UPDATE:Non-Attorney Representatives Involved In FINRA Arbitration Blight

July 23, 2018

This is an update of "Non-Attorney Representatives Involved In FINRA Arbitration Blight" (BrokeAndBroker.com Blog, March 1, 2018)

Case In Point: 2015 FINRA Arbitration #15-01205

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed on May 18, 2015, public customers Claimants Paul and Beatrice Hessong asserted unauthorized trading; breaches of fiduciary duty and contract; elder abuse; disciplinary history and failure to supervise; and disgorgement (quantum meruit) against Respondents in connection with the alleged sale of shares of Apple and Alibaba. Claimants sought $36,822.28 plus punitive damages, interest, fees, and costs. In the Matter of the FINRA Arbitration Between Paul Hessong and Beatrice Hessong, Claimants, vs. Emil Botvinnik, Michael Robert Egan, Ronald John Hing, Robert Patrick Hodgins, Kevin Chong Lee, Newport Coast , Inc., Richard Ernest Onesto, and Donald Anthony Wojnowski, Jr. , Respondent (FINRA Arbitration 15-01205, November 9, 2015). 

The FINRA Arbitration Decision indicates the following representation for Claimants:

For Claimants Paul Hessong and Beatrice Hessong: Hilton Wiener, Esq., Law Office of Hilton Wiener, New York, New York.

The sole FINRA Arbitrator denied Claimants' claims.

Case In Point: 2017 FINRA Arbitration #15-01225

Three days after the Hessongs filed their Statement of Claim in FINRA Arbitration #15-01205 against the eight respondents noted above, the public customers filed a second FINRA Arbitration Statement of Claim #15-01225 against six different respondents. Perhaps the Hessongs will enjoy a better outcome with their second case. Perhaps the second time is the charm?

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 21, 2015, Claimants Paul and Beatrice Hessong asserted churning; suitability; unauthorized trading; breaches of fiduciary duty and contract; elder abuse; disciplinary history and failure to supervise and disgorgement (quantum meruit). Claimants sought $123,553.46 in compensatory damages, interest; lost opportunity damages; punitive damages; attorneys' fees; costs including expert and witness fees. In the Matter of the FINRA Arbitration Between Paul Hessong and Beatrice Hessong, Claimant, vs. Cape Securities Inc., Costa Tzotzis, Buda Yao, Jeff Bodner, James Randall Webb, and Michael Allen Lovett, Respondents (FINRA Arbitration 15-01225, January 6, 2017).

The FINRA Arbitration Decision indicates the following representation for Claimants:

For Claimants Paul Hessong and Beatrice Hessong, hereinafter collectively referred to as "Claimants": Jennifer Tarr, Cold Spring Advisory Group, New York, New York.

Respondents generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting breach of contract; defamation; interference with business relationships or expected relationships; abuse of process; and slander. Respondents sought costs, fees, and the expungement of the matter from the Respondents' Central Registration Depository records ("CRD").

In July 2016, Claimants and Respondents filed motions for discovery sanctions, which the FINRA Arbitration Panel denied.

No Show

At hearings conducted on August 8 and 9, 2016, Respondents moved for sanctions and dismissal citing Claimants' failure to appear at the hearings. 

SIDE BAR: The FINRA Arbitration Decision curiously states that the Claimants objected to the motions for sanctions and dismissal but I'm sort of puzzled as to how they objected if they failed to appear at the hearings (perhaps they objected telephonically?). 

Notwithstanding my puzzlement, the Panel denied the Respondents' motions to dismiss but granted their motions for sanctions and ordered Claimants to pay $7,500.00.


By correspondence dated November 10, 2016, Claimants notified FINRA that they had withdrawn with prejudice their claims.

Respondent Yao withdrew his Counterclaim. and he and Respondent Lovett withdrew their expungement requests.

