Tag Archives: Arbitration

The Irony of The NFL’s Actions

03 Thursday Sep 2015

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The NFL learned a valuable lesson in the Deflategate decision. Rules, and the manner in which they are to be followed, count. In football speak, the NFL just got blindsided by its failure to follow its own rules and those contained in the collective bargaining agreement.

For those living under a stone for the past seven months, the NFL suspended New England Patriots’ quarterback Tom Brady for the first four games of the upcoming season, or a quarter of the football season. Tom Brady and the NFL Players Association appealed the decision. The NFL Commissioner made the decision he was going to hear the appeal on a sanction he, or his office, issued. The appeal was to take the form of an arbitration, an informal trial, where the Commissioner determined he would ensure the integrity of the game as the judge, jury, and again, executioner of the case.

What is ironic and overlooked is the NFL’s attempt to get cute with the rules of law – – rules it was permitted to utilize to its benefit, as it did, when it issued its decision (arbitration award) upholding the four game suspension and almost simultaneously  filed a motion to confirm the decision in the federal court sitting in the Southern District of New York. The goal, utilizing what is referred to as the “first to file” rule – – was to stop Tom Brady and the Players Association from filing a motion to vacate the arbitration award before a union friendly federal court in Minnesota. The NFL understandably wanted to have the motion filed in an employer friendly forum, New York. The gamesmanship – – as played by the rules, won out, and the case was properly heard in New York.

But here’s where the NFL went wrong. In racing to the New York court, it hoped the assigned judge would simply acquiesce to the NFL’s position, which was in essence, it can do what it wants.  Unfortunately, the law says otherwise, and the case was assigned to a judge who understood what is required to ensure the integrity of the arbitration process. In rendering its decision to vacate the arbitration award, the court rightly chided the NFL, specifically the Commissioner, for ignoring rules to permit a fair playing field for the parties to the arbitration, namely Mr. Brady and the Players Association.

Rules, procedures and protocols, regardless of the situation, are there for a reason. They provide all involved in the process with an understanding of what is to be expected by the parties and what will occur if they are violated. The decision in the Brady case affirms arbitrators – – those making the final decisions – – must comply with rules to ensure a fair and equitable process. Arbitrations are not to be Kangaroo Courts, because if they are, there simply is no integrity in the process. That was the underlying point in the decision of the judge to vacate the arbitration award.

It is somewhat ironic that the NFL Commissioner, who holds himself as the final arbiter of the integrity of the game, failed to ensure the integrity of his own proceedings.

The Law Offices of Barry M. Bordetsky represents parties in employment, contractual and securities arbitrations as well as litigants before state and federal courts. If you have questions regarding your arbitration process, please contact Barry Bordetsky at (800) 998-7705 or email barry@bordetskylaw.com.

The Importance of A Spot Check

22 Wednesday Apr 2015

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Organizational charts are utilized for many purposes, one of which is it ensure the clear understanding of delegated responsibilities and to whom those responsibilities fall to within the company. President Harry Truman famously had a sign on his desk that read “The Buck Stops Here”, telling America that at the day’s end, the responsibility is his. No finger pointing, no more delegating, just responsibility. The statement is in stark contrast to the well-used phrase “passing the buck”, or said differently, pointing the finger to someone else to take blame for a problem.

While we trust our employees tasked with particular responsibilities will complete them without the need for oversight, it would be naïve to think even the best of employees: (i) do not make mistakes; or (ii) may be unknowingly following an improper course of action. The process of spot-checking your employees and policies, from human resource, compliance or other supervisory position, can exponentially limit your company’s potential liabilities.

By way of example, your human resource department has many responsibilities, from conducting due diligence on new hires to ensuring employee conduct falls in line with the law and the company’s work environment policies. This group is undoubtedly pulled in many different directions.

