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Intellivest Securities Hunts Down Raiders Who Allegedly Gutted The Brokerage Firm
December 12, 2022
A small FINRA broker-dealer alleged that it had been raided by another firm with devastating consequences: The victim ceased virtually all operations. Down but not out, the small firm sued the raider and won just under $1 million in damages, costs, and fees. Perhaps sensing the enemy closing in, the raider embarked upon a scorched-earth policy by ceasing business and filing for bankruptcy. Now what? The raider started the war but the small firm wasn't agreeing to an armistice.
January 2022 FINRA Arbitration Award
In a FINRA Arbitration Statement of Claim filed in December 2020, FINRA member firm Claimant Intellivest Services asserted raiding; misappropriation of trade secrets; inducement of breach of fiduciary duty and duty of loyalty; tortious interference with economic advantage and business relations; conspiracy; unfair competition; and unjust enrichment. Claimant Intellivest sought at least $1,787.654 in compensatory damages; no less than $893,827 in punitive damages; a Cease-and-Desist Order; return of client/business information; at least $$32,275 in attorneys' fees; at least $11,488 in costs; and interest. At the hearing, Claimant sought $12,516,856. In the Matter of the Arbitration Between Intellivest Securities, Inc., Claimant, v. Growth Capital Services, Inc., Respondent (FINRA Arbitration Award 20-04057 / January 10, 2022)
https://www.finra.org/sites/default/files/aao_documents/20-04057.pdf
The FINRA Arbitration Award states that:
[T]he causes of action relate to Claimant's allegation that Respondent wrongfully raided Claimant, resulting in the abrupt resignation of all four of Claimant's registered representatives. Claimant further alleges that because of Respondent's raid and subsequent interference with its clients, it was forced to cease virtually all its business operations.
FINRA member firm Respondent Growth Capital Services generally denied the allegations and asserted affirmative defenses.
The FINRA Arbitration Panel found Respondent Growth Capital Services liable to and ordered it to pay to Claimant Intellivest $440,187.50 in compensatory damages, $150,000 in punitive damages, $21,742 in costs, $295,000 in attorneys' fees, and $2,000 reimbursement of filing fees. Additionally, the Panel assessed all hearing session fees, totaling $27,500, and all motion fees, totaling $1,200, solely against Respondent.
BrokerCheck Report
As of December 12, 2022, FINRA's online BrokerCheck database discloses that Growth Capital Services ceased business on January 9, 2022; moreover, on March 14, 2022, the firm's registration was purportedly cancelled by FINRA:
PURSUANT TO FINRA RULE 9553, GROWTH CAPITAL SERVICES, INC.'S MEMBERSHIP WITH FINRA IS CANCELED AS OF MARCH 14, 2022 FOR FAILURE TO PAY UNPAID DUES, FEES, AND OTHER CHARGES.
Under "Financial - Pending," BrokerCheck discloses that Growth Capital Services filed for bankruptcy in the United States District Bankruptcy Court on May 3, 2022.
Growth Capital's CEO Seeks to Enjoin Additional FINRA Arbitration
On the heels of Growth Capital Services' cessation of business, FINRA's cancellation of the member firm's registration, and the firm's filing for bankruptcy, in July 2022, Intellivest filed a FINRA Arbitration Statement of Claim against Brian Dunn, who was the Chief Executive Officer/Sole Shareholder of Growth Capital Services. Perhaps not so much two bites from the same apple as two bites from two different apples! In response to Intellivest's new FINRA arbitration against him, Dunn filed a motion seeking the dismissal of the case by the arbitrators. The FINRA Arbitration Panel denied Dunn's motion, which prompted him to file a petition in federal court seeking to enjoin Intellivest's FINRA Arbitration against him.
