1. Declaratory judgment declaring:
a. the terms and conditions set forth in Article IX(A) are contrary to FINRA Regulatory Notice 19-10 and thus are unenforceable;b. the terms and conditions set forth in Article IX(A)(2)(ii) are contrary to FINRA Regulatory Notice 19-10 and thus are unenforceable;c. the terms and conditions set forth in Article IX(A)(2)(v) are contrary to FINRA Regulatory Notice 19-10 and thus are unenforceable;d. the terms and conditions set forth in Article IX(A) are contrary to, and if enforced, would cause Claimant to violate FINRA Rule 2140, and thus are unenforceable;e. the terms and conditions set forth in Article IX(A)(2)(ii) are contrary to, and if enforced, would cause Claimant to violate FINRA Rule 2140, and thus are unenforceable;f. the terms and conditions set forth in Article IX(A)(2)(v) are contrary to, and if enforced, would cause Claimant to violate FINRA Rule 2140, and thus are unenforceable;g. the terms and conditions set forth in Article IX(A) are contrary to public policy and thus are unenforceable;h. the terms and conditions set forth in Article IX(A)(2)(ii) are contrary to public policy and thus are unenforceable;i. as an Associated Person of a Member firm of FINRA, Claimant is required to comply with FINRA’s rules and regulations, precluding her from impeding a customer’s access to his/her broker or financial advisor of choice;j. enforcement of Articles IX(A)and (A)(2)(ii) and (v), individually and severally, would impermissibly deny customers access to their broker or financial advisor of choice;k. Claimant complied with FINRA rules and regulations;l. after Claimant terminated her relationship with the Respondents, she was free to accept LBFA Clients who reached out to her and requested that she serve as their broker and financial advisor;m. Claimant has no monetary or other liability to Garofalo, individually, or in his capacity as Member, Manager, and CEO of CRWM I, and/or to CRWM I;n. Claimant has no monetary or other liability to the Respondents and/or any entity under which Garofalo conducted or conducts a business;o. Garofalo must comply with the terms and conditions set forth in Articles III(C)(3) and (4); andp. Garofalo has breached Articles VIII(A)(1) and Article IX(J) of the Agreement.
SIDE BAR: FINRA Rule 2140: Interfering With the Transfer of Customer Accounts in the Context of Employment DisputesNo member or person associated with a member shall interfere with a customer's request to transfer his or her account in connection with the change in employment of the customer's registered representative where the account is not subject to any lien for monies owed by the customer or other bona fide claim. Prohibited interference includes, but is not limited to, seeking a judicial order or decree that would bar or restrict the submission, delivery or acceptance of a written request from a customer to transfer his or her account. Nothing in this Rule shall affect the operation of Rule 11870.
1. Temporary Injunctive Relief:a. enjoining Claimant from further predation of the client accounts, relationships and business she sold under the February 18, 2020 Asset Purchase Agreement;b. accounting for all sums received since April 1, 2020 on account of any client accounts, relationships or other assets transferred to Respondent Garofalo and/or Colonial River Wealth Management under the February 18, 2020 Asset Purchase Agreement that involve matters subject to the jurisdiction of this Tribunal;c. accounting for all sums received from Cambridge or Cambridge Advisors (regardless of how or whether characterized as an advance, loan of any kind, management fee, expense reimbursement or otherwise) and as promised by contract or otherwise before and during the pendency of this arbitration;d. sequestering all sums received (and the proceeds thereof) since April 1, 2020 on account of any client accounts and relationships transferred to Mr. Garofalo and/or Colonial River Wealth Management under the February 18, 2020 Asset Purchase Agreement that involve assets subject to the jurisdiction of this Tribunal; this sequestration to dissolve automatically upon the entry of a final award in this arbitration;e. enjoining any action to collect any sums potentially payable by Respondent Garofalo to Claimant under the Asset Purchase Agreement, to include any security or collateral interests or guaranties provided by him to secure performances under the APA that would have been due to Claimant but for her tortious conduct and breaches of contract set out herein, the temporary relief to dissolve automatically upon the entry of a final award in this arbitration;f. return of all Redtail software and data to Respondent Garofalo; andg. such other temporary relief as is proper.
