Bond Trader Barred by FINRA Wins Arbitration For Unpaid Wages

July 26, 2017

Today's Blog is a smorgasbord. Ya got FINRA in its role as a self-regulatory organization. Ya got FINRA in its role as an arbitration forum. We got the arbitration being appealed to a federal district court. We got the arbitration on appeal to a federal circuit court.  At the center of this arbitration, litigation and regulatory buffet is former bond trader, who partially prevailed as the Claimant in his FINRA intra-industry arbitration but, thereafter, found himself barred by FINRA after refusing to cooperate in a regulatory investigation. As the various currents of this story ripple, we find ourselves amid a swirl of questions about what was known, by whom, when. Did the former bond trader commit perjury when answering questions during his arbitration about FINRA's regulatory investigation -- or did Claimant accurately disclose what he knew when he knew it? Prepare yourself for a bumpy ride!

Enter Stage Left: Ackerman The Bond Trader

By way of a brief introduction, Respondent Bret Ackerman worked as a bond trader for FINRA member firm Odeon Capital Group LLC, for about three years before he was discharged on March 10, 2014. Online FINRA BrokerCheck files as of July 26, 2017, disclose that Ackerman was first registered in 2001 and by May 2011, was registered with Odeon Capital.

2015 FINRA Arbitration

The Claims

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in June 2014,Claimant Ackerman asserted breaches of employment agreement and of the covenant of good faith and fair dealing; violation of New York Labor Law; tortious interference with the employment agreement; violation of the New York City Human Rights Law; unlawful retaliation for having exercised his rights under the Family and Medical Leave Act; disability discrimination; wrongful termination; retaliation; unjust enrichment; and maliciously filing a false and damaging Form U5. Claimant Ackerman sought $5,000,000 in compensatory damages, economic and punitive damages, interest, liquidated damages, and attorneys' fees as provided under New York Labor Law, New York City Human Rights Law, and the Family Medical Leave Act. Also, Claimant sought an expungement of the matter from his industry record. In the Matter of the FINRA Arbitration Between Bret Ackerman, Claimant, vs. Bonwick Capital Partners, LLC Odeon Capital Group LLC, Evan Schwartzberg, and Mathew Van Alstyne, Respondent (FINRA Arbitration 14-02042, November 20, 2015).

The Defenses

Respondents generally denied the allegations and asserted various affirmative defenses. Respondent Odeon filed a Counterclaim asserting unjust enrichment and seeking over $100,000 in compensatory damages.

The Arbitrators Findings

The FINRA Arbitration Panel denied Claimant Ackerman's statutory discrimination claims and his claims against Respondent Bonwick.

The Panel found Respondent Odeon, Respondent Schwartzberg, and Respondent Alstyne jointly and severally liable and ordered them to pay to Claimant Ackerman:

  • $1,102,193 in compensatory damages based upon unpaid and owed wages with 9% interest from November 1, 2012, until paid in full'
  • $247,532 in attorneys' fee per New York Labor Law; and
  • $21,349.25 in costs.

The Panel denied Odeon's Counterclaim and Respondent Bonwick's request for attorneys' fees.

The Panel retained the "Reason for Termination" but recommended the expungement of the "Termination Explanation" on Claimant Ackerman's Form U5 as filed on April 7, 2014 by Respondent Odeon. The Panel recommended that the explanation be deleted and amended to state:

Continual disagreements over compensation and job duties interfered with the employer's ability to conduct business in a collegial and effective manner.


Following the November 2015, FINRA Arbitration Decision, Ackerman entered into a regulatory settlement with the self-regulatory-organization in February 2016, For the purpose of proposing a settlement of rule violations alleged by FINRA, without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Ackerman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Bret Michael Ackermen, Respondent (AWC #2016048589901, February 26, 2016). As stated in the "Summary" section of the AWC:

In connection with an investigation being conducted by FINRA's Department of Market Regulation ("Market Regulation"), Ackerman refused to appear for testimony that was requested pursuant to FINRA Rule 8210. Ackerman's refusal to appear and testify violated FINRA Rules 8210 and 2010.