When a complaint is filed by a former employee against the company, one of my first meetings is with the human resource manager. It is critical to understand the path of the former employee before and during employment with the company.   It is just as important to understand the company’s policies regarding particular conduct of its employees and who is responsible for ensuring the proper implementation of the policies.

And here is where spot-checking comes into play to protect your company. Staying with the human resources example, someone should be taking the time on a regular basis to speak to various members of the department and ask them particular questions regarding the company’s policies.   Someone should be tasked with ensuring those responsible for overseeing and implementing the company’s policies actually know the policies and the applicable law.

The last thing you want is to learn, after a complaint has been filed against your company, its policies are outdated or worse, on point but regularly ignored.   While this responsibility may not be yours now pursuant to the company’s organization chart, it certainly will be once the litigation is a new file on your desk.

The Law Offices of Barry M. Bordetsky represents parties before state and federal courts as well as arbitration forums. If you have questions about an issue you are involved with, please contact Barry Bordetsky at (800) 998-7705 or email barry@bordetskylaw.com.  Nothing herein is a guarantee of results.

FINRA Targeting Senior Investors

21 Tuesday Apr 2015

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The Financial Industry Regulatory Authority (“FINRA”) appears to be targeting seniors – – or at least the brokers that provide financial services to them. This may very well create a new waive of enforcement actions as FINRA seeks the spotlight to inform the public it is out to protect this group of investors. Even if that means protect them from themselves.

FINRA member firms, supervisors and brokers should be proactive to ensure their work with senior investors aligns with suitability requirements, FINRA guidelines and various state statutory requirements. When an account for a senior investor is being opened by a broker, the broker must take note of the client’s age as the information is being included in the new account paperwork. Bells should go off with the broker the new client’s time horizon for investments is significantly shorter than most. What that means is the types of investments that are to be offered must be carefully selected. By way of example, a variable annuity that pays out in 20 years may not be the best of selections as an investment vehicle for an 80 year-old investor. Similarly, in-and-out short term trading most likely should not be the recommended strategy. There are, however, always exceptions.

From a supervisory standpoint, the person responsible for authorizing the opening of the account must take note not only of the new client’s age and corresponding trading strategy, but also should ensure the firm is taking steps to educate brokers on how best to deal with financial strategies involving seniors. FINRA has provided Notice to Members and many, if not all states in the country have statutes designed to protect seniors from predatory brokers. Both supervisors and the brokers should take the time to review FINRA’s writings on the topic and ensure that the recommendations to senior investors are in line not only with the investment objectives on the new account documentation, but also in line with the provisions of FINRA guidelines and state statutory guidelines.

If a broker finds himself working with a large group of senior aged clients, the broker must be very careful to not try to take advantage clientele and begin utilizing a self-created title, such as Advisor to Senior Investors. Again, guidelines are in place as to the titles utilized by brokers, and those representing investors in FINRA arbitrations will utilize the fancy, but unearned titled, to impale the broker’s defense of the case. Similarly, if a supervisor sees a broker’s clientele is growing with this group of investors, there should be an aggressive review of the broker’s work. There should not be an assumption of wrongdoing, but an understanding of the broker’s strategy with each senior client and review as to the suitability of the trading in the account.

The beginning and end of the work should be this for brokers and their employing firms: be smart and aggressive in terms of protecting yourself. That does not mean a broker should not provide the client with the investments sought. What it does mean is the broker, with the assistance of the supervisor, should work directly with the senior investor to ensure the investor has a complete understanding as to: (i) the type of investment being recommended; (ii) the risks associated with the investment; and (iii) the fees and/or commissions that will be generated by the investment.