Counterclaim/Expungement Hearings

The FINRA Arbitration Panel heard oral argument on the remaining Counterclaims and Respondent Tzotzis' uncontested Motion for Expungement during hearings conducted from November 14 - 16, 2016. Claimants only appeared telephonically at the November 15, 2016, hearing but their representative appeared telephonically at the November 14-16, 2016 hearings. At the hearing, Cape Securities, Bodner, and Webb withdrew their respective requests for expungement.  

Expungement Recommendation

The FINRA Arbitration Panel recommended the expungement of the matter from Respondent Tzotzis' CRD. As set forth in part in the Decision:

The Panel does not find the Claimants' allegations credible. Mr. Hessong's claim that he did not have an email account and did not contact Respondent Tzotzis by email was clearly false. Records presented by Respondents, including a copy of an email message from Mr. Hessong contradict with the Hessong's claim that they were elderly unsophisticated investors naive to modern electronic communications and investment strategies. Over half of the purchases made by the Hessongs were unsolicited. Records show that with regards to a number of trades, Respondent Tzotzis recommended that "stop loss" orders be used. Respondent Tzotzis contacted Cape Securities' Compliance Department for advice before completing certain trades.


The FINRA Arbitration Panel found Claimants Paul and Beatrice Hessong liable and ordered them to pay to  Respondents Cape Securities and Tzotzis:

  • $37,500.00 in compensatory damages, abd
  • $7,500.00 pursuant to the Panel's September 7, 2016 order granting Respondents' Motion for Sanctions
Bill Singer's Comment

Ouch and double ouch!! The Hessongs' 2015 and 2017 FINRA arbitration cases go down in flames not just once but twice; and in their second crash, they get hit with $45,000 in damages and sanctions. Moreover, the arbitrators in the second arbitration were not enamored with Claimants' assertions, allegations, or integrity. Not only was insult added to injury but the arbitrators got in a few slaps in the face. Frankly, you read both FINRA Arbitration Decisions and you sort of come away with the sense that these public customers were into speculating and were trying to strong-arm the victimized respondents into an unwarranted settlement. If that's where you end up, then your version of the two losses for the Hessongs is justice was served and they got what they deserved.

But . . . what if the Hessongs are not done yet? What if there's an appeal and the customers raise all sorts of new and different assertions about their claims and how FINRA handled their cases? 

Case In Point: 2018 United States District Court

On February 19, 2018, the Hessongs filed in the United States District Court for the District of Maryland ("DMD") a Motion to Vacate the Decision in FINRA Arbitration #15-01225. Paul Hessong and Beatrice Hessong, Plaintiffs, v. Cape Securities Inc., Steve Costa Tzotzis, Jeff Bodner, James Webb, and Michael Lovett, Defendants (Motion to Vacate Arbitration and Remand to Enforce Settlement; Declaratory Judgment, DMD, 18-CV-00500, February 19, 2018)

The Hessongs were represented in their federal lawsuit by Eisler Hamilton, LLC, and M. Christina Hamilton, Esquire, and Alan D. Eisler, Esquire

As set forthh in the "Preliminary Statement" to their Motion, the Hessongs assert:

The Petitioners, Paul and Beatrice Hessong, age 77 and 74, lost their lives' savings, approximately $133,000 by investing with Cape Securities, Inc. from 2013 to 2014, and on May 21, 2015, the Petitioners submitted their claims to FINRA Arbitration. After extensive negotiations, the Petitioners were willing to avoid the expense of arbitration by signing a settlement agreement on August 8, 2016, which resolved all issues. Unbeknownst to the Petitioners, the Respondents appeared at the August 8, 2016 hearing and failed to apprise the Arbitrators that the matter had settled. Instead, the Respondents demanded and were awarded damages for the Petitioners failure to appear as well as the Petitioners' purported failure to obey a subpoena compelling their attendance. From the records below, it appears that FINRA, the Arbitrators, and the Respondents knew that Petitioners were not represented by attorneys but by a consulting group called Cold Spring Advisory Group, LLC, in violation of the Maryland rules prohibiting the unauthorized practice of law.

