Bridgewater Over Troubled FINRA Waters

July 15, 2020

https://www.reuters.com/article/us-usa-hedgefunds-bridgewater-court/bridgewater-associates-found-to-have-manufactured-false-evidence-against-ex-employees-idUSKCN24F009 :

The hedge fund, founded by billionaire Ray Dalio, was found to have "filed its claims in reckless disregard of its own internal records, and in order to support its allegations of access to trade secrets, manufactured false evidence," court documents made public on Monday showed.

"We conclude that Claimant [Bridgewater] did not have a reasonable basis for filing its claims of misappropriation of trade secrets or disclosure of confidential information as to Squire or Minicone," according to the documents, which quoted the findings of a panel of three arbitrators of the American Arbitration Association.

Lawrence Minicone and Zachary Squire joined Bridgewater, respectively, in 2008 and 2010, until both resigned in 2013. It was only in November 2017 that Bridgewater sued Minicone and Squire before the American Arbitration Association alleging that they had misappropriated trade secrets and breached their contracts. Bridgewater Associates, LP v. Lawrence Minicone and Zachary Squire  (AAA Case 01-17-0006-7329). After prevailing in their defense against Bridgewater's claims, Minicone and Squire moved in the New York State Supreme Court to confirm a Final Award rendered by the three arbitrators on the AAA hearing panel. 

SIDE BAR: During Minicone's and Squire's tenure, Former FBI Director James Comey (2013 - 2017) was General Counsel at Bridgewater Associates from 2010 until early 2013.

As Filed in New York State Court

Lawrence Minicone, Zachary Squire, Petitioners, v. Bridgewater Associates, LP, Respondent (Supreme Court of the State of New York, County of New York, Index. No. 652855/2020)
WHEREFORE, Petitioners respectfully request that this Court:

a. Enter an Order pursuant to CPLR § 7510 confirming the Award.

b. Enter a judgment thereon in favor of Petitioners pursuant to CPLR § 7514, in the 
amount of $1,991,411.49, together with post-Award, pre-judgment interest at the statutory rate pursuant to CPLR § 5002 from July 1, 2020, through the date Judgment is entered; plus postjudgment interest at the statutory rate pursuant to CPLR § 5003 until payment is made; plus Petitioners' reasonable attorneys' fees and costs; and

c. Award Petitioners such other and further relief as the Court deems just and proper.

[T]he Tribunal found, nothing presented as evidence by Bridgewater throughout the Arbitration constituted a trade secret: 

[W]e find that the evidence presented establishes that the alleged trade secrets, that is, the trade secrets as describedconstituted publicly available information or information generally known to professionals in the industry, and that Claimant [Bridgewater], a highly sophisticated entity, knew that the trade secrets as described did not constitute trade secrets. 

See Petition, Ex. 2 (Award at 17) (emphasis added). In addition to Bridgewater knowing that the information it alleged as "secrets" did not constitute trade secrets, the Tribunal found that Bridgewater manufactured false evidence regarding its alleged "secrets": 

We conclude that Claimant [Bridgewater] did not have a reasonable basis for filing its claims of misappropriation of trade secrets or disclosure of confidential information as to Squire or Minicone. We conclude Claimant filed its claims in reckless disregard of its own internal records, and in order to support its allegations of access to trade secrets, manufactured false evidence. 

Id. at 17 (emphasis added). Beyond the finding there were no trade secrets, the Tribunal also found that Bridgewater withheld evidence regarding its supposed "secrets" in defiance of the Tribunal's repeated orders: 

Finally, Claimant [Bridgewater] continued to press its claims even after discovery and the Tribunal's orders made it clear that Claimant's refusal to provide models and complete PEDs [Plain English Documents] foreclosed the possibility of prevailing on its misappropriation claims. Claimant's actions in continuing to press its claims constitute further evidence that its intentions were not to prove misappropriation, but rather, were to adversely affect Respondents' ability to conduct a competitive business. 

Id. at 17; see also id. at 19: 

Bridgewater defied the Tribunal's repeated orders to provide sufficient specificity for each of its alleged trade secrets to enable Respondents to determine what they were accused of misappropriating, thus making it impossible for experts and the Tribunal to compare Claimant's actual methodologies with TCM's methodologies. Claimant's refusal supports a negative inference,viz., that had the information been provided, it would have been obvious that Respondents' methodologies were not the same as Claimants.

at Pages 4 - 5 of the Petitioners' Memorandum

Bridgewater does not seek to vacate the panel's decision concerning any claims that were legitimately at issue in the arbitration. Prosecuting trade secret claims while maintaining those secrets' confidentiality is notoriously difficult. See generally Kevin R. Casey, Identification of Trade Secrets During Discovery: Timing and Specificity, 24 AIPLA Q.J. 191 (1996). While Bridgewater continues to believe its trade secret descriptions were sufficient, it respects the parties' contractual agreement to arbitrate this dispute and the arbitrators' decision to deny both Bridgewater's and Petitioners' substantive claims.