The Law Offices of Barry M. Bordetsky represents customers and industry members and representatives in FINRA arbitrations as well as before state and federal courts. If you have questions regarding the process, please contact Barry Bordetsky by telephone at (800) 998-7705 or email barry@bordetskylaw.com. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

A Smart Start With A Mediation Pre-Requisite

03 Friday Apr 2015

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Arbitration clauses became a tool of corporations for a variety of reasons. One, an arbitration is a forum where the claims are not publicly filed or readily accessible to anyone trying to find problems where none exist. Two, arbitration generally carries a far lesser cost than a state or federal court case. And three, parties maintain much more control over the process in an arbitration than they do in courts. To require arbitration of disputes, companies inserted contractual clauses requiring “any and all disputes to be arbitrated” before a specific arbitration forum.

New Jersey courts have recently set upon a course of conduct to nullify such arbitration provisions, setting aside arbitration clauses and forcing parties to spend exponentially more money on a case. This often results in disputes with employees or third parties in the public view.

There is a tactical and practical solution that far too many company’s fail to utilize before getting to this point: a mediation pre-requisite into your contracts. What does this do? Most importantly, before any claim is filed, you now have the opportunity to have the claim presented; to or from you. This gives you the chance to assess the risk of moving forward from a legal and business prospective.

Even where the dispute is one you know from the outset will not settle, mediation as a condition precedent should be utilized. With a pre-filing mediation you have the opportunity to sit in a much friendlier setting across from the person who will become your adversary. Unlike in a litigation or arbitration cross-examination, in mediations you can ask any question and assess how the person across the mediation table will appear as a witness. Early answers to the following questions can be critical in determining how you proceed: Can the person be shaken easily? Will the person garner sympathy as a witness? Is the person prone to hyperbole? Where and what are the holes in the story?

Parties, particularly when they are individuals, want to be heard. And my advice: let them talk … as much as possible. Let them have their moment before you as well as with an independent mediator who will then provide you with an assessment of the case.

Similarly, you learn about counsel for the adverse party. In addition to learning your potential adversary’s litigation skills, you will have the opportunity to have face-to-face time, building a relationship that may be necessary down the road should the matter devolve into an arbitration or litigation.

There is no such thing as a failed mediation. One way or the other, with a pre-filing mediation requirement, you are going to leave the day with substantially more control, whether resolution or preparation for things to come, then you would have had if the case is filed by or against you from the outset.

When The Consequences Outweigh the Risk

19 Monday Jan 2015

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It is not difficult, doing the right thing. There are rules regardless of what game in life you’re playing. Ignorance is no defense.

Unfortunately, just as the simplicities of the day, the “Pleases” and “Thank Yous” have fallen by the wayside, so too has the mindset “I will work hard and succeed.” Instead, today is about the quick fix, the shortcuts and unfortunately, the cheating and the breaking of the law.

For those who are taking the shortcuts, who are cheating others to get ahead, chances are you’re going to be caught, and it will cost you more than you gained. For those stockbrokers who are trying to cheat the system, by making the unauthorized trades in a client’s account, trading the account for the purpose of generating commissions or making an unsuitable recommendation to a client, there are consequences.

These consequences come in many forms, one of which is an arbitration claim. Stockbrokers are registered with the Financial Industry Regulatory Authority (“FINRA”). When a customer opens a trading account, there is an arbitration requirement that mandates any claims relating to the trading in the account to be filed before FINRA’s dispute resolution. Depending upon the dollar amount of the losses, FINRA will provide (at a fee) one or three arbitrators to hear the case. The filing fee for the complaining investor is relatively small and in most instances the attorney handling the cases take the matters on a contingency basis (attorney does not charge on an hourly rate, but takes a percentage of any money recovered).

Pursuant to FINRA rules, an investor has six years from the date of the trade to file a claim against the broker. Once an arbitration claim has been filed, FINRA has streamlined discovery, a process in which the parties exchange documents prior to the actual arbitration. Pursuant to FINRA rules, there are certain categories of documents deemed “presumptively discoverable” and must be produced if they exist. While the burden of proof is always on the person bringing the claim, FINRA appears to do all it can to assist the investors in bringing their claims to a hearing.