In accordance with the terms of the AWC, FINRA imposed upon Ackerman a Bar from association with any FINRA member in any capacity.

SIDE BAR: Let me highlight the timeline:
  • 2014: Ackerman filed his intra-industry arbitration Statement of Claim;
  • 2015: the FINRA Arbitration Decision was rendered; and
  • 2016: Ackerman entered into a FINRA AWC settlement.

2016 SDNY Opinion and Order

Motion to Vacate and Remand

Arbitration Respondents Odeon Capital, Van Alstyne, and Schwartzberg petitioned the New York State courts to vacate the FINRA Arbitration Panel's award of unpaid wages to Ackerman and to remand that much of the case to a new FINRA Arbitration Panel. In response, Ackerman's moved to remove the appeal to the United States District Court for the Southern District of New York ("SDNY") and moved to confirm his arbitration award.  The matter was removed to SDNY. Odeon Capital Group LLC, Mathew Van Alstyne, and Evan Schwartzberg, Petitioners, v. Bret Ackerman, Respondent (Opinion and Order, SDNY, 16-CIV-274, Rakoff, J., April 25, 2016).  

SDNY denied the motion to vacate and confirmed the FINRA arbitration award.  Although SDNY awarded Ackerman costs, it denied the award of attorneys'' fees attendant to seeking the confirmation because the Petitioners were not found to have acted "without justification" in seeking a vacatur.

Refusing to Hear Evidence, Manifest Disregard of the Law, and Fraud

In framing Petitioners' appeal, SDNY offers the following:

Here, Petitioners claim (1) that the arbitration panel committed misconduct in "refusing to hear evidence pertinent and material to the controversy" and in "refusing to postpone the hearing, upon sufficient cause shown," 9 U.S.C. § 10(a); and (2) that the arbitrators acted in manifest disregard of the law in rendering the wage award, calculating attorneys' fees, awarding prejudgment interest on the wage award beginning in November 2012, and imposing joint and several liability against the Petitioners without clarifying that Mr. Ackerman must first seek payment from Odeon before seeking recovery from Odeon's members Van Alstyne and Schwartzberg. See Pet. Br. at 19-31; Reply in Support of Petition to Vacate and in Opposition to

Cross-Motion to Confirm Arbitration Award ("Pet. Reply Br.") at 8-9. Petitioners also seek to amend their original petition to include as an additional basis for vacatur that the award was "procured by corruption, fraud, or undue means" within the meaning of the FAA, 9 U.S.C. § 10a). . .

Page 6 of SDNY Opinion

Belated Damages Calculations

In presenting their appeal to SDNY, the Petitioners complained that the FINRA Arbitration Panel had allowed Ackerman to introduce belated damages calculations pertaining to transactions for which he claimed he had not been paid or underpaid. By entertaining Ackerman's late presentation, the Petitioners asserted that the arbitrators had prejudiced their ability to adequately respond. In more colloquial terms, the Petitioners argued that Ackerman bushwhacked them and the arbitrators were complicit by sandbagging them when they permitted Ackerman's alleged misconduct.

Fundamental Fairness

In considering Petitioners' arguments about the introduction of allegedly prejudicial evidence in a belated manner, SDNY indicated that it would approach such assertions by determining whether the Panel's conduct in handling the evidentiary dispute constituted violations of "fundamental fairness." SDNY found that the arbitrators' decisions did not improperly prejudice the Petitioners:

According to the arbitration panel, therefore, Petitioners had access to information about the trades that Mr. Ackerman had executed and could have analyzed these transactions to determine whether, and to what degree, Mr. Ackerman was underpaid. This determination by the arbitrators also affected their willingness to allow Mr. Ackerman and his expert to present their damages calculations at several junctures soon before and during the hearing, as well as the arbitrators' view that Petitioners were not deprived of a sufficient opportunity to respond to Mr. Ackerman's damages claims.