Bridgewater objects only to that portion of the majority's decision which governing law and the parties' contracts independently and expressly forbid: the award of attorneys' fees to Petitioners. For the reasons set forth below, the Motion fails and the award must be vacated.

at Pages 12 -13 of Respondent's Memorandum

Election of Former Bridgewater Co-CEO Eileen Murray as FINRA Board Chair

The revelations about Bridgewater's conduct during its lawsuit against Minicone and Squire should leave the Financial Industry Regulatory Authority ("FINRA") ill at ease in light of the self-regulatory-organization's recent announcement that it had named former Bridgewater Associates, LP Co-Chief Executive Officer Eileen Murray as its new Chair. In announcing Murray's appointment, FINRA's press release stated in part Eileen Murray Elected Chairperson of FINRA Board of Governors https://www.finra.org/media-center/newsreleases/2020/eileen-murray-elected-chairperson-finra-board-governors :

"The Chairperson of FINRA's Board must have a proven track record of leading complex organizations, and above all must have an unwavering commitment to investor protection and market integrity," said Board member Kathleen Murphy, who chairs FINRA's Nominating and Governance Committee. "In conducting our search for Bill's successor, it was clear that Eileen exceeds all of these qualifications and more."

According to FINRA's online records, https://www.finra.org/about/governance/finra-board-governors/eileen-murray, Murray was Co-CEO of Bridgewater from 2009 to 2020, a tenure that covered Minicone's and Squire's employment, their departures, and the filing of the lawsuit at issue. Further, Murray has been a FINRA Governor since 2016 and chaired the regulator's Audit Committee and also served on its Executive Committee, Finance, Operations & Technology Committee, and Management Compensation Committee. Oddly, notwithstanding Murray's extensive industry experience since 1988 spanning roles at Bridgewater Associates, Investment Risk Management LLC, Duff Capital Advisors, Morgan Stanley, Credit Suisse First Boston, and as a current sitting member of HSBC's Board of Directors, FINRA classifies her as a "Public" Governor.

SIDE BAR: Article I of FINRA's By-Laws states in pertinent part:

(tt) "Public Governor" or "Public committee member" means any Governor or committee member who is not the Chief Executive Officer of the Corporation or, during the Transitional Period, the Chief Executive Officer of NYSE Regulation, Inc., who is not an Industry Governor and who otherwise has no material business relationship with a broker or dealer or a self regulatory organization registered under the Act (other than serving as a public director of such a self regulatory organization); . . .

Note that Article I does NOT define the exclusion as based upon employment "with a broker or dealer . . . " but as the individual at issue having "no material business relationship with a broker or dealer . . ." I'm not going to accuse FINRA of bad faith but, you tell me: Given Murray's 32-year resume as published by FINRA and her concurrent service as a member of HSBC's Board, is it correct that she has "no material business relationship with a broker or dealer?" Apparently the answer is "yes," which makes you wonder just what constitutes the "material" substance of being a non-industry "Public" Governor at FINRA.

Unwavering Commitment to Market Integrity

As FINRA Nominating and Governance Committee Chair Murphy so aptly affirmed, the Chair of FINRA's Board must have an "unwavering commitment to investor protection and market integrity." How then does that commitment to integrity comport with shocking revelations that during Eileen Murray's tenure as the Co-CEO of Bridgewater Associates, that her firm filed a lawsuit against Minicone and Squire during which the company "filed its claims in reckless disregard of its own internal records, and in order to support its allegations of access to trade secrets, manufactured false evidence . . . [and] did not have a reasonable basis for filing its claims . . ."?

A Gerrymandered Board that Disenfranchises 91% of FINRA's Member Firms

It may well be that Murray had no role whatsoever in any of the sordid details attendant to Bridgewater v. Minicone and Squire; however, it is a fair question to ask whether FINRA's Nominating Committee (which has no representative from over 91% of the organization's membership!) was aware of the issues raised in the lawsuit and whether they vetted same with Murray during the consideration of her for the role of Chair. Consider my recent comments from "Securities Industry Commentator" (July 1, 2020) 
http://www.rrbdlaw.com/5300/securities-industry-commentator/#murray :

https://www.finra.org/media-center/newsreleases/2020/eileen-murray-elected-chairperson-finra-board-governors

The FINRA Board of Governors unanimously elected Eileen Murray, former Co-Chief Executive Officer of Bridgewater Associates, LP, as Chairperson to replace the departing William H. "Bill" Heyman. Also, Maureen Jensen, former Chair and Chief Executive Officer of the Ontario Securities Commission and Eric Noll, Chief Executive Officer of Context Capital Partners were appointed to the FINRA Board as public governors, effective at the August Annual Meeting.

Bill Singer's Comment: As I have long argued and will so persist, FINRA's Board of Governors is a non-representative entity nurtured by an indefensible system of gerrymandering whereby over 91% of the organization's member firms (those designated as "Small" and defined as having at least 1 but no more than 150 registered representatives) are restricted to only 3 of 24 seats (less than 13% of the organization's membership). Worse, FINRA's Nominating and Governance Committee, which nominates candidates for Governors, does not have one Small Firm Governor among its seven member committee https://www.finra.org/about/governance/standing-committees 

With the exception of Small Firm Governor Stephen Kohn, who is now seeking re-election to a second term, I know of no current Governor who is aggressively supporting efforts to seat a Small Firm Governor on the Nominating Committee. 