For the broker who is looking to make a quick dollar, say a $500 commission on an unauthorized trade, and then another, and then another, the legal fees associated with the defense of the claim can be up to ten times the original commission. And this does not account for any award assessed by the arbitrators, the FINRA hearing fees assessed by the arbitrators or the possibility of punitive (punishment) damages.  An arbitration award is regularly converted into a judgment by the courts, and if not paid, the investor can go after your income or assets to collect on the judgment.

The stockbroker who thinks no one will notice the cheating is shortsighted. On a daily basis the trading is reviewed by a supervisor and often times a person in the firm’s compliance office. From the investor standpoint, not only does the investor see the trading from confirmations and account statements, but most likely the investor’s accountant is reviewing the trading for the tax purposes.

While it’s a lost art, hard work really does pay in the long run. The consequences simply are not worth the risks.

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA securities and employment arbitrations as well as litigants before state and federal courts. If you have questions about an issue you are involved with, please contact Barry at (800) 998-7705 or email barry@bordetskylaw.com.

The Starting Point Is Now

05 Monday Jan 2015

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It’s the New Year, what is undeniably the greatest false start time of the year. People use the date as a starting point for something, whether it be starting a new hobby, starting a new business or simply reconnecting with old friends.

For investors, this is the time when they will be receiving a year-end statement from their broker-dealers. Often times this is the document provided to accountants from clients, to assist with the calculation of gains and losses for tax purposes.   For accountants, like the diet that your clients were always wanting to start but never did, many times investing clients are overwhelmed with the investing process and did not pay attention to their investment accounts as closely as they should have during the year. Now is as good a time as any for accountants to address the issue with their clients.

Upon receipt of the clients’ trading information, accountants may want to call their clients and pose the following form of questions: Tell me what you wanted to do with your account? What did your broker tell you before the trades took place? How many trades do you think took place in the account?

The answers to these questions will be very telling, the start of an understanding of what took place in the account. By way of example, if the client states she wanted the account to conservatively sit and grow with no activity, but there were thirty trades over the year, there is an explanation that should be received as to why the trades took place. Similarly, if the trading was unsuitable, or not in line with the client’s objectives (i.e., risk level, financial wherewithal, experience), then a stop should be put to the improper trading. Importantly, the suitability analysis takes place at the time of the trades, not at the time of the complaint, thus necessitating an immediate review of the trading.

On that note, unless the account is discretionary, brokers are required to speak to investors and receive specific authorization for every trade, buys and sells. If this did not happen, then there is a problem. In terms of the number of trades that took place, there comes a time when the trading in the account only makes money for one person – – and that is the broker. However, if the investor sits for years silently, riding the profits of the trading in the account and then complains years after the fact, such complaint may very well be looked at suspiciously as only a belated attempt to utilize the broker-dealer as an insurance company for market losses. By sitting silently, the investor may very well be waiving the ability to move forward on a viable claim. An investor has six years to file an arbitration claim against a broker before the Financial Industry Regulatory Authority (“FINRA”).

The New Year is a great time for accountants to work with clients and provide them with the necessary nudge to protect their investments.

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA securities and employment arbitrations as well as litigants before state and federal courts. If you have questions about an issue you are involved with, please contact Barry Bordetsky at (800) 998-7705 or email barry@bordetskylaw.com.

A Moment of Thought Is Worth Your Weight In Gold

23 Tuesday Dec 2014

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In the midst of this holiday season, we take the time to celebrate the good: family, friends, business and the thoughts of improving on the prior year.  This is a time when many will put aside differences and enjoy the holiday spirit.

Before we blink the holidays will be a fleeting memory, and many will return to the work ahead. Good thoughts and wishes will be replaced with disdain and anger over something someone did or did not do, such as a failure to do something promised, failure to pay for a good or service rendered, or a realization that you were lied to in the course of a transaction. There are instances where the filing of a complaint is necessary, sometimes even utilizing an expedited court procedure to protect your interests from those seeking to harm you, financially or otherwise.

