which implies a term requiring full payment by Respondent Furnary by August 2011.  The Decision explains that "To date. Respondent has paid Claimant $45,000.00 under the Agreement and has escrowed payments which came due since the filing of his Counterclaim in this matter." Let's consider that assertion.  

The final quarterly payment was apparently due by August 2011.  Apparently, Respondent withheld $105,000 in quarterly payments "which came due since the filing of his Counterclaim. " The Decision states that Respondent Furnary's Counterclaim was filed on February 28, 2014. If the final quarterly payment was due to Claimant Pinkus in August 2011, how the hell could Respondent have been setting aside in escrow $105,000 in quarterly payments starting in February 2014?

In the end, the Decision dismisses both parties' claims. What I'm not understanding is where the hell is the $105,000 balance owed to Claimant by Respondent and why there is no disposition or order as to that sum. The answer may be that Claimant didn't seek such a remedy or that Respondent has, by now, made that payment. In fact, there may be any number of logical explanations but for the fact that none is offered. All of which reminds me of the riddle posed by the Mad Hatter to Alice:

The Hatter opened his eyes very wide on hearing this; but all he said was, 'Why is a raven like a writing-desk?'
'Come, we shall have some fun now!' thought Alice. 'I'm glad they've begun asking riddles.-I believe I can guess that,' she added aloud.
'Do you mean that you think you can find out the answer to it?' said the March Hare.
'Exactly so,' said Alice.
'Then you should say what you mean,' the March Hare went on.
'I do,' Alice hastily replied; 'at least-at least I mean what I say-that's the same thing, you know.'
'Not the same thing a bit!' said the Hatter. 'You might just as well say that "I see what I eat" is the same thing as "I eat what I see"!'
'You might just as well say,' added the March Hare, 'that "I like what I get" is the same thing as "I get what I like"!'
'You might just as well say,' added the Dormouse, who seemed to be talking in his sleep, 'that "I breathe when I sleep" is the same thing as "I sleep when I breathe"!'
'It is the same thing with you,' said the Hatter, and here the conversation dropped, and the party sat silent for a minute, while Alice thought over all she could remember about ravens and writing-desks, which wasn't much.
. . .

"`Have you guessed the riddle yet?' the Hatter said, turning to Alice again.

`No, I give it up,' Alice replied: `what's the answer?'

`I haven't the slightest idea,' said the Hatter.

`Nor I,' said the March Hare.

Alice sighed wearily. `I think you might do something better with the time,' she said, `than waste it in asking riddles that have no answers.'

"Alice's Adventures In Wonderland" by Lewis Carr