At the conclusion of arbitration, the Arbitrators elected to punish the Petitioners for the sins of their unlicensed representatives by entering a baseless award against the Petitioners in the amount of $45,000 for the failure of their representatives to appear at a hearing the Petitioners believed had been settled and failing to obey a subpoena compelling their attendance. Notwithstanding that the Respondents' qualification to do business in Maryland had been forfeited since 2009, the Respondents used a mandatory arbitration clause to file their Petition to Confirm the Arbitration Award in the Superior Court of Henry County, Georgia ("Georgia") on February 20, 2017, and not the U.S. District Court of Maryland, the jurisdiction where the Award was entered.

In recent months, the Financial Industry Regulatory Authority ("FINRA") has taken steps to address nationwide concerns regarding non-attorney representatives appearing on behalf of claimants in FINRA Arbitration proceedings. Exhibit 1 FINRA Rule 12208(c) of the FINRA Code of Arbitration Procedure for Customer Disputes ("Arbitration Code") provides that, "parties to a FINRA arbitration maybe represented by a person who is not an attorney, unless state law prohibits such representation . . ." However, Maryland, like many states have laws that prohibit an individual who is not an attorney from representing a claimant in a binding arbitration proceeding. Maryland Rule 19-305.1 specifically prohibits non-attorneys from giving legal advice, preparing documents, and/or appearing before a tribunal that adjudicates the rights of the parties involved. These actions are defined as the practice of law in Maryland pursuant to MD Bus Occ & Prof Code §10-101 et seq. and prohibited by the Maryland Rules of Professional Conduct.

Maryland lawyers are subject to oversight by the Attorney Grievance Commission who ensure that attorneys licensed in the Maryland comply with Rules of Professional Conduct such as Competence, Due Diligence, and Candor to a Tribunal. Non-lawyers are not subject to any oversight save the criminal laws prohibiting the unauthorized practice of law.

For the reasons enumerated below both the Award and the subsequent judgments are void for lack of subject matter jurisdiction, personal jurisdiction, and fraud. Furthermore, the Petitioners believe that the enforcement of the Georgia judgment violates the Due Process Clause of the 14th Amendment and also violates the FAA by allowing arbitrators to exercise contempt powers reserved for the U.S. District Court. This Court retains jurisdiction to set aside judgments for fraud, misrepresentation, or misconduct, and to provide relief from final judgments when the prospective application is no longer equitable. For the reasons, below, the Petitioners request such relief under the Federal Arbitration Act 9 U.S.C.1 et seq, and Federal Rule of Civil Procedure 60(b).

The Hessongs further allege that:

32. Throughout the Arbitration, Petitioners were represented by Cold Spring Advisory Group, LLC, ("Cold Spring") a "consulting group" recently cited by several FINRA Arbitration panels nationwide for compromising the integrity of the various arbitration proceedings by sending Non-attorney representatives ("NARS") on behalf of FINRA claimants in proceedings. Many of these FINRA panels prohibited Cold Spring from representing claimants once their NARS status was revealed. See Exhibit 12 Report from the Public Investors Arbitration Bar Association

33. The Petitioners' SOC was initially filed with FINRA by, New York licensed attorney, Hilton Wiener, Esquire referred by Cold Spring.

Finally, as set forth in the "Conclusion" to the Hessongs' Motion:

The Petitioners trusted the Respondents with their lives' savings. The Petitioners trusted Cold Spring to represent their interests before the FINRA Arbitrators. The Petitioners trusted the FINRA Arbitrators to provide a forum in which each side could present their claims to a neutral but knowledge [sic] third party. The Petitioners trusted the attorneys who negotiated for both sides to inform the Arbitrators that the matter had settled. The Petitioners trusted the Respondents to keep their nonpublic information private. This Arbitration Award is a blight on FINRA Arbitration proceedings. The Award that was obtained by the Respondents was procured by fraud and deceit when the Arbitrators turned a blind eye to needs of the individuals, the elderly public investors, that FINRA is charged with protecting. The relief that is requested is extraordinary but so are the facts of this case.