3. Final Award of Compensatory Damages:a. the sum of not less than $12,515,700.00 against Claimant for her breaches of the APA as to the accounts of the clients taken and/or accepted by her in violation of the restrictive covenants of the APA and as will be demonstrated at trial, her repeated and continuous tortious interference with the contract rights and expectancies of Respondent Garofalo with respect thereto, her fraud in the inducement of the contract with Respondent Garofalo, the inducement of the execution of the APA and the inducement of the performance of the APA;b. the sum of $12,515,700.00 includes the $250,000.00 due as a result of Claimant’s breach of the provisions of the APA relating to the sale of her insurance income assets to Respondent Garofalo as well as compensatory damages due for her tortious conduct against Respondent Garofalo, her tortious interference with Respondent Garofalo’s contracts and business expectancies;c. the sum includes $11,823.25 due from Claimant for her failure to reimburse the compensation expenses owed by Claimant for K.F.;d. the sum includes $500,000.00 for presumed damages for instances of defamation of Respondent Garofalo by Claimant as pleaded and the additional sum of $150,000.00 for additional instances of defamation as will be demonstrated at trial;e. the sum includes $546,860.00 for compensatory damages to Respondent Garofalo due as a result of Claimant’s misconduct as to Respondent Garofalo respecting R. B., J. C., K. D., B. G., R. C., W. C., S. L., B. W., and J. W., such amounts being awarded separately but included within the compensatory damages of $12,515,700.00 sought herein;f. the total sum of $13,177,523.25 as compensatory damages, inclusive of all of the matters set out in the above sub-paragraphs 3 a-f.4. Final Award of Punitive Damages:a. Punitive damages of $350,000.00 against Claimant, the maximum permitted under Virginia law, for her willful, reckless, conscious and malicious misconduct herein alleged, in addition to compensatory damages set out above.. . .7. Declaratory relief under Article 17, Title 8.01, Va. Code as follows: That Devin Garofalo has no liability to Jayne W. Di Vincenzo either under the Asset Purchase Agreement dated February 18, 2020 or otherwise under any cause of action of any kind in law or equity, accrued in whole or in part, existing in any way as of the date of the filing of this Statement of Claim and that under Va. Code § 8.01-186, this Tribunal retain jurisdiction to award such further relief as may at any time be proper.
"Customer Communications / FINRA Provides Guidance on Customer Communications Related to Departing Registered Representatives" (FINRA Regulatory Notice 19-10 / April 5, 2019)https://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-19-10.pdf.
"FINRA Notice To Members 19-10 Should Have Said What It Meant" (BrokeAndBroker.com Blog / April 8, 2019)
"Then you should say what you mean," the March Hare went on."I do," Alice hastily replied; "at least -- at least I mean what I say -- that’s the same thing, you know.""Not the same thing a bit!" said the Hatter. "You might just as well say that 'I see what I eat' is the same thing as 'I eat what I see'!"
Rule 2010. Standards of Commercial Honor and Principles of TradeA member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.Rule 2020. Use of Manipulative, Deceptive or Other Fraudulent DevicesNo member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.Rule 2040. Payments to Unregistered Persons(a) GeneralNo member or associated person shall, directly or indirectly, pay any compensation, fees, concessions, discounts, commissions or other allowances to: . . .Rule 2080. Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System(a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief. . .Rule 2090. Know Your CustomerEvery member shall use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer. . .Rule 2111. Suitability(a) A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer . . .Rule 3280. Private Securities Transactions of an Associated Person(a) ApplicabilityNo person associated with a member shall participate in any manner in a private securities transaction except in accordance with the requirements of this Rule. . .
[U]ntil recently, law schools taught attorneys that "shall" means "must." That's why many attorneys and executives think "shall" means "must." It's not their fault. The Federal Plain Writing Act and the Federal Plain Language Guidelines only appeared in 2010. And the fact is, even though "must" has come to be the only clear, valid way to express "mandatory," most parts of the Code of Federal Regulations (CFRs) that govern federal departments still use the word "shall" for that purpose.With time, laws evolve to reflect new knowledge and standards. During this transition, "must" remains the safe, enlightened choice not only because it imposes clarity on the concept of obligation, but also because it does not contradict any instance of "shall" in the CFRs." Right now, federal departments go through their documents to replace all the "shalls" with "must." It's a big hassle. If you look at page A-2, section q (PDF) of this link, it shows a sample of how a typical federal order describes this shift from "shall" to "must." Don't go through this tedious process. If you mean mandatory, write "must." If you mean prohibited, write "must not."
FINRA Rule 2010. Standards of Commercial Honor and Principles of TradeA member, in the conduct of its business, should observe high standards of commercial honor and just and equitable principles of trade.
