Harbour and Geneos Customers Win FINRA Arbitration Against Stockbroker

September 19, 2017

Two public customers were angered by the misconduct of their servicing stockbroker and what they perceived to be the negligent oversight of his employers. As is often the case with such unhappiness, the customers sued and their case was adjudicated before a FINRA Arbitration Panel. As BrokeAndBroker.com Blog publisher Bill Singer, Esq. demonstrates, there is one level of content and context provided in FINRA's Arbitration Decisions, but, if you start asking questions and doing some research, you often find a whole different level of content and context out there in the real world.

Should FINRA's Decisions always disclose everything even remotely relevant to a party's background? Frankly, as nice as that would be, it's just not practical. Is there a reasonable standard by which arbitrators should determine what should and should not be disclosed in their decisions? Again, that's probably an elusive and subjective goal. Reasonable or not, elusive or not, Bill Singer will continue to do what he does best -- the whole agent provocateur thing. In his beloved role of FINRA gadfly, Bill presents us with a seemingly mundane customer arbitration and then delivers some details not set forth in the FINRA Arbitration Decision that will likely widen your eyes and leave your mouth agape. Bill is available for all sorts of parties and functions. Ask for his rates.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2015, public customer Claimants Izmirian and Ingwaldson asserted breach of fiduciary duty, gross negligence, violations of federal and state securities laws, respondeat superior, violation of the Minnesota Consumer Protection Act, conversion, intentional infliction of emotional distress, and money had and received. Claimants alleged that:

[H]olt mismanaged their accounts, including the recommendation to purchase a Jackson Life Annuity, resulting in surrender costs from the liquidation of a Hartford Annuity. Claimants further alleged that Geneos and Harbour failed to properly supervise Holt, allowing Holt to steal Claimants' funds and provide false account statements to Claimants.
    Claimants sought at least $100,000 in compensatory damages plus punitive damages, interest, fees, and costs. In the Matter of the FINRA Arbitration Between Peter Izmirian and Sandra Ingwaldson, Claimants, vs. Harbour Investments, LLC, Geneos Wealth Management, Inc., and Mark David Holt, Respondents (FINRA Arbitration 15-00680, September 8, 2017).  

    Respondent Holt, who represented himself pro se, and Respondent Harbour each generally denied the allegations and asserted various affirmative defenses.  Respondent Geneos did not submit an executed Submission Agreement.  


    Claimants settled with Respondent Geneos in 2015 and Respondent Harbour in 2016.

    Motions and Hearings

    In March 2016, Claimants requested summary judgement against Respondent Holt and filed a Motion for Default Proceedings against him, which the FINRA Arbitration Panel denied. Thereafter, Respondent Holt filed Motions to Dismiss, which the Panel denied.

    In April 2016, the Claimants filed a Motion to Convert the Default Judgment into a Motion for Summary Judgment, to which Respondent Holt objected. The Panel found that both Claimants and Respondent Holt had been deficient in conducting discovery and other duties. The Panel denied the motions and ordered Claimants to notify FINRA of their intent to continue their case. Claimants requested the renewal of their Motion for Summary Judgement, to Set Hearing Dates, and for Counsel to Appeal Telephonically, all of which the Panel denied.

    The FINRA Arbitration Panel scheduled a hearing to determine damages on June 13, 2017, at which Respondent Hold did not appear. I'm not sure that I fully follow how we went from the Panel's denial of what appeared to be all outstanding motions and requests to a hearing of damages-only-determination but that's what seems to have transpired. As noted in the FINRA Arbitration Decision:

    [H]olt was not present at the hearing, as he is currently incarcerated.

    At the final hearing on June 13, 2017, Arbitrator Ahlm did not appear. The parties present agreed on the record to proceed with the majority of the Panel.


    The FINRA Arbitration Panel of the two remaining arbitrators found Respondent Holt liable and ordered him to pay to:

    Claimant Izmirian: $159,389.86 in compensatory damages with 6% interest until paid in fullplus $100,000 in punitive damages; and

    Ingwaldson: $118,255.74 in compensatory damages with 6% interest plus $100,000 in punitive damages.