Also READ:

FINRA Arbitrator Holds Public Customer Claimant In Contempt (BrokeAndBroker.com Blog,  December 13, 2017) http://www.brokeandbroker.com/3718/finra-arbitration-contempt/

Majestic FINRA Customer Arbitration Decision Grapples With Non Lawyer Role (BrokeAndBroker.com Blog, October 21, 2016) http://www.brokeandbroker.com/3278/finra-arbitration,-non-lawyer/

Defunct Broker-Dealer Loses No-Show Arbitration With Non-Lawyer (BrokeAndBroker.com Blog, October 13, 2016) http://www.brokeandbroker.com/3271/arbitration-streetwide-finra/

Claimants' Non-Lawyer Representative Muzzled By FINRA Arbitration Panel (BrokeAndBroker.com Blog, July 13, 2011) http://www.brokeandbroker.com/978/ralston-finra-arbitration-non-lawyer-/

UPDATE July 2018

District Court Grants Defendants' Motion to Dismiss

DMD found Defendants' Motion to Dismiss moot and granted their Amended Motion to Dismiss. Additionally, DMD denied Plaintiffs' Motion to Vacate Arbitration Award, Remand to Enforce Settlement Agreement and for Declaratory Judgment. Paul Hessong and Beatrice Hessong, Plaintiffs, v. Cape Securities Inc., Steve Costa Tzotzis, Jeff Bodner, James Webb, and Michael Lovett, Defendants (Memorandum Opinion and Order, DMD, 18-CV-00500, July 16, 2018) 

A Matter of Timing

As to the threshold issue of Plaintiffs' timely filing of a motion to vacate, DMD found that [Ed: footnote omitted':

[T]he FINRA Award was served upon the Plaintiffs on January 6, 2017. Therefore, Plaintiffs had until April 6, 2017, to file a motion to vacate. Plaintiffs did not file their motion to vacate until February 19, 2018, over thirteen (13) months after the Award was served upon them. Thus, their Motion to Vacate is untimely.

Pages 5 - 6 of the DMD Opinion

Not Unsettling

In rejecting Plaintiff's arguments that the FINRA Arbitration Award had been procured, in part, by fraud as a result of the existence of a pre-arbitration settlement among the parties, DMD found in pertinent part that:

The Plaintiffs allege that the Defendants procured the Award by fraud because a settlement had occurred between the parties before the arbitration process began. To prove that an award was procured by fraud "the party seeking vacatur must show that the fraud was not discoverable upon the exercise of due diligence prior to the arbitration." MCI Constructors, LLC v. City Of Greensboro, 610 F.3d 849, 858 (4th Cir. 2010) (citing A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1404 (9th Cir. 1992)). The Plaintiffs knew however that the Defendants disputed the existence of a settlement before the November, 2016 arbitration hearings. (ECF No. 1 at ¶ 41-44.) The Plaintiffs brought this issue up before the FINRA arbitration panel and it was denied after due deliberation. (ECF No. 1 at ¶ 41-47; ECF No. 14-2.) Additionally, the settlement agreement was not signed by the Defendants. (ECF No. 1-14.) Thus, the Plaintiffs may not seek vacatur due to the alleged fraud.

Pages 9 - 10 of the DMD Opinion

You Knew Better

In language that barely disguises the court's annoyance with the gist of the Hessongs' appeal, DMD dismissively finds that:

[P]laintiffs knew Tarr and Ottimo were not licensed attorneys during the arbitration process, and the Georgia state court was an appropriate forum for the Defendants to confirm the arbitration Award. It is unclear how a Declaratory Judgment could "serve a useful purpose," as Plaintiffs' claims are without merit and rest on conclusory statements. . .

