Industry Respondents Win Two Stunning Arbitrations

April 7, 2010



In the Matter of the Arbitration Between Earl J. Smith, Claimant, and TD Ameritrade, Inc. (Respondent), Brian Fehr (Respondent), and Donna Givner (Respondent) (FINRA Arbitration 09-014525, March 23, 2010)


Claimant Smith accused Respondents TD Ameritrade ("TDA"), Fehr, and Givner of converting his shares of Espiritu Santo Financial Holdings, and alleged the following causes of action:

  • Common law conversion
  • Embezzlement
  • Breach of fiduciary duty
  • Violation of North Carolina General Statutes, Sec. 78A-65(b).

Claimant sought $75,000 in compensatory damages.  Respondents generally denied the allegations.


Two Down and One to Go


After Claimant's case-in-chief concluded, Respondents moved for a directed verdict, to which Claimant objected.  

The Panel granted Respondent Fehr's and Givner's motions but deferred Respondent TDA's motion until the close of the evidentiary hearing (at which time the Panel denied TDA's motion).


After Claimant's case-in-chief concluded, Respondents Fehr and Givner made an Ore Tenus motion (an oral motion as opposed to a written motion) for the expungement of this matter from their Central Registration Depository ("CRD") records.


Yer Out!


Upon the conclusion of the hearing, the Panel denied Claimant's claims with prejudice.


The Panel recommended the expungement of all reference to this arbitration from Respondent Fehr's and Respondent Givner's registration CRD records,with the understanding that pursuant to NASD Notice to Members 04-16,  

Respondents Fehr and Givner must obtain confirmation from a court of competent  jurisdiction before the CRD will execute the expungement.  Unless specifically waived in writing by FINRA, parties seeking judicial confirmation of an arbitration  award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents.


Erroneous and False


Pursuant to Rules 12805 and 13805 of the Arbitration Code, the Arbitration Panel made the affirmative finding that the allegations against Respondents Fehr and Givner were erroneous and false.  Specifically, the Panel ruled that the testimony at the evidentiary hearing established that Respondents Fehr and Givner:  

[H]ad nothing to do with Claimant or his account, until after the event giving rise to the claim.  Indeed, Respondent Fehr was not even employed by Respondent Ameritrade at that time. The broker who handled the transaction in question was not named as a Respondent.  Respondents Fehr and Givner merely researched Claimant's complaint more than a year after the sale. Therefore, the claims against Respondent Fehr and Respondent Givner are clearly erroneous and factually impossible.



In the Matter of the Arbitration Between Manny Neves, Claimant, vs. Chase Investment Services Corp. f/k/a WaMu Investments, Inc. f/k/a WM Financial Services, Inc., Respondent (FINRA Arbitration 08-04540, March 25, 2010).  As a result of his dissatisfaction with investments in a Harford Director Variable Annuity, Claimant Neves asserted causes of action of 

  1. Violation of securities regulatory requirements;
  2. Breach of fiduciary duty;
  3. Violation of Washington State Securities Act;
  4. Negligence;
  5. Breach of duty of reasonable care;
  6. Negligent misrepresentation;
  7. Failure to disclose material information;
  8. Negligent supervision;
  9. Violation of the Washington Consumer Protection Act;
  10. Unjust enrichment; and
  11. Vicarious liability 

In keeping with the everything-but-the-kitchen-sink nature of his allegations, Claimant sought a plethora of relief:

  1. Actual and rescissionary damages in the amount of $1,200,000.00;
  2. Return of actual charges and interest charged to Claimant by Respondent Chase;
  3. Exemplary damages of an amount not specified;
  4. Pre-award and post-award interest at 12% or other rate set by the Panel;
  5. Attorney fees, expenses and costs to Claimant as provided by contract, statutes, NASD or NYSE rules, equity, or any other ground recognized by the Panel;
  6. The monetary amount necessary to compensate Claimant for the additional Income taxes he will owe on any award;
  7. All hearing and filing fees;
  8. Rescission under RCW 21.20;
  9. Damages for the loss of business opportunities in the amount of $3,500,000.00; and
  10. Other relief as the Panel deems just and proper.

