Rochdale and Pershing Slugfest In $45 Million Rogue Trader FINRA Arbitration

March 9, 2016

Some folks like the smell of napalm in the morning; others like the smell of a Financial Industry Regulatory Authority intra-industry arbitration in which the Claimant first sought about $45 million in damages (subsequently reduced to about $32.8 million in damages). In today's Blog ya got it all. Ya got yer big bucks Statement of Claim. Ya got yer big bucks Counter-Claim and Third-Party Claim. Ya got yer lurid tale of fraud and deception. Ya got a criminal plea, a Securities and Exchange Commission case, and a bankruptcy. Ya got cash awards to the Claimant and the Respondent. Attorneys on all sides are making a killing. 

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2014, Claimant Rochdale Securities LLC requested $45 million in compensatory damages, which constituted

direct damages in an amount equal to the difference between the amount
credited to Claimant for its Apple position and the highest intermediate value of
Claimants Apple position within a reasonable time after the conversion; direct damages
in an amount equal to the losses Claimant incurred and would have avoided but for
Respondents breach plus the profit Claimant would have earned from selling its Apple
position had it been permitted to do so in the manner in which the parties allegedly
agreed; direct damages in an amount equal to the difference between the amount
credited to Claimant on account of the Fl Portfolio and the Fl Portfolio's highest
intermediate value within a reasonable time after conversion; damages in an amount
equal to the value of Claimants business as a going concern immediately before
Respondent allegedly destroyed its business; reimbursement for all of Claimants
FINRA fees and costs incurred in relation to this arbitration; pre-judgment interest
accruing at 9% from October 26, 2012 through the date of the award in accordance with N.Y.C.P.L.R. Section 5004; post-judgment interest from the date of this award through the date on which payment is made; and such further relief as the Panel deems just and proper.  

Claimant Rochdale Securities asserted conversion; breaches of contract and of the covenant of good faith and fair dealing; and commercially unreasonable and reckless liquidation. 
At the hearing, Claimant requested 9% per annum pre-judgment interest on these revised compensatory damages: 
  • $5,314,966.53 (Apple); 
  • $1,132,466 (FI Portfolio); 
  • $600,000 (Foxtrot); and 
  • $25,702,307.00 (Claimant's business).
In the Matter of the FINRA Arbitration Between Rochdale Securities, LLC, Claimant, vs. Pershing LLCRespondent v. Daniel Joseph Crowley, Third-Party Respondent (FINRA Arbitration Decision, February 23, 2016).

Denied And Raised

Respondent Pershing generally denied the allegations, asserted various affirmative defenses, filed a Counterclaim, and  filed a Third-Party Claim against Daniel Joseph Crowley. In its Counter- and Third-Party Claims, Pershing asserted breach of the Fully Disclosed Clearing Agreement and other wrongful and unreasonable conduct, including fraudulent conveyance. In its Amended Third-Party Claim, Pershing asserted failure to supervise, wrongful conversion, fraudulent misrepresentation, equitable fraud, and equitable estoppel. Pershing sought $513,157 plus interest, expenses, and fees among its various claims.


The FINRA Arbitration Decision asserts that around September 23, 2014, Claimant Rochdale filed for bankruptcy and, accordingly, all claims against the firm were stayed. Thereafter, by US Bankruptcy Court Order dated April 14, 2015, Pershing was granted relief from the stay for the purpose of liquidating its breach of contract counterclaims against Rochdale. 

SIDE BAR: For some background on the travails of Rochdale Securities, see:
    • "Rochdale Securities Trader Sentenced to 30 Months in Prison in Scheme Involving Apple Stock Purchase" (Press Release, U.S. Attorney's Office/ District of Connecticut / November 19, 2013). "As a result of this scheme, Rochdale was left holding approximately 1,623,375 shares of Apple. It promptly traded out of the position, but suffered a loss $5,292,202.50. Regulatory requirements subsequently prohibited Rochdale from continuing to trade securities, which led directly to its cessation of all business operations."