Given FINRA's social engineering of its Board and key Committees, and given the ongoing demise of FINRA's overall membership, I refuse to afford this so-called self-regulatory-organization any legitimacy and continue to call for its decertification. Consequently, while I welcome the election of Eileen Murray as Chair, I urge her to rectify the outrageous lack of fair representation on FINRA's Board and Committees. 

What Did You Know and When Did You Know It?

Inevitably, I must ask -- indeed, all Wall Street reform advocates must wonder -- whether FINRA's Nominating Committee knew about the AAA hearing panel's finding of fabrication of evidence that occurred during the new Board Chair Murray's term as Co-CEO of Bridgewater. 

If the Nominating Committee knew of the allegations/findings about fabricated evidence, was that disclosed to all FINRA Board members before they voted to approve Murray's nomination?

If the Nominating Committee did not know about the fabricated evidence issue, shouldn't Murray have disclosed such facts during the vetting process given that FINRA is Wall Street's leading self-regulatory-organization?  

If the findings of the AAA hearing panel are correctly reported by the press and are accurately set forth in the pleadings cited above, we have a grotesque example of hypocrisy whereby an investment management firm knowingly and intentionally manufactured evidence in a lawsuit that said firm brought against two former employees. Given those sordid facts, FINRA should have inquired as to whether Bridgewater's former Co-CEO knew about (or sanctioned) any of the alleged misconduct -- or, in the alternative, if Murray was not even in the loop about the lawsuit. Keep in mind that the only reason that we know about the lurid allegations is because former employees Minicone and Squire were compelled to file a motion in court in order to force Bridgewater to comply with the AAA order to pay legal fees. Inexplicably, Bridgewater's intransigence invited the attachment to Plaintiffs' Petition of all the confidential AAA arbitration documents and the references to the unflattering criticisms by the Panel. 

Again, the question that most lawyers would ask of FINRA's Nominating Committee is "Did you know of Bridgewater's alleged fabrication of evidence against two former employees?" 

Wouldn't you ask a candidate for the Chair of FINRA's Board if there is anything in your background that could prove embarrassing to FINRA? 

If the Nominating Committee knew of the fabrication of evidence, why did they decide to overlook that issue when recommending Murray's appointment? Was that issue presented to all sitting Board members before they voted in favor of the appointment? 

If this issue of Bridgewater's manufacturing of evidence during the AAA arbitration is now a surprising revelation to the members of the Nominating Committee and the sitting Board members, will they rescind the appointment, or ask Eileen Murray to respond with a full written statement to be provided to the sitting Governors and published on FINRA's website? 

Uneven Regulation

The issues of Bridgewater's alleged bad-faith lawsuit and what its Co-CEO knew (or didn't know) are relevant because FINRA routinely charges member firms and associated persons with failing to abide by conduct consistent with just and equitable principles of trade as promulgated under FINRA Rule 2010  https://www.finra.org/rules-guidance/rulebooks/finra-rules/2010. One would think that the fabrication of evidence in furtherance of a lawsuit filed by any member firm or associated person would certainly not be deemed just and equitable conduct. Why would such conduct be sanctioned if undertaken by a hedge fund?

If such conduct was sanctioned or tolerated by any firm's Chief Executive Officer, how does that individual then obtain an appointment as the Chair of Wall Street's leading self regulator? 

If FINRA was unaware of this issue, then what does it say of the regulator's investigative practices? 

If the Nominating Committee knowingly failed to disclose this issue along with its nomination of Murray as Chair, shouldn't the entire Committee be removed? 

If the Committee was unaware of this issue, why and what, if any, role did Murray play in deflecting such an inquiry? 

In fairness to FINRA Chair Murray, I urge her to direct the Board to retain an independent, outside investigator to look into the many issues that I have raised and to prepare a report to the Board. Such a report may rebut all of the troubling questions raised in this article, and I would accept such findings. On the other hand, if the report lambastes FINRA's Nominating Committee, then I would demand the discharge of all members and insist upon a rule change that requires the seating of at least one Small Firm Governor.  For my part, I hope that the publication of this article will prompt FINRA Small Firm Governor Stephen Kohn to once again wage a lonely battle on behalf of industry reform and regulatory fair-play.

SIDE BAR: For a very unsettling and troubling example of how FINRA handled (mishandled) prior allegations of misconduct by a major member firm during an arbitration, read: "Wall Street Whistleblower Johnny Burris Speaks Truth To Power" (BrokeAndBroker.com Blog / June 30, 2017) http://www.brokeandbroker.com/3516/burris-whistleblower/

Also See "Vote For Stephen Kohn For 2020 FINRA Small Firm Governor " (BrokeAndBroker.com Blog /  July 13, 2020)
http://www.brokeandbroker.com/5319/stephen-kohn-small-firm-governor/