Page 10 of the SDNY Opinion

Ackerman Not Blameless

In declining to find the arbitrators conduct constituted a denial of "fundamental fairness," SDNY conceded that it did "not find Respondent to be blameless in the timing of his production;" nonetheless, the Court did allow that the Petitioners appeared to have been on notice of a "wide array of trades," which apparently lessened the detriment caused by any untimely production.  Although SDNY disapproved of Ackerman's evidentiary dawdling, the court refused to accept Petitioners' assertion that his subsequent disclosures materially sandbagged them. It appears that SDNY believed that Ackerman's pleading was done with such wide brushstrokes as to put Respondents on notice that the scope of trades at issue would be expansive, which should have put them on further notice of the expansive nature of likely damages (and the need to calculate same). As such, SDNY may have viewed Ackerman's belated introduction of damages calculation as more a matter of annoyance than a material surprise that raised a fundamentally unfair scenario.  

Not a Ringing Endorsement

Regardless of SDNY's tolerance for the gamesmanship inherent in most litigation, the Court offers a reluctant endorsement of the FINRA Arbitration Panel's conduct rather than a robust affirmation. SDNY's lukewarm and grudging affirmation is demonstrated by this conclusion:

In sum, the arbitrators did not necessarily make the same determinations on the admission of evidence and timing that this Court would have made if considering the issues de novo. But a petition to vacate is not an occasion for de novo review. See Wallace, 378 F.3d at 189.

Page 12 of the SDNY Opinion

1 of 11

SDNY rejected the arguments that the FINRA arbitrators had manifestly disregarded the law.  In addressing one such argument involving the Panel's award of all requested attorneys' fees by Ackerman when he only prevailed on one out of 11 causes of action, SDNY found that the FINRA Arbitration Panel had "at least a 'barely colorable justification'" for declining to parse the fees among each of 11 causes.

What Did He Know And When Did He Know It?

Ackerman's February 2016 FINRA AWC and the attendant Bar did not escape the notice of the Petitioners. After all, when the FINRA arbitrators had issued their November 2015 Decision, the AWC had not been finalized and the Bar had not been imposed. What impact, if any, should such an after-the-fact regulatory settlement have on the prior conduct of the arbitration? As set forth in the SDNY Opinion:

According to Petitioners, Mr. Ackerman committed perjury in front of the arbitration panel by testifying, in response to the arbitrators' questions, that a FINRA investigation into some of his bond transactions was not still pending, and that FINRA took no action regarding these trades. See Pet. Letter at 3-4. In fact, Petitioners state, the FINRA investigation was still pending, and on February 22, 2016, Mr. Ackerman executed a Letter of Acceptance, Waiver and Consent with FINRA, in which he acknowledged that he had refused to appear for testimony in front of FINRA and agreed to be barred "from association with any FINRA member in any capacity." See Pet. Letter at 4; Pet. Letter, Exhibit A, Dkt. 23-1. Petitioners assert that Mr. Ackerman's allegedly false testimony bolstered his credibility in front of the arbitration panel, making them more likely to accept his assessment of the compensation he believed he was owed . . .

Page 16 of the SDNY Opinion

As to the argument that Ackerman had allegedly perjured himself concerning the FINRA regulatory investigation, SDNY addressed that issue by deeming the:

crucial issue is whether any allegedly false testimony by Mr. Ackerman was material to the arbitration panel's award of damages for unpaid wages, which Petitioners are contesting in the instant petition to vacate the award. The Court finds that Mr. Ackerman's testimony regarding the FINRA investigation was not material to the award. In particular, the Court finds implausible Petitioners' suggestion that Mr. Ackerman's responses to questions about the FINRA investigation materially bolstered Mr. Ackerman's credibility in making an unpaid wages claim to which the FINRA matter does not relate. The Court therefore declines to permit Respondent to amend its petition to include as a ground that the arbitration award was procured by means of fraud. The Court hence denies Petitioners' petition to vacate the award in its entirety. Since the Court has decided not to vacate or modify the arbitration award, the Court must grant Respondent's petition to confirm the award, and so it hereby does. See 9 U.S.C. § 9.

