This week, the New Jersey Supreme Court denied the appeal of an arbitration award against Merrill Lynch by the Associated Humane Societies Inc. of Tinton Falls, N.J. In the original FINRA arbitration, the society alleged that certain of its investments were improper, it improperly sustained penalties and other charges when the investments were liquidated, its accounts were improperly managed and churned, and it was overcharged for management of its accounts. The society sought $10 million in punitive damages, $872,171 in compensatory damages and $544,299 in attorneys’ fees. After an 18-day hearing, the FINRA panel found in favor of the society, but awarded it only $168,103 in compensatory damages and $126,077 in punitives.

The society appealed. A 3-judge appellate division panel upheld the award in October, finding that the FINRA panel did not abuse its discretion. Associated Humane Societies, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. L-4376-13 (Oct. 29, 2014). The New Jersey Supreme Court denied any further appeal on Feb. 17, 2015.

Though the society was ultimately disappointed with the size of the award, the decision shows the reluctance of courts to disturb FINRA arbitration awards.

Does the conventional wisdom regarding asset allocation hold up in today’s economy? The New York Times recently featured an article suggesting that a portfolio teeming with risky stocks, derivatives, and other exotic investments may, in fact, not be suitable for even young investors. The Times points out that these young investors experience higher rates of unemployment and are more likely to cash out their 401(k)’s and other investments when they switch jobs. An appropriate suitability analysis under FINRA Rule 2111 would take these factors into account. It is highly likely that many brokers are still using a one-size-fits-all asset allocation formula for their young customers.

Investors may have a variety of claims against such brokers who fail to take into account current market conditions, including unsuitable investment advice, fraudulent misrepresentations and omissions, and failure to supervise.

Puerto Rico bond funds have been suffering massive losses recently and regulators have already taken action. According to the SEC, UBS Financial Services of Puerto Rico Inc. (“UBS”) misled thousands of its retail investors in 23 of its closed-end mutual funds. While UBS has already spent more than $26 million to settle the SEC’s charges, investors are now starting to pursue their own actions against the institution to recover potentially millions in losses.

Starting in 2008, UBS began soliciting investors in its Puerto Rico bond funds by promoting the funds’ market performance and high premiums to net asset value as the result of supply and demand in a competitive and liquid secondary market. However, UBS knew about a significant “supply and demand imbalance” and internally discussed the “weak secondary market.” UBS misled investors, failing to disclose that it controlled the secondary market. In 2009, UBS withdrew its market support and sold its inventory to unsuspecting customers. At the same time, it failed to disclose that it was drastically reducing its inventory, and undercut customer orders so that UBS’s inventory could be liquidated first.

Investors may have a host of claims against UBS including fraudulent misrepresentations and omissions, unsuitable investment advice, and failure to supervise.

Below is a piece by Bloomberg on our firm’s $383 million claim against Citigroup. There’s more on this case on the firm’s website at https://www.riklawfirm.com/

Citigroup’s Mathur Said to Depart With Hybrid Traders as Pandit Cuts Jobs By Donal Griffin – Dec 9, 2011

Citigroup Inc. (C), the third-biggest U.S. bank, is shrinking a team of traders who deal in “hybrid” products as Chief Executive Officer Vikram Pandit cuts Wall Street jobs, two people familiar with the matter said.

Below is an American Lawyer piece which explains our clients’ pending $383 million FINRA arbitration against Citigroup. It goes on to talk about how there are more and more large and complex cases at FINRA. It’s true. As partner John Rich points out at the end of the article, our firm is involved in other multi-million dollar matters at FINRA. In fact, we handled the Bayou v. Goldman FINRA arbitration case which generated a $20.6 million award, and is mentioned in the article. We think FINRA arbitration will continue to attract sophisticated legal disputes because it is more efficient and timely than court litigation.

Too Big for Their Britches?

Nate Raymond

Below is Bloomberg piece about our client’s $383 million FINRA arbitration claim against Citigroup Global Markets, Inc. related to hedge funds, private equity, and derivatives.

Bloomberg

Citigroup Saudi Deal Haunts Pandit By Donal Griffin – Nov 30, 2011

Last week, we wrote about private shares fraud and how we think there may be significant litigation and/or arbitration in the future in this space. Today’s NY Times has a very good Dealbook piece (below) by the “Deal Professor” about the lack of disclosure in the private shares markets of SharesPost and SecondMarket. The most important sentence: “The lack of information combined with this illiquidity contributes to the volatility and mispricing of shares.” That’s spot on. We’re talking about large investments in unregistered shares within an unregulated market. Major exposure to potential fraud. Major.

November 22, 2011, 4:37 pm Private Markets Offer Valuable Service but Little Disclosure By STEVEN M. DAVIDOFF Harry Campbell

Information is the lifeblood of capital markets. In the movie “Wall Street,” Gordon Gekko demanded confidential information from a young would-be Master of the Universe, Bud Fox, played by Charlie Sheen. The value of stocks is based on information, which is why securities laws are intended to ensure that all investors have at least minimum amounts of information.

Private shares fraud? We’ve been talking about it internally for months. Unregulated space where investors buy and sell private shares often of pre-IPO companies such as Groupon and Facebook. We think the potential fraud claims will occur in the pricing of the private shares. The seller, perhaps a company insider, plays around with valuations. But the Dealbook story posted below of John Mattera is an old school fraud. He allegedly stole people’s money by promising to sell them his personal private shares in high flying pre-IPO companies. Here’s the problem for his “investors”: may be no one to collect from. Mattera likely going to jail. His fund is finished. Good luck trying to sue and collect from the unregistered Long Island firm and/or its principals and the escrow service. What a shame. Private share investors need to be careful out there. Even in the more legitimate secondary private share markets run by larger firms. Due diligence is king.

DealBook – A Financial News Service of The New York Times November 17, 2011, 4:32 pm Manager Who Claimed to Own Facebook Shares Charged With Fraud By KEVIN ROOSE John A. Mattera was arrested in Florida on Thursday.

It may be the new, new thing in fraud.

Below is a Bloomberg article about our firm’s $20.6 million FINRA arbitration award against Goldman Sachs related to Bayou. It’s the largest arbitration award ever rendered against Goldman. The award was confirmed by Judge Rakoff and Goldman filed it’s brief to the Second Circuit.

Goldman Sachs Asks Court to Throw Out $20.5 Million Bayou Creditors’ Award By Bob Van Voris – Oct 15, 2011

Goldman Sachs Group Inc. (GS) filed an appeal seeking to dismiss a $20.5 million arbitration award to creditors of the failed hedge fund firm Bayou Group LLC.

Below is a WSJ article about our firm’s $20.6 million FINRA arbitration award against Goldman Sachs related to the Bayou hedge fund fraud. It is the largest arbitration award ever rendered against Goldman. The award was confirmed by Judge Rakoff of the SDNY in November 2010 and Goldman filed it’s brief to the Second Circuit this week.

Goldman Continues to Fight $20.5 Million Award in Pivotal Case By LIZ MOYER

NEW YORK-Goldman Sachs Group Inc. is continuing to fight a $20.5 million arbitration award that, while relatively small from the big bank’s perspective, has broader implications for Wall Street.