Customer and Brokerage Firm Agree: I Wuz Robbed!

July 1, 2018

In today's featured arbitration, we got an unhappy public customer complaining that he was duped by his stockbroker into an investment that was beset by fraud. Frankly, the customer seems to have had a point. Turns out that the broker-dealer filed its own claim against the stockbroker "for his acts of theft." When your best defense admits that the complaining customer was the victim of theft and you file your own claim seeking to be made whole from by the same thief, there's not that much to do beyond write out a settlement check to the customer.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in June 2017, Claimant Pannecouk asserted failure to supervise, common law negligence, breach of contract, breach of fiduciary duty, respondeat superior, and state securities fraud. The FINRA Arbitration Decision states, in part, that:

[T]he causes of action related to Claimant's allegation that Romer advised Claimant to invest in oil UITs through a company identified as P&R Capital. Claimant asserted that P&R Capital was a company owned by Romer and that funds Claimant submitted for investment in oil UITs were classified falsely by CoreCap as a loan.

Claimant Pannecouk sought $80,000.00 - $160,000.00 in compensatory damages; punitive, additional, or alternative damages; interest; rescission; costs; and attorneys' fee. .In the Matter of the FINRA Arbitration Between Gary L. Pannecouk, Claimant, vs. CoreCap Investments, Inc., Raymond Max Pett, and Judith Andrea Villarreal, Respondents / Third-Party Claimants, v. Ernest Julius Romer, Third-Party Respondent (FINRA Arbitration 17-01710, June 28, 2018).

Respondents CoreCap, Pett, and Villarreal generally denied the allegations, asserted various defenses, and filed a Third-Party Claim against Romer in which they asserted breach of contract and indemnification. The Third-Party-Claimants alleged hat Romer is contractually obligated to indemnify them "for his acts of theft which constitute misconduct under the Representative Agreement, which governed his relationship with CoreCap." Third-Party-Claimants requested that Romer be required by pay the full amount of any award entered against them as Respondents plus interest, costs, and fees. At the close of the hearing on the third-party claim, CoreCap requested $57,500.00 in damages against Romer. CoreCap did not pursue any other request for damages. Pett and Villareal pursued their requests for expungement at the hearing and did not seek other relief.

Romer did not file a Submission Agreement and did not appear at the evidentiary hearing.


The FINRA Arbitration Panel found Romer liable and ordered him to pay to CoreCap $57,500.00 in
compensatory damages.


The Panel recommended the expungement of the arbitration from the Central Registration Depository records ("CRD") of Pett and Villarreal based upon a FINRA Rule 2080 finding that both of them were not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. Pointedly, the Panel found that:
The loss of customer funds was solely due to theft by Romer. Pett and Villareal had no knowledge of the thefts nor reason to know of Romer's propensity to commit these thefts.

Bill Singer's Comment

I started off with the premise that this was a customer arbitration against industry respondents. So . . . what the hell happened to the customer's claim? Now, to be fair to the arbitrators, it's probably not them. It's like 1,000 degrees in New York City today and I've had four iced coffees from 5:30 a.m., when I got up, until now, which is still morning. I'm hot. I'm old, I'm sweating. I'm not my usual bubbly and effervescent happy-go-lucky guy. Anyway, sure enough, in all the prose that I dripped sweat over while reading, I sorta missed this:

The primary case between Claimant and Respondents was settled on or about May 15, 2018, prior to the scheduled hearing. At the in-person recorded hearing on May 29, 2018, the Panel provided the parties an opportunity to present oral argument and evidence on CoreCap's (third-party) claims against Romer, as well as the requests for expungement by Pett and Villareal. Although Respondents filed the Third-Party Claim jointly, only CoreCap pursued the third-party claim at the hearing. Claimant did not participate in the expungement hearing and stated, through counsel, that he took no position on the requests for expungement by Pett and Villareal.

Online FINRA BrokerCheck records as of July 2, 2018, disclose that FINRA Arbitration 17-01710 settled on May 11, 2018, for $57,500 without contribution from Pett or Villareal.

Finally, online FINRA BrokerCheck records for Romer disclose the following events:

5 "Final" Regulatory Events;

13 pending and 7 Final Customer Disputes;

2 pending investigations;

4 Terminations;

2 Financial

3 Judgment/Lien

On July 17, 2017, FINRA barred Romer for failure to provide information or keep information. current.