Page 17 of the SDNY Opinion

No Attorneys' Fees

Finally, SDNY awarded Ackerman his costs but denied an award of attorneys' fees in confirming the FINRA arbitration because Petitioners did not act without justification is seeking a vacatur.

2017 2Cir Opinion

Next stop, the United States Court of Appeals for the Second Circuit ("2Cir'). Odeon Capital Group LLC, Mathew Van Alstyne, and Evan Schwartzberg, Petitioners/Appellants-Cross-Appellees, v. Bret Ackerman, Respondent-Appellee-Cross-Appellant (Opinion and Order, United States District Court for the 2Cir, 16-1545-CV 16-1717-CV, July 21, 2017):

We hold that to vacate an arbitration award on the ground that the award was fraudulently procured, the petitioner must demonstrate the fraud was material to the award. That is, there must be a nexus between the alleged fraud and the decision made by the arbitrators. The petitioner, however, need not demonstrate that the arbitrators would have reached a different result. In this case, Odeon failed to establish that Ackerman's alleged perjury had any impact on the arbitration award. The district court therefore correctly denied the petition to vacate.  

The district court also denied Ackerman's request for attorneys' fees incurred in defending the arbitration award, and Ackerman cross‐appeals from that denial. We agree with Ackerman that the district court applied the wrong legal standard in denying his fees request. The district court based its denial on the ground that the petition to vacate was not unjustified, such that the court's invocation of its inherent powers to make a fees award was unwarranted. However, New York law provides statutory authority for Ackerman's fees request. Where, as here, an employee prevails against an employer on a claim for unpaid wages, New York law mandates that the employee recover "all reasonable attorney[s'] fees." N.Y. Labor Law § 198(1‐a).  We therefore vacate the denial of attorneys' fees and remand for further proceedings consistent with this opinion.

Pages 5 -6 of 2Cir Opinion

2014 FINRA Investigation

The 2Cir Opinion offers the following additional content and context as to the alleged perjury by Ackerman:

[D]uring his testimony, Ackerman was asked  about an on‐the‐record interview ("OTR") request FINRA sent him in April 2014. The OTR sought to interview Ackerman regarding a variety of trades he made while working at Odeon in 2011.

Odeon alleges that Ackerman committed perjury at least twice during this portion of his testimony. First, Odeon's counsel asked whether the investigation that was the subject of the OTR was still pending, and Ackerman testified "No." App'x at 983. Second, Ackerman testified that, during his OTR, he asked the FINRA investigators whether there was anything improper with the bond trade  in February 2014 that formed the basis of his retaliation claim:  

Bret Ackerman: I had brought it up with their investigators asking them about it. As they were asking about other 10 trades from late 2011[,] 2012 and they told me - I asked them is there anything improper with this and they said, "There's nothing improper with it[."]

[Arbitrator]: Just to be clear, FINRA took no action?

Bret Ackerman: Correct.

Pages 6 -7 of the 2Cir Opinion

The 2Cir Opinion offers further content and context concerning FINRA's investigation and the subsequent AWC:

[W]hile the petition to vacate was pending, Ackerman had received a letter from FINRA requesting a second OTR regarding his 2011 trades to be held at its offices in Maryland. The FINRA letter came roughly one month after the arbitration ended. By then, Ackerman no longer worked as a trader and had moved to California. Ackerman declined to travel to Maryland for a second OTR, and instead accepted a ban from working as a securities trader. To that end, he entered into a letter of acceptance, waiver, and consent ("AWC") with FINRA.

Odeon learned of the AWC in March 2016, and sought to amend its petition to vacate to add fraud as an additional ground for vacatur. Odeon argued that the second request for an OTR established that Ackerman committed perjury during the arbitration. Specifically, Odeon argued that Ackerman "misled the arbitration panel concerning the status and outcome of a FINRA regulatory investigation into his trading activity" by falsely testifying that "(i)  FINRA affirmatively told him that there was ‘nothing improper' about his trading activity, and (ii) the FINRA investigation into his activities was closed." App'x at 1552. Ackerman opposed the motion, arguing his testimony before the arbitration panel was truthful.

