FINRA Horse With No Name Named

Enforcement filed the Complaint with the Office of Hearing Officers on December 1, 2010, and Respondent filed his Answer on December 17, 2010. On May 17, 2011, Enforcement filed an Amended Complaint, and Respondent filed his Answer to the Amended Complaint on May 23, 2011

In three Causes of Action, Enforcement alleged that Respondent, while registered with FINRA-registered firm, [] ("the Firm"), knowingly made a false and misleading statement to the Firm's' chief compliance officer ("CCO") during a FINRA investigation into the use of stock finders by the firm. According to Enforcement, Respondent, then the co-head of the Firm's stock lending desk, falsely told the CCO that the Firm had never used a stock finder, when it had in fact used the services of Respondent's father, who was a stock finder. The CCO repeated the allegedly false information in the Firm's response to a FINRA request for information made pursuant to Rule 8210. Respondent reviewed the response letter, but did not correct the false information. Enforcement alleged that by knowingly providing false information that he knew would be included in an 8210 response, Respondent violated Rule 8210. Further, Enforcement alleged that Respondent continued to make false statements about the Firm's use of stock finders to the firm's compliance and legal personnel, thereby acting unethically and violating Rule 2110. Finally, Enforcement alleged that Respondent gave false on-the-record ("OTR") testimony to FINRA when he stated that the Firm had never paid a stock finder, thereby violating Rule 8210.

The hearing was held in New York City on June 28 and 29, 2011, before a hearing panel composed of the Hearing Officer and two former members of the District 10 Committee. Enforcement called as witnesses JF (former Firm CCO), Kristen Conway (a FINRA case manager), MO (former Firm general counsel), and Respondent. Respondent called JA (former Firm stock loan desk employee) and RL (former Firm stock loan desk employee). Nine of Enforcement's exhibits, four of Respondent's exhibits, and 11 joint exhibits were admitted into evidence.

After a thorough review of the record, the Hearing Panel finds that Enforcement failed to prove by a preponderance of the evidence that Respondent violated Conduct Rules 8210 and 2110 by providing false information to his firm and to FINRA. Accordingly, the Hearing Panel dismisses the Amended Complaint.

As an initial matter, the Sixth Amendment right to counsel -- which provides criminal defendants with the right to assistance of counsel, including the right to conflict-free counsel --  does not apply to FINRA disciplinary proceedings. The Securities and Exchange Commission has repeatedly held that respondents in FINRA disciplinary proceedings do not have a "constitutional or statutory right to the assistance of counsel." Moreover, courts have consistently held that the Sixth Amendment right applies only in criminal proceedings. As the subject of a FINRA investigation, the Respondent is allowed to be represented by counsel, but he does not have the "right" he claims was violated.

The Department o Enforcement ("Enforcement"), pursuant to FINRA Rule 9311, appeals a November 18, 2011 Hearing Panel decision that dismissed the amended complaint in this matter. The Hearing Panel found, among other things, that Enforcement failed to prove by a preponderance of the evidence that Dennis Thomas Palmeri. Jr. ("Palmeri") violated NASD Rules 8210 and 2110 by making a false statement to his firm, Ramius Securities, LLC ("Ramius"), or failing to correct a false statement, in connection with the firm's response to a Rule 8210 request for information issued during a FINRA investigation into the firm's use of stock finders.' After an independent review of the record, we affirm the Hearing Panel's findings, in part, and concur with its decision to dismiss the amended complaint.

[I]n the first cause of action. Enforcement alleged that Palmieri participated in his firm's false response to a request For information issued by FINRA pursuant to NASD Rule 8210. Specifically, Enforcement alleged that Palmeri falsely told .John Fiorello ("Fiorello"), the firm's chief compliance officer, that Ramius did not use stock finders, and Fiorello included that false statement in a draft response to the FINRA request for information. Enforcement further alleged that, when Palmeri reviewed the draft response prepared by Fiorello, Palmeri failed to tell Fiorello that the draft response was inaccurate and failed to correct the false statement before Fiorello sent the firm's response to FINRA staff. These actions, Enforcement alleged, violated NASD Rules 8210 and 2110, separately and distinctly.

conferred with Ramius's General Counsel and its Chief Operating Officer, both of whom were attorneys. Plaintiff alleged that the GC and the COO informed him they were "there as his counsel," allegedly leading plaintiff to believe that an attorney-client relationship was formed."

Ramius, which was then a client of defendant, would not accept any situation in which defendant was adverse to Ramius. At the same time, defendant noted that it did not foresee any set of circumstances in which plaintiff would be adverse to Ramius. Defendant sent plaintiff an engagement letter dated January 14, 2009; the letter made no mention of any conflict of interest arising from defendant's representation of both plaintiff and Ramius, nor did it enumerate the rights plaintiff would have if he and Ramius were to become adverse. Approximately one month afterward, in connection with the same FINRA investigation, Ramius also retained defendant to represent it and certain of its current or former employees. 