Before you jump into the litigation fray, take a moment. Understand the consequences of a filing, from both a financial and personal standpoint.  A lawsuit can cost tens of thousands of dollars with no guarantee that you will get what you’re looking for with the filing.  Similarly, the time involved in a lawsuit (away from your work and family) and the associated stress can be just as draining as the financial costs.  Take the time to think about what you want to do and talk with your lawyer about the entirety of the process.  Often times, a lawyer can work with you to resolve the issues without the need for a filing with the court.  

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA arbitrations as well as litigants before state and federal courts. If you have questions about an issue you are involved with, please contact Barry Bordetsky at (800) 998-7705 or email barry@bordetskylaw.com.

FINRA Arbitration Requirement Is On Its Deathbed

25 Monday Aug 2014

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What a difference a couple of years can make.

When a stockbroker joins a firm the broker is required to register with the Financial Industry Regulatory Authority (“FINRA”). To do so he must complete and sign a Uniform Application for Securities Industry Registration or Transfer Form U-4 (“Form U-4”). The document contains an arbitration clause, in which the broker agrees to “arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person . . .”

Often times when a broker joins a firm the broker receives a bonus in the form of a forgivable loan. This loan is documented by a promissory note or loan agreement which identifies the repayment terms. Disputes arising from defaults of such loans must be arbitrated. Indeed, the arbitration requirement, in addition to the language in the Form U-4, is mandated and codified by FINRA’s Code of Arbitration (“FINRA Code”) that requires “a dispute must be arbitrated under the [FINRA Arbitration] Code if the dispute arises out of the business activities of a member or an associated person and is between or among: Members; Members and Associated Persons; or Associated Persons.” FINRA Code Rule 13200. FINRA’s interpretive material deems it a violation of its rules and “conduct inconsistent with just and equitable principals of trade” for a member firm to require brokers to waive the arbitration requirement. FINRA IM 13000.

This arbitration requirement was recently enforced in 2012, when Merrill Lynch was fined $1,000,000. The firm attempted to skirt the arbitration requirement by utilizing a third party non-FINRA entity to issue the bonus checks, or forgivable loans to Merrill Lynch’s brokers. Merrill Lynch tried to circumvent the arbitration requirement by having the non-FINRA entity include a forum selection clause requiring any and all disputes relating to the loan to be filed before the New York Supreme Court, New York County.

By its fine to Merrill Lynch, FINRA was letting member firms know it would not tolerate firms failing to comply with the mandated arbitration requirement (and avoid paying FINRA the member charges for the arbitration). It was a shot heard around the securities industry world.

The recent decision of the United States Supreme Court of Appeals for the Second Circuit (“Second Circuit”) in Goldman Sachs & Co. v. Golden Empire Sch. Fin. Auth., No. 13-797-cv (2d Cir. Aug. 21, 2014) and Citigroup Global Mkts. Inc. v. N.C. E. Mun. Power Agency, No. 13-2247-cv (2d Cir. Aug. 21, 2014), which confirmed two lower court federal decisions, has now muted that shot. The decision has far reaching implications with FINRA and will test the regulatory entity’s wherewithal. The Second Circuit’s ruling that member firms may utilize forum selection clauses that supersede FINRA’s arbitration requirements opens a gateway of opportunities for firms to sidestep arbitration as it relates to loan agreements with brokers. By way of example, had the decision been in effect in 2012, it appears all Merrill Lynch needed to do to avoid mandatory arbitration was include a forum selection clause in its promissory notes or loan agreements requiring any and all disputes for any actions or proceedings regarding the note to be filed before the New York Supreme Court, New York County. What a difference two years makes!