Pages 8 - 9 of the 2Cir Opinion

Grain of Salt

In affirming SDNY, 2Cir explains that:

[N]othing in the award indicates that the arbitrators relied heavily on Ackerman's truthfulness in making its award. Indeed, given that Ackerman sought damages in excess of five million dollars and received roughly one‐fifth of that amount, and that Ackerman prevailed on just one of his eleven claims, it appears the arbitrators took most of what Ackerman said with a grain of salt. Accordingly, we affirm the district court's finding that the alleged perjury was immaterial to the arbitration award.

Page 16 of the 2Cir Opinion

Remand for Attorneys' Fees

In a clear-cut victory for Ackerman, 2Cir disagreed with SDNY's denial of attorneys' fees and vacated that aspect of the SDNY Opinion and Order and remanded back to that court for calculation of the proper fees. 2Cir explained that:

[A]ckerman sought fees pursuant to the district court's statutory powers under New York Labor Law, not its equitable powers. New York Labor Law § 198(1‐a) provides in relevant part that "[i]n any action instituted in the courts upon a wage claim by an employee . . .  in which the employee prevails, the court shall allow such employee to recover . . .  all reasonable attorneys' fees." The arbitrators specified Ackerman's award was for "compensatory damages based on unpaid wages" and attorneys' fees "pursuant to New York Labor Law." App'x at 46‐47.  

Odeon argues that because Section 198(1‐a) does not specifically state that that fees are due in an action to confirm or enforce an arbitration award, it does not mandate fees here. We disagree. New York's Civil Practice Law and Rules define "action" to include a "special proceeding," N.Y.C.P.L.R. § 105(b). Applications to confirm, vacate, or modify arbitration awards are made through special proceedings . . .

Page 18 of the 2Cir Opinion

Unreasoned Decision

Perhaps more content and context in the FINRA Arbitration Decision might have helped the Petitioners. One infers from the SDNY Opinion more than a bit of ambivalence from the bench about the FINRA hearings and some of the arbitrators' rulings. In fairness, more rationale and a more expansive statement of facts may have helped buttress Ackerman's case but for the fact that he won an award -- but note that he prevailed on only one of 11 causes of action. Who knows if a FINRA Arbitration Decision might have provided Ackerman with the basis to seek the vacatur of the award and to argue that he should have prevailed on more counts and, accordingly, been awarded more damages. As to where to apportion the blame for why the FINRA Arbitration Decision offers less insight, 2Cir notes this interesting observation:

Neither party asked for a reasoned decision from the arbitration panel. Accordingly, the award does not provide any sort of rationale or explanation for how the panel arrived at its damages award of $1,102,193.00. There is simply no basis in the record to find that Ackerman's testimony regarding the FINRA investigation played any role in the arbitrators' award on his unpaid wages claim.

Page 13 of the 2Cir Opinion

Bill Singer's Comment

FINRA arbitration is a "private" means of alternative dispute resolution ("ADR") and, as such, the parties have every right to insist upon the confidentiality of certain facts. Notwithstanding such a tacit understanding, a mandatory arbitration forum, which FINRA's ADR forum is for both industry participants and public customers, must acknowledge something of an obligation to provide sufficient content and context in its decisions so as to provide intelligible guidance to those essentially trapped within the system.  The adequacy of FINRA's arbitration decisions is most critical when the parties appeal to the courts in order to obtain confirmation or vacatur of an award. A less critical but important consideration is that a given forum's decisions provide important guidance to future litigants about how particular facts are weighed and the nature of monetary and non-monetary awards. Although veteran arbitration lawyers know that there is no precedential value from one arbitration award to another that does not negate the importance of presenting sufficient content and context.  

