Imagine That a $10 Million FINRA Arbitration Claim Settles for $100,000

January 6, 2023

Those getting sued tend to anticipate that initial demands for damages will be bloated, padded, and a tad over the top. Which may also explain why defense counsel often respond to the first-round of damages demands with eye-rolling and laughter. After that initial reaction, savvy defense counsel may resort to the tactic of "pay to play," and force an adversary to invest time and energy into preparing for trial before a last-minute settlement offer is made in the hallway. As Dr. Evil realized, one million bucks ain't what it used to be. Which brings us to the question of what's a demand for ten million dollars in damages worth in a FINRA arbitration case? $100 billion dollars? $1? Somewhere in between?

Case in Point

In a FINRA Arbitration Statement of Claim filed in November 2020, public customer Claimant Cranston Fire & Police Dept Pension Plan asserted breach of fiduciary duty; breach of contract; fraud; misrepresentation; material omission of fact; negligence under federal and Rhode Island law; respondeat superior; control person liability; and failure to supervise. 
In the Matter of the Arbitration Between Cranston Fire & Police Dept Pension Plan, Claimant, v. Janney Montgomery Scott LLC, Respondent (FINRA Arbitration Award 20-03899)

Don't You Think We Should Ask for More Than A Million Dollars?

The FINRA Arbitration Award asserts that the "causes of action relate to the Jackson National Annuity, the Skybridge MultiAdvisor Hedge Fund Portfolios, and Compass Alternative Investments. As to the damages sought, the Award states that:

In the Statement of Claim, Claimant requested compensatory damages of approximately $10,000,000.00, representing excessive fees paid and well-managed-account damages due to underperformance and fee-drag on Claimant's assets; an accounting for all revenues and fees received by Respondent; pre- and post-award interest, costs, expenses, attorneys' fees, expert fees, and forum fees; and punitive damages.

Respondent Janney Montgomery Scott generally denied the allegations and asserted affirmative defenses.

Setllin' Down

In November 2020, the battle lines were drawn; and then the troops in the trenches awaited a signal. And waited. And waited. And then on August 26, 2022, a tad under two years from when the first shot was fired, Claimant notified the FINRA Arbitration Panel that the case had settled. Thereafter, Respondent sought to expunge the matter from the industry records of two unnamed, registered parties. Upon deliberation, the Panel denied the requested expungements.

And that's that.

Except, y'know, that shouldn't be that

Maybe you were wondering like me: What the hell happened to the $10 million in requested damages? How much in settlement money was paid, if, in fact, any money exchanged hands? 

Why did the Panel deny the expungement of the two registered representatives? 

I read and re-read the FINRA Arbitration Award. Somewhere in there, there had to be answers. Lemme see . . . ummm . . . oh, crap . . . this film ends with a cliffhanger but there's not gonna be a sequel. Apparently, we're supposed to use our imagination to come up with the answers. 

Bill Singer's Comment

I don't know about you but I sure as hell am getting fed up with FINRA Arbitration Awards that leave me hangin' and think that I'm going to be satisfied using my imagination to provide the unanswered questions. Sorry but that's not gonna happen here -- you don't toss out the jaw-dropping fact that a public customer demanded $10 million in damages and then turn off the lights, close the door, and leave me in a darkened hearing room.  

Okay, fine -- if FINRA wants to play games then I'm up for some games of my own. 

According to FINRA's online BrokerCheck database as of January 6, 2023, FINRA Arbitration # 20-03899 settled on August 23, 2022; and the dispute is characterized in part as follows:

Rhode Island client complains that the fees associated with their accounts were not fully disclosed and were higher than stated between 2009 - 2020. Clients further complain that investments made in a hedge fund and an annuity were not suitable.

No wonder that Claimant demanded $10 million in damages!  The Claimant customer alleges that Janney Montgomery Scott failed to fully disclose fees for 2009 - 2020. That's over a decade of disputed fees; and, on top of that, the customer wasn't all that crazy about allegedly unsuitable hedge fund and annuity investments. This must have been one hell of a payday for Claimant by way of settlement. 

According to BrokerCheck, in fact, Respondent Janney Montgomer Scott settled the $10 million claim for $100,000, and there wasn't any individual contribution from either of the unnamed parties. As further disclosed on BrokerCheck by the firm: "This matter was settled in the interest of client relations and to avoid potentially lengthy and costly litigation."

Ummm . . . okay, sure. A public customer pension plan files a lawsuit for $10 million. The FINRA broker-dealer settles the case for $100,000. Why? What? How come? Welcome to the world of FINRA Arbitration and the very large rug under which far too much information gets swept. In the end, you've got to use your imagination.