It will be interesting to see if FINRA utilizes its enforcement authority to fine Goldman and Citibank for avoiding the arbitration requirement, and counter the ruling in one way or another. Will FINRA take the position that the Second Circuit (and corresponding Ninth Circuit) decision does not apply to the internal rules of the entity? If FINRA does not act, it will confirm to firms that the longstanding arbitration requirement in the FINRA Code is on its deathbed.

The Law Offices of Barry M. Bordetsky represents customers and industry representatives in FINRA arbitrations as well as before state and federal courts. If you have questions regarding the process, please contact The Law Offices of Barry M. Bordetsky by calling Barry Bordetsky at (800) 998-7705 or email barry@bordetskylaw.com.

Treat Your Brokerage Account Like Your Car? Absolutely.

01 Friday Aug 2014

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Believe it or not, your car provides a perfect analogy of how you should handle your investment account and the broker working with you. Most people have little if any knowledge of cars or how they work. Similar to how you have your broker guide you with your investments, you bring your car to your local mechanic.

Cars receive oil changes every 3,000 miles, and when it is time for your oil change, you bring the car to the service station. When getting the oil changed your mechanic tells you instead of every 3,000 miles, you should get your oil changed every 500 miles.   This just doesn’t make any sense, but you decide to go ahead anyway, because in your mind, the mechanic is the one who does this work for a living, so he must know what he’s talking about.

Stop there. If it doesn’t make sense to you, chances are, you are right on point.  You don’t need to be an expert in the field to know when something is simply off.  First thing you should do: ask to speak to the supervisor.  This should be no different with your stockbroker.

The Financial Industry Regulatory Industry (“FINRA”) recently filed charges against the New York broker-dealer Newport Coast Securities and five of its current and former brokers, charging them of “knowingly engaging in a manipulative and deceptive and fraudulent scheme to churn the accounts of some two dozen customers to boost their commissions.” FINRA alleges rampant churning of customer accounts and other misdeeds that caused significant losses to retirees and other investors.

FINRA is taking action to correct the alleged wrongs of the firm and brokers, and if the firm and brokers are found to have violated both securities law and FINRA rules, there will be be heavy fines issued, as well as the possibility of suspensions and perhaps expulsions from the industry.   This action by FINRA is similar to what the district attorney’s office does with a criminal that steals money from someone.

The present enforcement action by FINRA relating to churning should be a warning to all investors, old and young. Churning is the act of over-trading an account where an exorbitant amount of commissions are generated from the trading.    By way of example, presume an investor has $100,000 in her account. The broker opens the account with a buy of $100,000 of Facebook stock. The broker then repeatedly sells, buys and then sells again the stock twenty times over a one-year period. Each sale is quickly followed by a repurchase.

When one of the sales results in a quick profit, the broker will undoubtedly call and tell you how happy you should be that he made you money on the trade. But did he? Here’s where the churning analysis comes into play. If the broker did not overly trade the position, but rather bought and held, the position would have grown with the market movement of the stock. Instead, the investor’s portfolio has decreased because the broker’s commissions on the buys and sells have actually eaten into the profits in the account, and in many cases simply decrease the portfolio value. The only parties making money on this trading are the broker and his firm.  This type of trading should raise questions – – questions that must be asked before allowing the activity to continue.  And like your mechanic, ask for the broker’s supervisor before things get out of hand with your account.

In addition to enforcement proceedings, FINRA provides investors the ability to bring a civil action against the broker and his employing firm through the arbitration process, a very condensed court-like action. Those who lost money from Newport Coast or any other firm through churning, or other improper acts and omissions, have the opportunity to seek a remedy on their own. Those investors get their proverbial “day in court” in an expedited arbitration process that streamlines both cost and time to have the merits of the claim heard by a panel of arbitrators.

The Law Offices of Barry M. Bordetsky represents parties in arbitrations involving churning, unsuitable trading and other investment related claims. If you have questions relating to investment issues, please contact The Law Offices of Barry M. Bordetsky by calling Barry Bordetsky at (800) 998-7705 or emailing at barry@bordetskylaw.com.