In "Explained Arbitration Decisions / SEC Approves Amendments to Require Arbitrators to Provide an Explained Decision at Parties' Joint Request" (FINRA Regulatory Notice 09-16 / March 2009), we learn the following in pertinent part [Ed: Footnotes omitted]:

Background & Discussion

FINRA is amending its Customer Code and Industry Code to require arbitrators to provide an explained decision at the parties' joint request. The absence of explanations in awards has been a common complaint of non-prevailing parties in FINRA's arbitration forum, especially customers and associated persons. The amendments are intended to address this complaint and increase investor confidence in the fairness of the arbitration process.

An explained decision is a fact-based award stating the general reasons for the arbitrators' decision. It does not need to include legal authorities and/or damage calculations. Normally, the arbitrators will be resolving the entire matter; thus, the explained decision will address all the claims asserted by the parties. However, the parties may request that an explained decision address only certain claims.

Parties will be required to submit any joint request for an explained decision no later than 20 days prior to the first scheduled hearing date.

The chairperson of the arbitration panel will write the explained decision and will receive an additional honorarium of $400. Once the decision is drafted, the other arbitrators will participate in completing the decision as provided in Rules 12904(a) and 13904(a). As with all other awards, the arbitrators will continue to be permitted to concur, concur in part, dissent or dissent in part. The panel may allocate the cost of the honorarium to one party, or may allocate it between or among all parties. Arbitrators will continue to be permitted to decide, on their own, to write an explained decision. If the panel or a member of the panel decides to write an explained decision in the absence of a joint request, FINRA will not pay an additional honorarium to any panel member.

Parties will not be able to require explained decisions in simplified arbitrations that are resolved without a hearing or in default proceedings. Explained decisions are not appropriate in either of these situations because of the abbreviated nature of the proceedings.

The amendments become effective on April 13, 2009, and will apply to all arbitration cases in which an initial prehearing conference has not been held, or waived by the parties, by the effective date.

If, in fact, all parties to a FINRA arbitration desire a given level of non-disclosure of facts and rationale, then so be it. I'm a free-market advocate and all for whatever is a bargain among equal parties (as long as it's legal). That being said, a given FINRA Arbitration Decision should at least disclose that the extent to which the facts and rationale in the decision are presented comport with the desire of all parties. I would not take issue with any minimalist content/context accompanied by such a disclosure.

FINRA's response to complaints about "the absence of explanations in its awards," strikes me as little more than a cynical, cosmetic remedy. An explained decision requires the submission of a request from all parties. That's nonsense since many arbitrations involve issues that FINRA member firms particularly desire to keep confidential, which was the main driving force behind mandatory intra-industry and public customer arbitration. Apparently, FINRA sees nothing inappropriate in charging extra for an "explained decision," which means that the default byproduct of its arbitrations is an "unexplained decision." Wow, now there's an aspirational goal! What a lovely plaque FINRA must present to its veteran arbitrators: For 10 Years of Exemplary Service as an Arbitrator Rendering Unexplained Decisions.

To exacerbate matters, FINRA has cynically embedded a $400 so-called "honorarium" as the price of obtaining what should be provided as the default decision and should always be provided at no extra cost. The problem with that honorarium is that it imposes a further financial burden on parties seeking an explained decision and may well prevent/retard thesua sponte action of the FINRA Arbitration Panel to voluntarily provide a rationale for itsAward. If you're going to try and tell me that it's "only" $400 and not that big a deal, great, let FINRA pay the fee out of its own pocket since it's no big deal.

Imagine how unseemly it would be if you filed a civil suit in court and the judge charged you $400 to render a written decision? Keep in mind that FINRA charges all sorts of filing fees, hearing fees, and forum fees in addition to this $400 honorarium, which is typically a payment to a professional for services that are generally not charged for by that individual. Sort of like a mandatory 20% gratuity at a fancy restaurant. I never quite understand why I must pay a minimum gratuity -- particularly after I have given lackluster service. "Must" and "gratuity" seem mutually exclusive. Similarly, I sure as hell don't like having to pay an honorarium for something that should be included in the overall forum costs. To be fair to FINRA, at one time China used to charge the families of executed prisoners for the cost of the bullet, so there is some precedent for charging parties for a written explanation of an arbitration decision (he says with dripping sarcasm . . . step back so you don't get burned).