 Respondent Chase requested

  • Dismissal of all claims with prejudice;
  • A ruling that makes clear that all liability deriving from all of the Neves accounts at Chase is extinguished;
  • An Order that all references In the Central Registration Deposttory  ("CRD") to the Claims and the written complaints submitted to Chase by Claimant be expunged from Brandi Cohen's record; and
  • An Order that Claimant pay all forum fees and all costs,  attorney fees and other expenses incurred by Respondent to defend the allegations.

And The Envelope Please 


You sort of get the sense from the enumerated allegations and the somewhat testy nature of Respondent Chase's requested orders that there was more than a tad of bad blood flowing back and forth here.  Given that Claimant Neves was seeking some $5 million in compensatory, punitive, and other damages, "bad blood" may even be a bit of an understatement.


First off, the Arbitration Panel dismissed with prejudice all of Claimant's claims.  Without question, this arbitration was a clean sweep for Respondent Chase.


Secondly, and sadly, Claimant Neves died prior to the issuance of the FINRA Award.


Speaking Ill of the Dead?


Given that the Panel ruled squarely in Respondent Chase's favor and the fact of Claimant's death, one would think that this case would simply end on that sobering note.  Stunningly - and I can't underscore this observation enough - the Panel found that Claimant Neves: 

acted in bad faith in the prosecution of this case by concealing material evidence, not producing documents requested by Respondent and required to be disclosed under FINRA rules, and by making statements to the Panel, under oath, during the course of the hearing (and, not necessarily sworn, to others outside the hearing process) that were not credible. This conduct justifies application of the the bad faith exception to the so-called "American Rule" to the effect that each party should bear his own attorney fees and costs except as specifically authorized by contract or by statute. See Todd Shipyards v. Cunard Lines, Ltd., 943 F. 2d 1056,1064 (9th Cir. 1991). Claimant is liable for and shall pay Respondent attorney fees in the amount of $50,000.00. 

As if the above were not stunning enough, the Panel ices the cake by recommending the expungement of all references to this arbitration from the CRD records of Brandi Cohen, with the understanding that the process detailed in NASD Notice to Members 04-16 will be observed. 


Bill Singer's Comment:  The overwhelming majority of customer complaints are made in good faith and allege legitimate grievances.  Like it or not, public customers lose money and often blame their stockbroker or brokerage firms when their investments don't pan out.  Is that unfair?  Frankly, I believe that Wall Street invited those lawsuits by marketing itself as this warm, touchy-feely, family friend who is always looking out for the client's best interest (and will even give the toast at your daughter's wedding or cheer you son at his soccer game) and has this amazing staff of analysts who only pick winners.  If that's not Wall Street's image, then I invite you to tape the industry's television commercials and tell me what message is being sent to the public.


Notwithstanding the questionable nature of Wall Street's marketing, brokerage firms are not insurance companies that guarantee against losses -- and if you hear that promise from your broker, close out your account.  It's all guesswork, at best -- maybe educated guesswork, but it's not exactly black-and-white science.  You look at the industry's stockpicking track record for the past decade and tell me if that truth is trumpeted in any of the televised commercials.


In Smith, we see a case where two individual respondents were named despite having had nothing to do with the customer's account, and one of the respondents was not even employed at the firm during the relevant time.  While the Panel dismissed the claims and ordered the expungement of the allegations, that just doesn't strike me as enough.  What more was needed to support the imposition of a monetary award against the Claimant?  Are there no consequences for a Claimant found by a Panel to have alleged "clearly erroneous and factually impossible" charges? 


In Neves we see the troubling side of mandatory FINRA arbitration.  A customer acts in bad faith, conceals material evidence, fails to produce material documents, and make statements about his case that are not credible.  While in hindsight this multi-million dollar case may seem laughable, I can assure you that if you or your company were on the receiving end of such a Complaint that it would not be funny -- not in terms of the lost time, the dollars you spent to defend, and the emotional stress that such matters cause. 


I applaud the Neves Panel for not only dismissing the claims but in imposing some meaningful sanction in the form of $50,000 upon a Claimant who filed his case in bad faith.  Whatever the wrongs of Wall Street, and I am no apologist for that misconduct -- the fraud upon the American public by the industry has been considerable -- a mandatory arbitration forum must be more than merely open season upon the member firms and registered persons who are routinely named as respondents.  This case restores some integrity to the arbitration process.  That's always a good thing.



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