Magic Moments Dazzle In Legend-ary FINRA Customer Arbitration

July 27, 2018

There are many magic moments in our lives.  In FINRA arbitrations, not so many, but, that's not to say that even in the midst of a heated customer dispute we can't find magic. In a recent FINRA arbitration we start with four respondents, and then, almost magically, we end with one. We have a lawyer who says he has unrevoked authority to accept service on behalf of a respondent broker-dealer, but that firm lacks a physical address and the lawyer eventually withdraws as counsel for that apparently no-longer-existing client. Then we got named respondents who get dismissed. One named respondent files for bankruptcy. Then the whole mess ends with an award against the sole remaining respondent -- the brokerage firm that didn't appear at the hearing, whose maybe/maybe-not lawyer withdrew as its counsel, and which lacks a mailing address after it was apparently evicted. Who says their ain't no magic in this world? Why this arbitration is filled with many, many magical moments.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2017,, public customer Claimant Romero, Jr. asserted violation of the New Mexico Uniform Securities Act; breach of fiduciary duty; violations of NASD Rules 2111, 2310 and 3110; violation of NASD Rule 3010; negligence and negligent supervision; and respondeat superior. The allegations are purportedly in connection with investments in Fusion IO, Inc., GSV Capital Corp., Horizon Pharma, Inc., Neptune Technologies and Bioresources, Inc., Nanosphere, Inc., OCZ Technology Group, Mankind Corp., Vringo, Inc., and others; corporate bonds, including: Synovus Financial Corp. and R.R. Donelly & Sons; and an investment in American BioCare Series A Preferred shares. Claimant sought $95,000 in compensatory damages plus punitive damages, interest, costs, and fees.  In the Matter of the FINRA Arbitration Between Andres Romero, Jr.., Claimant, vs. Aegis Capital Corp., Christopher Nicholas Cacace ,Anthony Fusco, and Legend Securities, Inc., Respondents (FINRA Arbitration  17-00452, July 20, 2018)

Respondent Legend did not submit a Statement of Answer or sign the Submission Agreement, and did not enter an appearance. 

Respondent Aegis did not submit a Statement of Answer or sign the Submission Agreement. 

Respondents and Fusco appeared pro se, generally denied the allegations, and asserted various affirmative defenses.

Unrevoked Authority

Although I often attempt to explain or condense legal matters for my readers, the recitation of various procedural matters in the arbitration are so bizarre and, frankly, are so well presented by the sole FINRA Arbitrator that I will present them as they appear in the FINRA Arbitration Decision and invite you to stroll through the brush and underbrush:

On May 8, 2017, Fusco's counsel, Lawrence R. Gelber, advised FINRA via email as follows: 

I have authority to accept service on behalf of Legend. 

Legend is no longer at 45 Broadway. It does not exist in physical form - it cannot be physically served. Legend has no physical address anywhere. 

The address on page two of your letter is NOT VALID for Legend. Legend was forced to vacate its offices for non-payment of rent. FINRA needs to correct its records. 

If you would like, I can email Legend's "custodian of records" - a former employee of Legend, but it would be absurd. 

Legend is not appearing in this action. (Emphasis in original). 

By another email submission on the same date, Mr. Gelber advised FINRA: "I was Legend's counsel and still have unrevoked authority to accept service." 

On February 20, 2018, Mr. Gelber advised FINRA that he withdrew as counsel for Legend and Fusco. 

The Arbitrator determined that Legend was served with the Statement of Claim and had notice of this arbitration case and the pleadings through Mr. Gelber, and is therefore bound by the Arbitrator's ruling and determination. 

On June 20, 2017, Claimant dismissed his claims against Aegis with prejudice. 

On April 28, 2018, Fusco filed for bankruptcy under the United States Bankruptcy Code. In accordance with these filings, all claims against Fusco are indefinitely stayed. Therefore, the Arbitrator made no determination with respect to the claims against Fusco. 

On May 7, 2018, Claimant advised FINRA that Cacace was dismissed without prejudice. On May 11, 2018, Cacace advised FINRA that he agreed to be dismissed without prejudice. 

So . . . you got all of that? Really??

An Existential Dilemma

Respondent Fusco has a lawyer. According to the FINRA Arbitration Decision, that lawyer is Lawrence R. Gelber. For some reason, which, frankly, escapes me, Gelber advised FINRA that he had authority to accept service on behalf of Respondent Legend despite the fact that the Decision states that Legend had not submitted a Statement of Answer or an executed Submission Agreement. Frankly, I don't see any indication that Gelber filed an appearance as Legend's counsel, so I'm not sure why the issue of his accepting service on that firm's behalf even came up. Notwithstanding my lack of understanding, the issue is set forth in the Decision -- so, yeah, it came up . . . supposedly.

Although Gelber apparently stated that he had "authority to accept service" for Legend, he also stated that "Legend is not appearing in this action." That sets up an interesting existential conundrum. A party is not appearing in an action, doesn't execute a prerequisite Submission Agreement, and doesn't file an Answer but a lawyer sitting at the hearing table says that he has "authority to accept service" for that missing-in-action party. Okay. Ummm . . . if that makes sense to you, wonderful. Me . . . I don't even know where to begin with all of that. 

Further, Gelber then states that Legend no longer exists "in physical form" and it no longer occupies the last known address to which FINRA has been sending letters.  It certainly brought a smile to my face when Gelber offered to email Legend's custodian of records but did so with the admonition that "it would be absurd." We then take the absurd to an even more extreme state when we learn that following Gelber's assertion in May 2017, that he had "unrevoked authority to accept service" for Legend, the lawyer subsequently notified FINRA in February 2018 that he had withdrawn as counsel for both Legend and Fusco. So . . . either Legend revoked the unrevocable or Gelber took matters into his own hands.

Perhaps out of annoyance or out of a sincere belief that the predicate proof had been demonstrated, the sole FINRA Arbitrator ruled that Legend had been served with the Statement of Claim and had notice of the arbitration and attendant pleadings "through Mr. Gelber, and is therefore bound by the Arbitrator's ruling and determination." Sure. That all makes perfect sense. Just don't ask me to explain how or why. And let's not even get into Respondent Aegis's and Respondent Cacace's dismissal or Respondent Fusco's bankruptcy! In any event, Claimant Romero proceeded only against Respondent Legend by way of a default proceeding. Claimant is going after a company that lacks a physical address. That should prove profitable in a magical way, right?


To put this beast out of its misery, the sole FINRA Arbitrator found Legend Securities liable and ordered it to pay to Claimant $33,000.00 in compensatory damages plus $15,266.21 interest. 

Bill Singer's Comment

I can't wait to see how Claimant manages to collect on this one. And folks wonder why I am a staunch proponent of requiring FINRA to fund and maintain an anti-fraud fund to guaranty the payment of all compensatory damages to defrauded public customers? Consider this FINRA customer arbitration as Exhibit A. At least magic is in the air.