Page 12 of the DMD Opinion

Bill Singer's Comment

Readers of the BrokeAndBroker.com Blog know from my frequent jeremiads on the topic that I detest Wall Street's mandatory public customer and intra-industry arbitrations. The FINRA arbitration forum is funded and operated by a self-regulatory-organization whose membership is exclusively industry member firms -- which disenfranchises such so-called "stakeholders" as public customers and associated persons. The rules and regulations by which FINRA operates its arbitration forum are only voted upon by its member firms. Consequently, FINRA's arbitration forum cannot escape the appearance of bias and conflict because it is controlled by member firms that may be sued by public customers or by employees challenging the industry's employment prerogatives. 

As the Hessongs argued before the federal court and as that same court noted in its opinion: "Tarr and Ottimo were not licensed attorneys . . ." In contrast to the Hessongs' assertions that they were victimized by their unlicensed representatives, DMD turns the tables and states that the customers "knew Tarr and Ottimo were not licensed attorneys during the arbitration process . . ."  Personally, I am persuaded by DMD's Opinion and concur with its findings. If you want to show up at a gun fight with a knife, that's on you.

Given that FINRA essentially forces customers and industry associated person into mandatory arbitration of their disputes with the regulator's member firms, some view the imposition of a no-non-lawyer-representative rule as a cynical attempt to ratchet up the entry costs to FINRA arbitration by imposing the substantial legal fees of lawyers and law firms. That being said, this is not a new issue. This is not a debate of recent vintage. This is, however, simply another bit of inappropriate foot dragging by a regulator that is subject to the yeas and nays of its member firms. 

No . . . the issue of non-attorney representatives is not amenable to a simple or quick solution. Corporations may often find it cost-effective and expedient to send a non-lawyer officer to represent the entity during many non-judicial events such as mediation or arbitration. Similarly, competent non-lawyer representatives may offer an affordable and effective alternative for many customers and associated person. And what are we to do about pro se parties and those represented by non-profit organizations such a public interest advocates or law school clinics? On the other hand, how much more discussion and debate is needed about those issues? At some point you fish or cut bait. Just like you enter an order to buy or not . . . or to sell or not. No one ever said making a decision was easy.

In response to a growing chorus of complaints about the appropriate role (if any) for unlicensed attorneys representing parties in arbitrations, FINRA has done what it too often does: punt. Despite an historic record documenting serious problems involved when non-lawyers represent parties in its arbitrations, over the years, FINRA engaged in its characteristic response of analysis, discussion, proposal, more discussion, revision, and more discussion. We never quite get to any swift and decisive action that propels the implementation of new rules and regulations that might disadvantage FINRA's member firms in contradistinction to the industry's disgruntled customers and employees. 

In the end, I will note as I have done so over the years that FINRA needs to provide a seat on its Board of  Governors to a representative from the Public Investors Arbitration Bar Association ("PIABA") and to an individual who is employed in the primary capacity of an industry registered representative. Further, FINRA needs to fully enfranchise the hundreds of thousands of registered representatives employed by its member firms. Similarly, FINRA needs to end its gerrymandered allocation of Board votes among so-called large, mid-sized, and small member firms. Also, FINRA needs to stop catering to its large member firms and rescue its withering smaller members who offer more local and regional services. 

Will any or all of those measure truly reform FINRA? No -- I'm sorry to say. The only outcome that will satisfy me is the decertification of FINRA as a self-regulatory-organization and the certification of a new private-sector-regulator that would be composed of representatives from broker-dealers, registered investment advisors, funds, public issuers, public investors, industry associated persons, and industry regulators.  It is time to end the charade. Self regulation is nothing more than allowing FINRA member firms to control the regulation of their own securities activities -- unfortunately, as history has shown, those activities have impact and ramifications far beyond the C-suites and boardrooms of Wall Street.