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Financial Elder Abuse Claims Against Morgan Stanley Die A Tortured Death
January 30, 2019
You need to read it a few times before the enormity of what's being alleged, what may be involved, and what would need to be proved hits you. In 2019, a FINRA Panel of Arbitrators issues a decision addressing claims filed in 2014 seeking over $2 million in damages from Morgan Stanley for, in part, financial elder abuse, that allegedly arose from trading as far back as 1993. Prime among the points in contention was whether the customers' claims were barred by a six-year eligibility rule or applicable statues of limitations. In a workmanlike and impressive manner, a FINRA Arbitration Panel tackles the thorny issues and produces an informative decision.
Case In Point
In a FINRA Arbitration Statement of Claim filed in June 2014 and as amended, public customer Claimants asserted violation of
Financial Elder Abuse Act; breach of fiduciary duty; negligent supervision; unsuitability;
fraud; reckless action; violation of industry standards; fraudulent
concealment; fraud -- churning and omission of material facts; failure to supervise; and
conversion. The causes of action arose in connection with the alleged use of margin-like loans and the purchase
and trading of concentrated positions in stocks, mutual funds and options in such positions as Bank of America, Sears, Washington Mutual,
IndyMac, Lehman Brothers, Six Flags, Sprint, Baidu, First Solar, Petroleo Brasileiro,
and Invesco bond fund. Ultimately, Claimants sought at least $1,811,435 in excessive commissions; at least $700,000 in consequential damages; well-managed portfolio damages; treble damages for financial elder abuse;
punitive damages; fees. and costs. In the Matter of the Arbitration Between Mario Frank Voce, Julia Voce, and Adam DeVone, as co-trustees of the Restated Voce Marital Trust, the Voce Residuary Trust, and the Voce Family Trust dated August 17, 1970, Claimants, v. Morgan Stanley & Co., LLC, Respondent (FINRA Arbitration Decision 14-01954, January 29, 2019)
http://www.finra.org/sites/default/files/aao_documents/14-01954.pdf
Respondent Morgan Stanley generally denied the allegations, asserted various affirmative defenses, and requested the expungement of the matter from a non-party's Central Registration Depository record ("CRD").
Respondent Morgan Stanley's Motion to Dismiss
In October 2018, Respondent Morgan Stanley filed a Motion to Dismiss Pursuant to FINRA Rule 12206 and Motion to Dismiss Claimant Adam DeVone as a Party Pursuant to FINRA Rule 12200.
SIDE BAR: FINRA Rule 12206: Time Limits(a) Time Limitation on Submission of Claims. No claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim. The panel will resolve any questions regarding the eligibility of a claim under this rule.(b) Dismissal under Rule. Dismissal of a claim under this rule does not prohibit a party from pursuing the claim in court. By filing a motion to dismiss a claim under this rule, the moving party agrees that if the panel dismisses a claim under this rule, the non-moving party may withdraw any remaining related claims without prejudice and may pursue all of the claims in court.(1) Motions under this rule must be made in writing, and must be filed separately from the answer, and only after the answer is filed.(2) Unless the parties agree or the panel determines otherwise, parties must serve motions under this rule at least 90 days before a scheduled hearing, and parties have 30 days to respond to the motion. Moving parties may reply to responses to motions. Any such reply must be made within 5 days of receipt of a response.(3) Motions under this rule will be decided by the full panel.(4) The panel may not grant a motion under this rule unless an in-person or telephonic prehearing conference on the motion is held or waived by the parties. Prehearing conferences to consider motions under this rule will be recorded as set forth in Rule 12606.(5) If the panel grants a motion under this rule (in whole or part), the decision must be unanimous, and must be accompanied by a written explanation.(6) If the panel denies a motion under this rule, a party may not re-file the denied motion, unless specifically permitted by panel order.(7) If the party moves to dismiss on multiple grounds including eligibility, the panel must decide eligibility first. If the panel grants the motion to dismiss the case on eligibility grounds on all claims, it shall not rule on any other grounds for the motion to dismiss. If the panel grants the motion to dismiss on eligibility grounds on some, but not all claims, and the party against whom the motion was granted elects to move the case to court, the panel shall not rule on any other ground for dismissal for 15 days from the date of service of the panel's decision to grant the motion to dismiss on eligibility grounds. If a panel dismisses any claim on eligibility grounds, the panel must record the dismissal on eligibility grounds on the face of its order and any subsequent award the panel may issue. If the panel denies the motion to dismiss on eligibility grounds, it shall rule on the other bases for the motion to dismiss the remaining claims in accordance with the procedures set forth in Rule 12504(a).(8) If the panel denies a motion under this rule, the panel must assess forum fees associated with hearings on the motion against the moving party.(9) If the panel deems frivolous a motion filed under this rule, the panel must also award reasonable costs and attorneys' fees to any party that opposed the motion.(10) The panel also may issue other sanctions under Rule 12212 if it determines that a party filed a motion under this rule in bad faith.
(c) Effect of Rule on Time Limits for Filing Claim in Court. The rule does not extend applicable statutes of limitations; nor shall the six-year time limit on the submission of claims apply to any claim that is directed to arbitration by a court of competent jurisdiction upon request of a member or associated person. However, when a claimant files a statement of claim in arbitration, any time limits for the filing of the claim in court will be tolled while FINRA retains jurisdiction of the claim.d) Effect of Filing a Claim in Court on Time Limits for Filing in Arbitration. If a party submits a claim to a court of competent jurisdiction, the six-year time limitation will not run while the court retains jurisdiction of the claim matter.