Background and DiscussionFINRA has consistently sought to ensure that customers can make a timely and informed choice about where to maintain their assets when their registered representative (i.e., a person registered with the member who has direct contact with customers in the conduct of the member’s securities sales) leaves a member firm. Accordingly, FINRA expects that:1. in the event of a registered representative’s departure, the member firm should promptly and clearly communicate to affected customers how their accounts will continue to be serviced; and2. the firm should provide customers with timely and complete answers, if known, when the customer asks questions about a departing registered representative.Registered Representative DeparturesRegistered representatives move with some frequency between member firms and across financial firms under various regulatory jurisdictions, such as investment advisory firms and insurance companies. In addition, registered representatives may leave the financial industry entirely. A registered representative’s departure may prompt customer questions about the departing representative and the status of their accounts following the departure. FINRA recognizes that member firms’ different business models give rise to different approaches to managing the customer relationship, and that the expectations regarding a member firm’s handling of a departing registered representative will vary accordingly. For instance, the departure of a registered representative who works closely with customers in a one-on-one relationship will likely be handled differently than the departure of a registered representative in a customer advisory center model or a group service model. While member firms have flexibility in reassigning customer accounts and communicating with customers about the reassignments, they should provide timely and complete answers, if known, to all customer questions resulting from a departing representative, so that customers may make informed decisions about their accounts.Communications with CustomersCustomers should not experience an interruption in service as a result of a registered representative’s departure. FINRA understands that decisions about the reassignment of customer accounts, if applicable, are typically made promptly following the departure of a registered representative. In the event of a registered representative’s departure, FINRA expects that the member firm will have policies and procedures reasonably designed to assure that the customers serviced by that registered representative are aware of how the customers’ account will be serviced at the member firm, including how and to whom the customer may direct questions and trade instructions following the representative’s departure and, if and when assigned, the representative to whom the customer is now assigned at the member firm. In addition, a member firm should communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative. Consistent with privacy and other legal requirements, these communications may include, when asked by a customer:1. clarifying that the customer has the choice to retain his or her assets at the current firm and be serviced by the newly assigned registered representative or a different registered representative or transfer the assets to another firm; and2. provided that the registered representative has consented to disclosure of his or her contact information to customers, providing reasonable contact information, such as phone number, email address or mailing address, of the departing representative.FINRA would not expect a member firm to seek to obtain the departing registered representative’s contact information if not known by those responsible for reassigning and continuing to service the account (e.g., the branch supervisor responsible for reassigning the customer account or newly assigned registered representative) at the time of a customer’s question. As with all communications with customers, information provided by the member firm about the departing registered representative must be fair, balanced and not misleading.
So . . . you might be wondering, and, as such, you might ask: What's wrong with FINRA NTM 19-10? To which I would answer: virtually everything. Remember those biblical, civics, and FINRA statutory interpretation lessons that I raised above? Well, now would be a good time to recall them. Allow me to slowly dissect FINRA NTM 19-10.
FINRA has consistently sought to ensure that customers can make a timely and informed choice about where to maintain their assets when their registered representative (i.e., a person registered with the member who has direct contact with customers in the conduct of the member’s securities sales) leaves a member firm.
Finra is apparently going to let brokerages and breakaway brokers fight it out over the issue of who owns the client.A spokeswoman for the regulator tells FinancialAdvisorIQ that it takes no position on the debate, and adds that Finra isn't involved in the broker protocol. Finra has arbitration rules to handle disputes, but no who-owns-the-customer rule.
Finra isn't going to intervene in the "who-owns-the-customer" debate that's resurfaced in the financial advisory industry because of the three high-profile exits of Morgan Stanley, UBS and Citigroup from the Protocol for Broker Recruiting.The broker protocol "is an agreement between the firms, so Finra is not part of it," a Finra spokeswoman tells FA-IQ in reaction to suggestions received by the publication about the regulator's role in defining who owns the customer - the broker-dealer firms or the advisors.The spokeswoman adds that Finra doesn't have a position on this particular debate.FA-IQ's straw poll of advisors shows 91% believe they themselves own the customers, their account information and the right to service their assets. The rest believe the firm owns them.
In conclusion, the Broker Protocol is a self-serving agreement negotiated among employers/management and imposed without benefit of bargaining upon employees/labor and foisted upon equally disenfranchised public investors. There is no place for such fiat within self-regulation -- except, you know, the FINRA Board of Governors sat in silence as its large member firms sliced and diced control of public customers among themselves and then forced the convention upon their employees, smaller firms, and customers. Now, as that private agreement dissolves, the Board again gives silent assent. In resolving "who owns the customer," FINRA's role is not that of a combatant but as the protector of the public investor and the industry. As members of the Board of Governors, your role is to act when your intervention is necessary, and this is such a moment in time. For once, assert your independence and protect the public and the industry. No one is asking you take sides. Embrace the task of corporate governance and do your job.
2. the firm should provide customers with timely and complete answers, if known, when the customer asks questions about a departing registered representative.
BrokerCheck is a free tool to research the background and experience of financial brokers, advisers and firms.. . .BrokerCheck helps you make informed choices about brokers and brokerage firms-and provides easy access to investment adviser information.. . .BrokerCheck tells you instantly whether a person or firm is registered, as required by law, to sell securities (stocks, bonds, mutual funds and more), offer investment advice or both.. . .BrokerCheck gives you a snapshot of a broker's employment history, regulatory actions, and investment-related licensing information, arbitrations and complaints. . .
[W]hile member firms have flexibility in reassigning customer accounts and communicating with customers about the reassignments, they should provide timely and complete answers, if known, to all customer questions resulting from a departing representative, so that customers may make informed decisions about their accounts.
[I]n addition, a member firm should communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative. . .
FINRA would not expect a member firm to seek to obtain the departing registered representative’s contact information if not known by those responsible for reassigning and continuing to service the account (e.g., the branch supervisor responsible for reassigning the customer account or newly assigned registered representative) at the time of a customer’s question. . .