October 26, 2010
In a FINRA Arbitration Statement of Claim filed in September 2009, Charles Schwab & Co., Inc. alleged the misuse of Schwab client information by Respondent Colvin. In the Matter of the Arbitration Between Charles Schwab & Co., Inc., Claimant, vs. Kristian Daniel Colvin, Respondent (FINRA Arbitration 09-05471, October 21, 2010).
Okay, that's the short and sweet version of this arbitration. Frankly, a fairly garden-variety intra-industry dispute. However, seems that there may have been a tad more going on here because, frankly, if you consider just the Statement of Claim, it looks like Schwab sort of went ballistic. I mean, geez, just consider this laundry list of causes of action:
- misappropriation of trade secrets;
- breach of contract;
- breach of fiduciary duty
- breach of the duty of loyalty;
- tortious interference with prospective economic advantage; and
- unfair competition.
Take This And That And That And That And . . .
As damages for the above conduct, Claimant Schwab requested the following thirteen -- count 'em, 13 -- items of relief from the FINRA Arbitration Panel:
- A permanent injunction enjoining Respondent and persons acting in concert with him:
(a) From possessing, disclosing or using for any purpose Claimant's Confidential Information;
(b) From using Claimant's Confidential Information to contact or communicate with any client or prospective client Respondent learned about as a result of Respondent's employment with Claimant;
(c) From destroying, erasing, or othenwise making unavailable for further proceedings in this case any records or documents, including data maintained in computer files or other electronic storage media, which were obtained from or contain information derived from any of Claimant's records or Claimant's Confidential Information;
(d) From committing acts contrary to the tenns, conditions, and provisions of Respondent's Agreements with Claimant; and
(e) From unfairly competing with Claimant.
- An order directing Respondent to return to Claimant all of Claimant's Confidential Information and any and all records or information pertaining to Claimant's clients or business obtained as a result of Respondent's employment with Claimant; and to purge all such information within 24 hours notice to Respondent or Respondent's counsel;
- Compensatory damages in an amount to be proven;
- Damages in an amount equal to three times the amount of actual damages;
- Punitive damages;
- Additional punitive damages in the maximum amount penmitted by Califomia Civil Code Section 3426.3;
- Attorneys' fees and costs incurred in connection with this matter, as provided by Respondent's Confidentiality, Non-Solicitation and Assignment Agreements with Claimant, Califomia Civil Code Section 3426.4, and other applicable laws;
- Liquidated damages under the Agreements;
- Costs including filing fees, hearing fees, injunctive fees, costs of any experts, or other costs home by Claimant;
- Pre-award and post-award interest;
- An accounting of al gains, profits and advantages derived by Respondent;
- A constructive trust against Respondent, for Claimant's benefit, on all proceeds gained by Respondent; and
- Such other and further relief as this Panel may deem just and proper.
Respondent Colvin generally denied the allegations and asserted various affirmative defenses.
FINRA Panel Rules
On or about July 2, 2010, the FINRA Panel issued an order advising parties that the Panel found unanimously in favor of the Respondent and that Respondent was awarded attorneys' fees and costs.
Claimant Schwab filed a motion to recuse the Panel after the Panel provided their pre-Award notice of ruling. Respondent Colvin opposed the motion.
The Panel denied the motion, denied all Claimant's claims, and ordered Claimant Schwab to pay to Respondent Colvin $218,881.86 in attorneys' fees.
Bill Singer's Comment: Whoa! What the hell was Schwab thinking with this one? Talk about getting hoisted on one's own petard. Kaboom. Schwab starts this legal to-do and then gets socked with over $200,000 in their adversary's legal fees. Talk about miscalculating.
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Street Legal: The Message And The Medium
The Securities and Exchange Commission recently tackled some thorny issues involving independent contractors, their use of electronic business communications, and their broker-dealers' responsibility to archive and subsequently produce such communications.
READ BILL SINGER'S ANALYSIS OF THIS IMPORTANT CASE AT
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