    • Chapter 11 Bankruptcy Petition (Connecticut Bankruptcy Court / September 23, 2014) 

    • "SEC Penalizes Morgan Stanley for Violating Market Access Rule" (SEC Press Release 2014-274 / December 10, 2014). "According to the SEC's order instituting a settled administrative proceeding, the rogue trader worked at Rochdale Securities LLC and routed to Morgan Stanley's electronic trading desk a series of orders to purchase Apple stock on Oct. 25, 2012.  The orders came steadily throughout the day and eventually tallied approximately $525 million worth of Apple stock, which significantly exceeded Rochdale's pre-set aggregate daily trading limit of $200 million at Morgan Stanley.  In order to execute the orders, Morgan Stanley's electronic trading desk initially increased Rochdale's limit to $500 million and later to $750 million without conducting adequate due diligence to ensure the credit increases were warranted.  Morgan Stanley's written supervisory procedures did not provide reasonable guidance for electronic trading desk personnel who determine whether or not to increase customer trading thresholds.  
      "According to the SEC's order, the rogue trader at Rochdale was using these orders to commit a fraud.  He had intentionally enlarged the amount of Apple stock an actual customer wanted to purchase from 1,625 shares to 1,625,000 shares.  The trader's scheme was to profit personally from the excess shares if Apple's stock price increased or claim the order size was merely an error if the stock price decreased.  As it turned out, Apple's stock price began dropping later that day, so the trader falsely claimed that he had made a mistake in placing order.  Rochdale was left holding the unauthorized purchase and suffered a $5.3 million loss. Rochdale subsequently fell below its net capital requirements to trade securities, and ceased all business operations last year."


The FINRA Arbitration Panel Decision found Respondent Pershing liable to and ordered it to pay to Claimant Rochdale:
  • $832,000 in attorney's fees; and
  • $100,000 in expert witness fees
Also, the arbitrators ordered that Pershing pay to Rochdale 9% prejudgment interest from the dates noted below until the Awards are paid on the $5,762,993 in compensatory damages indicated below:
  • Apple: $2,030,527.00 plus interest from October 26, 2012;
  • FI Portfolio: $1,132,466.00 plus interest from October 29, 2012; 
  • Foxtrot$600,000.00 plus interest from October 29, 2012; 
  • Damages on Claimant's Business: $2,000,000.00 plus interest from October 26, 2012. until paid in full.

Separately, the FINRA Arbitration Panel found Rochdale liable to and ordered it to pay to Counter-Claimant Pershing $513,157.00 in compensatory damages plus 9% per annum interest from October 30, 2012 until paid in full; and $113,719.32 in attorneys' fees. 

The FINRA Arbitration Panel denied Respondent Pershing's Third-Party Claim.

Bill Singer's Comment

So . . . waddawe got here? 

Claimant Rochdale ultimately sought about $32.8 million dollars in compensatory damages and was awarded about $5.7 million (if you toss in about $1 million in fees, then it's about a $6.7 million payday). Okay, sure, the FINRA Arbitration Panel awarded Claimant about one-fifth of what it asked for but, c'mon now, you know that we lawyers often add one or two zeros to our damage claims. Even if you off-set Claimant's award by the roughly $626,000 in damages and fees awarded to Pershing, it's an impressive pot.  Keep in mind, however, that Rochdale was hammered by the dubious trading of a former trader and filed for voluntary bankruptcy; so, no, this isn't exactly a happy ending.

Sadly, the Rochdale Arbitration Decision titillates us with dollar signs and lurid allegations but there isn't much else to go on. We're never quite told in the Arbitration Decision the specifics of what Pershing did (or didn't do) that exposed the firm to the resultant seven-figures in damages. Similarly, we're not offered any guidance what Rochdale did (or didn't do) that entitled Pershing to a six-figure award.  Frankly, if you remove all the outside information dug up by Blog publisher Bill Singer, Esq., you wouldn't have much, if anything, by way of content or context in this decision.