In today's
featured arbitration, we got an unhappy public customer complaining that he was
duped by his stockbroker into an investment that was beset by fraud. Frankly,
the customer seems to have had a point. Turns out that the broker-dealer filed
its own claim against the stockbroker "for his acts of theft." When
your best defense admits that the complaining customer was the victim of theft
and you file your own claim seeking to be made whole from by the same thief,
there's not that much to do beyond write out a settlement check to the
customer.
Case In Point
In a Financial Industry Regulatory Authority
("FINRA") Arbitration Statement of Claim filed in June 2017, Claimant
Pannecouk asserted failure to supervise, common law negligence, breach of
contract, breach of fiduciary duty, respondeat superior, and state securities
fraud. The FINRA Arbitration Decision states, in part,
that:
[T]he causes of action related to Claimant's allegation
that Romer advised Claimant to invest in oil UITs through a company identified
as P&R Capital. Claimant asserted that P&R Capital was a
company owned by Romer and that funds Claimant submitted for investment in oil
UITs were classified falsely by CoreCap as a
loan.
Claimant Pannecouk sought $80,000.00 - $160,000.00 in
compensatory damages; punitive, additional, or alternative damages; interest;
rescission; costs; and attorneys' fee. .In the Matter of the FINRA
Arbitration Between Gary L. Pannecouk, Claimant, vs. CoreCap
Investments, Inc., Raymond Max Pett, and Judith Andrea Villarreal,
Respondents / Third-Party Claimants, v. Ernest Julius Romer,
Third-Party Respondent(FINRA Arbitration
17-01710, June 28, 2018).
Respondents CoreCap, Pett, and Villarreal generally
denied the allegations, asserted various defenses, and filed a Third-Party
Claim against Romer in which they asserted breach of contract and
indemnification. The Third-Party-Claimants alleged hat Romer is contractually
obligated to indemnify them "for his acts of theft which constitute
misconduct under the Representative Agreement, which governed his relationship
with CoreCap." Third-Party-Claimants requested that Romer be required by
pay the full amount of any award entered against them as Respondents plus
interest, costs, and fees. At the close of the hearing on the third-party
claim, CoreCap requested $57,500.00 in damages against Romer. CoreCap did not
pursue any other request for damages. Pett and Villareal pursued their requests
for expungement at the hearing and did not seek other relief.
Romer did not file a Submission Agreement and did not
appear at the evidentiary hearing.
Award
The FINRA Arbitration Panel found Romer liable and
ordered him to pay to CoreCap $57,500.00
in
compensatory
damages.
Expungement
The Panel recommended the expungement of the arbitration
from the Central Registration Depository records ("CRD") of Pett and
Villarreal based upon a FINRA Rule 2080 finding that both of them were not
involved in the alleged investment-related sales practice violation, forgery,
theft, misappropriation, or conversion of funds. Pointedly, the Panel found
that:
The
loss of customer funds was solely due to theft by Romer. Pett and Villareal had
no knowledge of the thefts nor reason to know of Romer's propensity to commit
these
thefts.
Bill Singer's
Comment
I started off with the premise that this was a customer arbitration against industry respondents. So . . .
what the hell happened to the customer's claim? Now, to be fair to the arbitrators,
it's probably not them. It's like 1,000 degrees in New York City today and I've
had four iced coffees from 5:30 a.m., when I got up, until now, which is still
morning. I'm hot. I'm old, I'm sweating. I'm not my usual bubbly and
effervescent happy-go-lucky guy. Anyway, sure enough, in all the prose
that I dripped sweat over while reading, I sorta missed
this:
The primary case between Claimant and Respondents
was settled on or about May 15, 2018, prior to the scheduled hearing. At the
in-person recorded hearing on May 29, 2018, the Panel provided the parties an
opportunity to present oral argument and evidence on CoreCap's (third-party)
claims against Romer, as well as the requests for expungement by Pett and
Villareal. Although Respondents filed the Third-Party Claim jointly, only
CoreCap pursued the third-party claim at the hearing. Claimant did not
participate in the expungement hearing and stated, through counsel, that he took
no position on the requests for expungement by Pett and Villareal.
Online FINRA BrokerCheck records as of
July 2, 2018, disclose that FINRA Arbitration 17-01710 settled on May 11, 2018, for $57,500
without contribution from Pett or
Villareal.
On
July 17, 2017, FINRA barred Romer for failure to provide information
or keep information. current. http://www.finra.org/sites/default/files/publication_file/September_2017_Disiplinary_Actions.pdf