In the Federal Courthouse
As asserted in the "Statement" portion of Brian Dunn, Petitioner, v. Intellivest Securities, Inc., Respondent (Denial of Provisional Relief and Order to Show Cause, United States District Court for the Northern District of California, 22-CV-07355)
https://brokeandbroker.com/PDF/IntellivestNDCAOrd221208.pdf:
At all material times, petitioner Brian Dunn was the CEO and sole shareholder of nonparty Growth Capital Services, Inc., which helped raise capital for clients "seeking to make impact investments" (Petition ¶ 4). In December 2020, respondent Intellivest Securities, Inc., which ran a similar business, initiated an arbitration before the Financial Industry Regulatory Authority against Growth Capital. In the FINRA arbitration, Intellivest broadly alleged that Growth Capital had "raided" its operations, including inducing Intellivest employees to move to Growth Capital, encouraging Intellivest clients to breach investment agreements, and misappropriating Intellivest proprietary information. In January 2022, the FINRA arbitration panel issued an award in favor of Intellivest and against Growth Capital in the amount of $908,929.50 (id. ¶¶ 4-5).Growth Capital never paid the award. In May 2022, it filed a petition for Chapter 7 Bankruptcy in this district. See In re Growth Capital Servs., Inc., No. 22-30218. In its schedules, Growth Capital listed Intellivest as an unsecured creditor for the arbitration award.
In the here-and-now of December 2022, we find ourselves in the United States District Court for the Northern District of California ("NDCA"), where Petitioner Dunn is asking the court to deny Respondent Intellivest's attempt to pursue FINRA arbitration proceedings against him:
[D]unn's sole argument is that FINRA does not have jurisdiction over him because he is no longer a FINRA member and has not been since March 2022. Dunn contends that, because Intellivest's claims in the second arbitration proceeding are contingent upon his failure to pay the award against Growth Capital in the first, the claims arose after he was a member. . . .
Indifference or Spite
Cutting to the chase, NDCA shows little empathy for Dunn's plight and, in pertinent part, finds that:
At oral argument, counsel for Mr. Dunn insisted over and over again that Intellivest's statement of claims in the arbitration was dependent upon the nonpayment of the award against Growth Capital and, therefore, was dependent upon circumstances that arose after Mr. Dunn's FINRA membership. Counsel specifically focused on paragraph 53 of Intellivest's statement of claims, which states:
Dunn failed to fulfill his contractual, member, and fiduciary duties to Intellivest by arranging for payment of the Award, but instead decided to simply terminate Growth Capital and release its valuable contracts, apparently out of indifference or spite to the rights and interests of Intellivest. Intellivest thus has no choice but to bring this action against Dunn in his personal capacity (Exh. F-a).
This paragraph, however, is not a necessary element of the claims of relief that follow. Claim I, for example, is for "raiding" and has nothing to do with Dunn's later failure to pay the arbitration award. So the argument by counsel for Mr. Dunn is unfounded. The same is true for the remaining claims for relief. Moreover, even if the statement of claims could be deemed to be entirely contingent upon Mr. Dunn's failure to pay, that failure arises out of the same "business activities" as those leading to the first arbitration because the award arose out of those activities.Counsel for Mr. Dunn also repeatedly made the point at oral argument that Intellivest had already obtained an award against Growth Capital, and therefore there was no occasion for another proceeding, this time against him. This argument is incorrect. When a claimant obtains a judgment against a defendant in one proceeding, the same claimant may sue a different defendant for the same transaction and occurrence, so long as any recovery in the first suit is deducted from any recovery in the second suit. Counsel for Mr. Dunn has not provided any precedent to the contrary.Counsel for Mr. Dunn further stated that all he was asking for was a restraining order preserving the status quo until these various issues could be sorted out. This sounds reassuring in its simplicity, but in truth, it violates the standards for provisional relief. It is quite clear that this dispute must be arbitrated. There is no call for a TRO or preliminary injunction.In sum, Dunn has failed to offer legal arguments or evidence that raise "serious questions going to the merits." Cottrell, 632 F.3d at 1135 (9th Cir. 2010). The evidence instead shows that he is bound to arbitrate. His application for provisional relief is accordingly DENIED.
Accordingly, NDCA denied Petitioner Dunn's Motion and he was ordered to show cause as to why his action should not be dismissed without leave to amend.
Bill Singer's Comment: According to online FINRA BrokerCheck records, Intellivest has been registered since 2008. Daniel Kolber, Esq., who represented the firm throughout the above litigation, is listed on BrokerCheck as the member's:
PRESIDENT, CEO, CHIEF FINANCIAL OFFICER (CFO), SOLE SHAREHOLDER, CHIEF COMPLIANCE OFFICER
Whatever Growth Capital and Dunn were (or weren't) thinking, they sure as hell underestimated Kolber's determination. Kolber and his small firm prove, yet again, the wisdom of Mark Twain's observation that it's not the size of the dog in the fight but the size of the fight in the dog that matters!