    Bill Singer's Comment

    No . . . I did not present today's case for its underlying allegations or fact pattern but as an exposition of the procedural issues that often come up in such public customer cases. As evidenced in this matter, parties often engage in extensive motion practice, sometimes in good faith and sometimes as a war of attrition. Similarly, Claimants and Respondents alike (and sometimes even arbitrators) don't always show up or participate in the arbitration process. None of which is necessarily intended as a criticism but all of which is meant to convey the realities of lawsuits. Once you sue, it's rarely about straight lines and accelerated movement; to the contrary, you find yourself engaged in detours, delays, and foot-dragging.

    According to FINRA's online BrokerCheck records as of September 19, 2017, Holt was first registered in 1998 and was employed by Harbour from August 2007 to August 2005, by Geneos from August 2005 to February 2007, and, then again, by Harbour from February 2007 to November 2013.

    BrokerCheck further discloses four final regulatory events; one criminal event; two pending and three final customer disputes; two final terminations; and one pending judgment/lien.

    Under the heading "Customer Dispute -- Award/ Judgment" on Holt's BrokerCheck records, the Izmirian and Ingwaldson arbitration as set forth for FINRA Arbitration Docket Number 15-00680 is disclosed as having been settled in 2016 by Respondent Harbour for $125,000 and $50,000 payments. Under  the heading of "Customer Dispute -- Settled," however, the same FINRA Arbitration Docket Number 15-00680 is disclosed as having also settled in 2015 for $85,000. This discrepancy may be attendant to the separate settlements by Respondent Harbour and Respondent Geneos.

    Holt's BrokerCheck records also disclose a discharge on November 8, 2013, by Harbour after the firm was allegedly notified by a former customer about some purported diversion of a check to payee Harbour.

    As more fully set forth In the Matter of Mark D. Holt a/k/a Markd D. Holthusen (Order Making Findings and Imposing Remedial Sanctions; '34 Act Rel. No. 80459; Invest. Adv. Act Rel. No. 4686; Admin. Proc. File No. 3-17685 / April 13, 2017), we learn that Holt was Barred from the industry and from participating in penny-stock offerings. As more fully stated in the SEC Order::

    1. From August 2005 to February 2007, Holt was a registered representative of Geneos Wealth Management, Inc., a dually-registered broker-dealer and investment adviser registered with the Commission. From February 2007 to November 2013, Holt was a registered representative of Harbour Investments, Inc., a dually-registered broker-dealer and investment adviser registered with the Commission. Holt, 47 years old, is currently incarcerated at the Federal Correctional Institution in Oxford, Wisconsin (BOP Registry No. 17865-041).

    2. On April 1, 2014, Holt pleaded guilty to one count of felony wire fraud in violation of Title 18 United States Code, Section 1343 before the United States District Court for the District of Minnesota, in United States v. Mark D. Holt, Crim. Information No. 14-CR-68. On August 14, 2014, a judgment in the criminal case was entered against Holt. He was sentenced to a prison term of 120 months followed by three years of supervised release and ordered to make restitution in the amount of $2,940,982.75.

    3. The count of the criminal information to which Holt pled guilty alleged, among other things, that from in or about September 2005 through January 12, 2014, Holt defrauded his customers to obtain their property and money. In particular, Holt knowingly caused an email communication to be transmitted in interstate commerce via servers in Texas to a client in Minnesota that would give the client access to false account statements. Holt represented to his brokerage clients that he would invest their funds in investment vehicles such as bond funds and mutual funds. Instead, Holt misappropriated their funds by depositing client checks into a bank account he controlled and using these funds to pay for personal and business expenses. In furtherance of his scheme, Holt lulled his clients into believing that he had purchased various investments for them by sending fraudulent Morningstar client summaries and creating online client accounts using Blue-leaf, a web-based portal, that displayed fraudulent account balances. Additionally, Holt made monthly payments to his clients that were intended to appear as interest or annuity payments.

    There are those supporters of the FINRA mandatory arbitration process who will find no fault with the lack of detail in the FINRA Arbitration Decision. Such a short-fall is dramatized by the further disclosures noted in my comments above. Those who defend the alternative dispute resolution process will argue that Holt's status as a lawyer, his history of customer complaints, his regulatory history, and his criminal history are not particularly relevant or germane to the customer disputes at issue. Okay, fine -- let's go with that. On the other hand, you must admit that the additional facts that I have presented in today's BrokeAndBroker.com Blog add content and context that places the customers' allegations in a very different light, one that I would suggest is rendered compelling by the additional color.