On or about January 27, 2009, defendant represented plaintiff during his investigative examination before FINRA. In June 2009, however, defendant informed plaintiff that defendant could no longer represent him because of a conflict of interest concerning defendant's concurrent representation of Ramius and its current and former employees, and unilaterally terminated its representation of him on June 25, 2009. By letter dated September 23, 2009 from defendant to FINRA, defendant appeared to shift to plaintiff all or most of the responsibility for any alleged violations of FINRA's rules.

In the complaint in this action, dated February 15, 2013, plaintiff asserted causes of action against defendant for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, gross negligence, professional negligence, breach of contract, and breach of the implied covenant of good faith and fair dealing. Plaintiff alleged that defendant, during its representation of Ramius in the FINRA investigation, shifted all responsibility for any alleged violations of FINRA's rules to him, suggesting that plaintiff undertook certain wrongful actions without Ramius's knowledge. Plaintiff further asserted that defendant disclosed to FINRA his internal, privileged communications with Ramius's counsel, thus causing FINRA to assert charges against Palmieri. Moreover, plaintiff alleged that defendant disclosed information that it had learned during the time it represented him. Plaintiff also alleged that the FINRA complaint was primarily based on privileged statements he had made to counsel at Ramius, and that these statements were also disclosed during the course of Willkie's representation of Ramius after it ceased representing him.

Defendant moved under CPLR 3212 to dismiss the complaint as time-barred and for failure to state a claim. Plaintiff cross- moved for summary judgment in his favor. In its decision, which it read into the record, the IAS court found that all six of plaintiff's claims were premised on the same operative facts and sought identical monetary damages. Accordingly, the IAS court "merged" plaintiff's claims for gross negligence, breach of contract and breach of the implied covenant of good faith and fair dealing into his legal malpractice claim, leaving for consideration only that claim and claims based on breach of fiduciary duty.

The IAS court then dismissed both claims as untimely. Because plaintiff sought purely monetary damages, the court applied the three-year statute of limitations to the breach of fiduciary duty claim, rather than the six-year period. The court held that the claim was time-barred, since plaintiff filed it in February 2013, more than three years after defendant represented him from January through June 2009.

should have permitted the breach of fiduciary duty claim to proceed. The IAS court correctly noted that the claim was subject to a three-year statute of limitations. The court was mistaken, however, in finding that the allegedly wrongful conduct ended on June 25, 2009, when defendant unilaterally terminated its representation of plaintiff. On the contrary, defendant's conduct extended through at least June 29, 2011, during which time it represented Ramius and its employees in their participation at plaintiff's FINRA disciplinary hearing.

Here, plaintiff alleges not only that defendant breached its fiduciary duty when it terminated its professional relationship with him, but also when, until at least June 2011, it acted in a manner directly adverse to his interests. Where there is a series of continuing wrongs, the continuing wrong doctrine tolls the limitation period until the date of the commission of the last wrongful act . . .

. . .

Here, plaintiff has presented evidence of a "continuing wrong," which is "deemed to have accrued on the date of the last wrongful act" (Leonhard v United States, 633 F2d 599, 613 [2d Cir. 1980], cert denied 451 US 908 [1981]; Harvey, 34 AD3d at 364). Indeed, the record contains evidence sufficient to create an issue of fact as to whether defendant breached its fiduciary obligations to plaintiff after June 2009 and well into June 2011 during its ongoing representation of the Ramius parties. 

For example, as noted, the record contains evidence that in the early portion of 2011, defendant helped Ramius identify witnesses who would testify against plaintiff at his FINRA disciplinary hearing. Similarly, defendant was present on behalf of Ramius and Ramius employees who testified at plaintiff's FINRA hearing on June 28 through 29, 2011 - a hearing at which the employees gave testimony that was generally adverse to plaintiff's interests. This evidence is sufficient for a fact-finder to determine that defendant breached its duty of loyalty to plaintiff, a former client (see Cooke v Laidlaw, Adams & Peck, 126 AD2d 453, 456 [1st Dept 1987] [ethical standards applying to the practice of law impose a continuing obligation upon lawyers to refuse employment in matters adversely affecting a client's interests, even if the client is a former client]).\

• FINRA
• OHO
• NAC
• Redacted
• Palmeri
• Rile 8210
• Stock Finder
• Attorney Client
• Right To Counsel
• General Counsel
• Outside Counsel
• Conflict
• Engagement Letter
• Statute of Limitations
• IAS
• Appellate Division
• Sixth Amendment
• BrokeAndBroker
• Bill Singer