For Whom The Rule Tolls
In an explanation replete with content and context, the FINRA Arbitration Panel offered this excellent analysis of the parties' respective positions on the pending Motion to Dismiss that included the hotly contested issue of whether any equitable tolling was appropriate to save the customers' claims:
[R]espondent asserted, among other things, that the alleged churning and transactions at issue occurred prior to the six-year eligibility period between 1993 and 2003 and that they were the result of a twenty-year investment relationship with deceased Claimant Maurice Voce, who knew precisely what he was investing in at that time. Respondent further asserted that Claimant Adam DeVone lacked standing to sue in this proceeding, as he was not the child of deceased Claimant Maurice Voce and did not establish what legal claim he had or what legal injury he suffered. In their Opposition to Respondent's Motion to Dismiss dated November 29, 2018, Claimants argued, among other things, that although the churning may have occurred outside of the six-year eligibility period, Respondent concealed the commission fraud and therefore the eligibility period was tolled. Claimants also responded that Claimant DeVone had not brought a claim in his personal capacity and that as co-trustee of the trust accounts at issue, he had a legal standing to bring this action against Respondent. In its December 4, 2018, Reply In Support Of Motion to Dismiss, Respondent asserted, among other things, that equitable tolling was ruled out by the United States Supreme Court, and that deceased Claimant Maurice Voce was well aware of the trading activity in the accounts in the 1990s.On or about November 21, 2018, Respondent filed a Motion to Compel and for Sanctions in which it asserted, among other things, that Claimants failed to disclose and refused to produce documents about twenty one civil and criminal cases involving cotrustee Adam DeVone, as required under Discovery Guide List 2, Item 11. Respondent further asserted that such discovery abuse and misconduct should be sanctioned. In their Opposition to Respondent's Motion to Compel and for Sanctions dated December 3, 2018, Claimants argued, among other things, that Mr. DeVone was not a Claimant in his individual capacity in this action and that the litigations at issue did not involve securities, as described under the Discovery Guide. Further, Claimants argued that the documents requested were publicly available. In its December 7, 2018, Reply Brief in Support of Motion to Compel and for Sanctions, Respondent asserted, among other things, that it did not have an equal access to the documents Claimants deemed publicly available and that because Mr. DeVone was still a party to the action until he is dismissed, that Mr. DeVone was required to fulfill his discovery obligations.
Yes, We Can -- No, We Wont
Following oral argument, the FINRA Arbitration Panel granted Respondent's Motion to Dismiss but denied Respondent's motions for fees, costs and sanctions, and ordered that
Respondent may re-file via a new case its Request for Expungement. In reaching that decision to grant the motion, the Panel offered this compelling rationale:
The Arbitrators do not dispute that the FINRA Arbitrator's Guide contemplates tolling of limitations periods on the basis of continuing fraud or fraudulent concealment. The Panel also acknowledges that the primary period of time in controversy being sought by Claimants involves a trading relationship between Claimants and Respondent between 1993 and 1998. As such, regarding whether or not the FINRA Panel appointed in this matter can award equitable tolling is not in dispute.The records show that Maurice Voce was actively managing his own accounts and was aware of the values of the stocks and highly speculative options he was engaged in trading between 1993 and 1998. Maurice Voce knew the values and amounts of each trade as well as the commissions charged by Respondent. During oral argument, counsel for Claimants confirmed that such commissions were communicated to Maurice Voce during the time period in question.Based upon the evidence presented including all submissions, exhibits, as well as oral arguments from both parties, and after considerable deliberation, the Panel agrees that it has the authority to award equitable tolling. However, in this matter, the Panel does not find good cause to support an award of equitable tolling.Respondent's Motion to Dismiss pursuant to Rule 12206 of the Code of Arbitration Procedure (the "Code") is granted by the Panel without prejudice to any right Claimants have to file in court; Claimants are not prohibited from pursuing their claims in a court pursuant to Rule 12206(b) of the Code.
Bill Singer's Comment
Compliments to these arbitrators for a well-crafted Decision.
Sometimes claims die a slow, tortured death -- and sometimes they get put on life support and survive. As pronounced by this FINRA Arbitration Panel at least, continuing fraud or fraudulent concealment may provide the basis for tolling of limitations periods in FINRA customer complaint arbitrations. That's an important point and one that public customers and industry participants would be well-advised to remember. Merely because six years has come and gone does not necessarily mean that you are out of luck or in the clear.
As it subsequently emerged, Claimants' ability to move forward with prosecuting their claims rested on this issues set forth in the Decision:
[C]laimants argued, among other things, that although the churning may have occurred outside of the six-year eligibility period, Respondent concealed the commission fraud and therefore the eligibility period was tolled. . .
To a large extent, the battle line on whether or not Claimants' claim had expired per the eligibility rule would be fought over whether Respondent Morgan Stanley had wrongfully concealed the values and amounts of the commissions it had charged Maurice Voce some two decades earlier. In deliberating over that contention, the Panel's pivotal finding was that:
The records show that Maurice Voce was actively managing his own accounts and was aware of the values of the stocks and highly speculative options he was engaged in trading between 1993 and 1998. Maurice Voce knew the values and amounts of each trade as well as the commissions charged by Respondent. During oral argument, counsel for Claimants confirmed that such commissions were communicated to Maurice Voce during the time period in question.
In keeping with the BrokeAndBroker.com Blog's role as an advocate for fairness for both public customers and industry participants, the above quote is both a sword and shield for each respective constituency. As evidenced by the Panel's words, they sought to ascertain whether Maurice Voce was "actively" managing his accounts and during what period of time -- of course that's pretty much a "duh" in terms of Respondent Morgan Stanley's Motion to Dismiss for lack of timeliness, however, I can't underscore enough how important it is for all parties to retain "records," that might tilt the scales in their favor. Further, if a customer, for example, timely memorializes concerns about losses or trading or charges in an account, the absence of a substantive response (or a misleading reply) from the brokerage firm or stockbroker may also prove critical.