FINRA Arbitrators Award Over $569,000 In Damages For In And Out Transfers

February 22, 2019

Alchemy appears alive and well at FINRA. A Respondent in a FINRA Arbitration allegedly transferred $X from his bank account into a new brokerage account at Claimant Vanguard Marketing, and then transferred the same $X from the brokerage account to some third-party. $X in. $X out. Somehow, that in-and-out produced over a half million dollars in damages. 

Case In Point

In a FINRA Arbitration Amended Statement of Claim filed in December 2017, FINRA member firm Claimant Vanguard Marketing Corporation asserted breach of contract, conversion and unjust enrichment. As set forth in pertinent part in the FINRA Arbitration Decision:

[T]he causes of action relate to Respondent's alleged invalid and unauthorized transfer of funds to Claimant from Respondent's bank account at his account opening with Claimant, and Respondent's transfer of the same funds to a third-party institution after the opening of his account with Claimant. 

Claimant Vanguard sought $570,000 in compensatory damages plus $97,674.41 in interest; $38,015 in attorneys' fees, $5,320.65 in filing fees/expenses; and $5,075 in FINRA processing fees. In the Matter of the Arbitration Between Vanguard Marketing Corporation, Claimant, v. vs. Respondent Derek Zupancic, Respondent (FINRA Arbitration Decision 17-03334 / February 12, 2019)

What Happened to the "Initial" Statement of Claim?

No, that's not a typo. Yes, the Decision asserts that this arbitration was initiated by an Amended Statement of Claim. How did such an oddball scenario arise? Well, as explained in the Decision:

On or about January 5, 2018, FINRA Office of Dispute Resolution sent correspondence to the parties advising that Claimant amended the Statement of Claim prior to service of the claim by FINRA Office of Dispute Resolution and that, although the claim was entitled Amended Statement of Claim, FINRA Office of Dispute Resolution deemed it the only Statement of Claim filed in this case.

Bill Singer's Comment: Ummm . . . what? So Claimant prepared a Statement of Claim; however, before FINRA served that Statement of Claim, Claimant amended it. Okay, but an un-served Statement of Claim isn't technically in-play according to FINRA's rules until it has been duly served --  which renders it pretty much a nullity as in "out of sight, out of mind." Accordingly, wouldn't it have been simply easier to say that whatever actually got served was the Initial Statement of Claim? After all, as stated in the FINRA Arbitration Decision, FINRA deemed the so-called Amended Statement of Claim to be "the only Statement of Claim filed in this case." Them's FINRA's words, not mine. In any event, we wind up with the bizarre circumstance in which a FINRA arbitration is initiated by the filing of an Amended Statement of Claim and there is no reference whatsoever in the FINRA Arbitration Decision to the Initial Statement of Claim. Sorta like starting a football game with an opening kick-off in the second half.

No-Show Respondent -- No Problem?

Apparently not much in terms of the procedural aspect of Vanguard v. Zupancic followed the straight-and-narrow. Perhaps FINRA jinxed or cursed this arbitration with that whole Amended thing. Consider this:

Respondent did not file with FINRA Office of Dispute Resolution a properly executed Submission Agreement but is required to submit to arbitration pursuant to Respondent's fully executed Vanguard Brokerage Account Agreement (the "Agreement") and is bound by the determination of the Panel on all issues submitted. 

On or about October 22, 2018, Claimant filed a Motion to Bar Respondent's Evidence and Defenses. Claimant asserted, among other things, that although properly served with all documents related to this arbitration proceeding, Respondent failed to file a Statement of Answer or appear. Respondent did not file a response. The Panel denied Claimant's Motion. 

Respondent did not appear at the evidentiary hearing. Upon review of the file and the representations made by/on behalf of Claimant, the Panel determined that Respondent has been properly served with the Amended Statement of Claim and received due notice of the hearing, and that arbitration of the matter would proceed without said Respondent present, in accordance with the Code of Arbitration Procedure (the "Code") Rule 12603.


The FINRA Arbitration Panel found Respondent Zupancic liable and ordered him to pay to Claimant Vanguard $569,891.84 in compensatory damages plus interest, and $1,545.65 in costs.

Bill Singer's Amended Comment

Truly, I have no idea as to what the hell went on here,. My understanding of  the underlying dispute to consist of these bullet-point extracts from the Decision:
  • [T]he causes of action relate to Respondent's alleged invalid and unauthorized transfer of funds to Claimant from Respondent's bank account 
  • at his account opening with Claimant, and 
  • Respondent's transfer of the same funds
  • to a third-party institution 
  • after the opening of his account with Claimant. 
Sounds like the old in-and-out.

We start with the assertion that Respondent Zupancic engaged in transfer of funds from his bank account. Those funds were transferred to Respondent's Vanguard brokerage account. Without offering any explanation, the Decision asserts that Respondent's transfer of  funds from his bank account was allegedly "invalid and unauthorized." Notably absent is any statement as to whether the funds transferred from Zupancic's bank account were not honored by the bank, or whether any trading occurred in Zupancic's securities account (and produced any losses).

So . . . let's start with that "invalid and unauthorized" allegation. What makes my transfer of funds from my own account invalid?  How could I not authorize my own transfer of funds from my own bank account. Now -- hold on -- before you jump down my throat, I am pointedly NOT saying that there aren't any legal circumstances that could render my transfer of my own funds as an invalid and/or unauthorized act. What I am pointedly saying is that given the oddball nature of rendering my transfer of my own funds as invalid and unauthorized, it would certainly be expected that the FINRA Arbitration Decision would have offered some content and context explaining the unusual allegation.

After the bank funds were transferred into the brokerage account, Claimant Vanguard alleges that Respondent Zupancic transferred the funds from his Vanguard brokerage account to a third-party institution. Note that the terms "invalid and unauthorized" were only appended to the transfer of the bank funds into the Vanguard account but not to the transfer of funds out of the Vanguard account to the third-party. I'm not sure if the omitted repetition was intentional. 

All of which leads us to yet another oddball aspect of this case. We got Zupancic transferring $X in funds from his bank into his Vanguard account, and then transferred the same $X in funds out of his Vanguard account to third-party institution. So what? The FINRA Arbitration Decision is devoid of any explanation as to how those cited transfers caused $569,891.84 in damages. Maybe FINRA could file and Amended FINRA Arbitration Decision?