March 6, 2020
Dog bites man -- eh. Man bites dog -- now that's a story! In today's blog, we have a FINRA Arbitration Panel awarding damages, costs, and fees to a public customer Claimant against the servicing stockbroker and the brokerage firm Respondents. That's the "eh" part of the story. In a bit of a twist, however, the same Panel in the same case also awarded damages against the same public customer to the same servicing stockbroker. Customer bites stockbroker -- eh. Stockbroker bites customer -- stop the presses!
Case In Point
In a FINRA Arbitration Statement of Claim filed in March 2018, a public customer Claimant asserted violation of the Illinois Securities Act and the Illinois Elder Abuse and Neglect Act; breaches of fiduciary duty and contract; negligence; respondeat superior; negligent supervision; and unjust enrichment. Ultimately, Claimant sought, in part, $836,544.67 in treble damages, restitutionary damages; fees and costs. In the Matter of the Arbitration Between Martin Birnbaum, Power of Attorney for Yonata Berman, Claimant, v. PTI Securities & Futures L.P. and David Aaron Andalman, Respondents (FINRA Arbitration Decision 18-00990)
As set forth in part in the FINRA Arbitration Decision:
Claimant alleges that Andalman recklessly invested Claimant's funds in unsuitable investments in disregard for her age, risk tolerance and income needs. Claimant further alleges that Andalman engaged in high-volume trading or risky equities, exchange traded funds and options on margin, which resulted in Claimant suffering significance financial damages. Finally, Claimant alleges that PTI failed to supervise Andalman in connection with his handling of Claimant's investment account.
Respondents PTI and Andalman generally denied the allegations and asserted various affirmative defense.
Additionally, Andalman filed a Counter-Claim seeking an expungement of the matter from his Central Registration Depository record ("CRD") and indemnification based upon his assertions that Claimant Yonata Berman:
gave Martin Birnbaum ("Birnbaum") power of attorney over her financial affairs and that he breached his fiduciary duties he owed to Claimant. Andalman further alleges that Birnbaum made no effort to notify Andalman of Claimant's purported health issues, never followed up with Andalman or objected to the trading in Claimant's account.
The FINRA Arbitration Panel found Respondent Andalman liable and ordered him to pay to Claimant $42,500 in compensatory damages; and found Respondent PTI liable and ordered the firm to pay to Claimant $127,500 in compensatory damages.
The Panel also found Claimant liable and ordered payment to Andalman of $21,500 in compensatory damages.
In offsetting the Awards, the Panel ordered that Andalman pay net compensatory damages to Claimant of $21,000.
Additionally, the Panel ordered PTI to pay to Claimant $1,100 in costs plus $10,000 in expert witness fees; and ordered Andalman to pay to Claimant $1,100 in costs plus $10,000 in expert witness fees. Finally, the Panel denied the requested expungement.
Bill Singer's Comment
In yet another FINRA Arbitration Decision lacking adequate content and context, we are left to fend for ourselves when it comes to far too many implications and inferences -- which is about all we have to work with here.
Yonata Berman, a purportedly elderly public customer, seems to have given a POA to Martin Birnbaum. We aren't told why, which may well be none of our business, but, you know, maybe the Panel could have painted in just a bit of color? Moreover, we are never informed of Birnbaum's relationship to Berman: was he a family member, friend, a financial professional?
It's difficult to reconcile the Panel's award to Berman as against Andalman of $42,500 with the Panel's award to Andalman as against "Claimant" of $21,500. There is not a single word of rationale for that off-set. We don't know the basis for the award in favor of Berman in terms of her various causes of action. Similarly, the Panel fails to explain its award to Andalman, who seems to have predicated his damages on: "Andalman further alleges that Birnbaum made no effort to notify Andalman of Claimant's purported health issues, never followed up with Andalman or objected to the trading in Claimant's account." Note that Andalman alleged that he was entitled to damages because Birnbaum breached his fiduciary duties to Berman. As to why Andalman would be allowed to sue for the breach to the customer isn't explained in the Decision. Worse, the Decision doesn't even state whether the breach of fiduciary duty was the cause of action upon which the Panel rendered its award to Andalman. I don't like being relegated to guessing games after I've read a FINRA Arbitration Decision.
In the event that the Claimant and/or Respondents appeal this FINRA Arbitration Decision, a court will be faced with one hell of a task in trying to find any rationale for the awards. Frankly, that's a disservice to the parties in the arbitration and imposes an unreasonable burden on any court.