Claims Against Stockbrokers

Disputes frequently arise between investors and their securities brokers.  It is best to be proactive if you believe your broker has mismanaged your investments.  As an investor, you may report any issues or disputes to your broker’s manager or the brokerage firm’s compliance department.  You should keep notes of all telephone calls with your broker or brokerage firm, including names, dates, and times of the calls.  You should also retain copies of all written correspondence.

If communication with your broker’s manager or brokerage firm’s compliance department does not resolve the dispute to your satisfaction, and especially if you believe you are entitled to monetary damages, you should consider initiating a FINRA arbitration.  Although investors are not required to be represented by an attorney in an arbitration, brokerage firms are typically represented by counsel.  For that reason, consulting with and retaining an attorney to represent you in a FINRA arbitration is advised.

An investor may commence an arbitration against their broker, their brokerage firm, or both.  Nearly all contracts between investors and broker-dealers contain an arbitration clause that requires an investor to arbitrate disputes.  If your contract contains this type of arbitration provision, also called the “arbitration agreement,” you may only seek to resolve your dispute in arbitration; you may not bring your claim in court.

An investor begins the arbitration process by filing a Statement of Claim with FINRA.  Once this is filed, the investor is called the “claimant.”  The parties against whom the claimant files the Statement of Claim – i.e., the broker and/or the brokerage firm – are called the “respondents.”

The Statement of Claim is a written document that outlines the details of the dispute, such as the facts, the relevant dates, the names of the people and companies involved, what the claimant is seeking in the arbitration (in other words the “relief” or “damages” sought, such as money, interest, or specific performance of contract terms), and the respondents from whom the claimant seeks relief or damages.  Any documents referred to in the Statement of Claim, in particular the contract containing the arbitration agreement, should be attached as Exhibits and filed with the Statement of Claim.

To initiate an arbitration, the investor must also pay the FINRA filing fees which are based on the amount of the total claim, including any punitive and treble damages, but not including interest and expenses.  It is possible for an investor to obtain a waiver for the filing fees if they can demonstrate financial hardship.

In addition to the Statement of Claim and filing fees, a claimant must file a Submission Agreement, providing FINRA with all of the parties’ contact information.  By signing the Submission Agreement, the investor agrees to submit their claim to FINRA and to abide by the arbitrators’ decision on that claim.

Finally, the investor – or his/her attorney – must send to FINRA an original copy of the Statement of Claim and the Submission Agreement along with one copy for each respondent and each arbitrator. After the Statement of Claim and Submission Agreement have been filed and the filing fees have been paid, FINRA sends the Statement of Claim to the respondents and the arbitration process begins.

Mark Krudys Recognized by Super Lawyers Business Ed.

Mark J. Krudys has been recognized by Super Lawyers Business Edition 2013 as a top attorney in commercial litigationAccording to its publisher, the Business Edition “features the top attorneys in commercial practices across the nation and in London.”  Each attorney featured in this Super Lawyers publication “exhibits excellence in the practice of law and has been included on a Super Lawyers list in 2012 or 2013.”  See

Fighting Back Against Debt-Collectors and Telemarketers

In 1991 Congress passed the Telephone Consumer Protection Act (TCPA), in an attempt to end unwanted prerecorded telemarketing messages and unwanted calls to cell phones. Although it was enacted more than 20 years ago, the Wall Street Journal recently reported that the number of claims for violations of the TCPA that are filed in, or transferred to, Federal court has increased exponentially in the past few years.  Also, many large companies have agreed to multi-million dollar settlements for alleged violations of the TCPA.  Recently, Heather Nelson, a plaintiff mentioned by the Wall Street Journal, was awarded $571,000 after a debt collection agency called her cellphone over 1,000 times and left more than 100 prerecorded messages in regards to her unpaid debts.  Ms. Nelson’s award was vacated after an undisclosed settlement.

The TCPA prohibits prerecorded calls to residential landlines without prior consent from the consumer, and it requires a consumer’s express consent for calls or text messages to cellphones, fax machines, or “any service for which the called party is charged.”  Considering the proliferation of cellphones in recent years and the increase in the use of auto-dialers by debt collection companies, it makes sense that claims for violations of the TCPA have increased.  TCPA claims have also increased as a result of decisions by regulators and courts.  In 2008, the Federal Communications Commission said that the provisions of the TCPA applied to debt collectors.  In 2012, the Supreme Court held that plaintiffs could bring TCPA cases in Federal court.

Plaintiffs have been successful in claims against debt-collectors because TCPA cases allow defendants fewer defenses than in claims brought under the Fair Debt Collection Practices Act, the law under which debt-collection cases were typically filed.  In a TCPA case, the defendant is often left without a defense if it cannot produce proof of the express consumer consent required by the TPCA for calls to cellphones.  Additionally, if the defendant cannot provide proof of one plaintiff’s consent, there are often many other potential plaintiffs for whom the debt-collector cannot prove consent.  This phenomenon has led to a number of class actions suits and settlements against debt-collectors.

According to the Wall Street Journal, consumer-rights advocates say that, despite the increased litigation, the TCPA has actually reduced unwanted calls to cell phones.  The law has also helped protect consumers’ privacy.  As would be expected, debt collectors feel stymied by the law, especially because auto-dialers are the most efficient way to reach a large number of people.  The Centers for Disease Control also reported in 2012 that about 38% of U.S. households only have cellphones, which further limits the debt-collectors’ ability to contact individuals in accordance with the provisions of the TCPA.


Some Financial Advisors Prey on Veterans

According to the Wall Street Journal, veterans who hire financial advisors to assist them in receiving military benefits are at risk for abuse.  These financial advisors are accredited by the Department of Veterans Affairs’ Office of General Counsel.  Attorneys, veteran service organization employees, financial planners and others are all eligible to apply for such a position.  However, the lack of educational and occupational requirements for these advisors threatens the financial stability of the veterans who seek their guidance in acquiring military benefits.  Additionally, the veterans’ Office of General Counsel does not review the moral character of or the knowledge of the individuals who are accredited.  In an investigation done by the U.S. Government Accountability Office (GAO), various problems were found with these financial advisors, ranging from incompetency to unethical behavior, including the improper sale of annuities to assist veterans in claiming pensions.  From this investigation, the GAO has recommended re-vamping the accreditation program through hiring more staff, acquiring information-technology resources, as well as enhancing initial and continuing education requirements for potential and accredited financial advisors.  The GAO has also recommended addressing the ever-rising threats to veterans before they fall victim to such abuse.

Veterans who have claims against licensed stockbrokers are almost always required to bring their claims before Financial Industry Regulatory Authority (FINRA) arbitration panels.  Typical claims against stockbrokers made in FINRA arbitrations involve the purchase of unsuitable securities and misrepresentations and/or material omissions in connection with the sale of securities.

I began my legal career in the Marine Corps. Upon completing my military service, I was an attorney in the Enforcement Division of the U.S. Securities and Exchange Commission, where I investigated and litigated civil violations of the federal securities laws.  After the SEC, I served as a federal prosecutor in the U.S. Attorney’s Office in Miami and Ft.  Lauderdale, where I was  assigned to the Securities Fraud Unit.  In private practice, I have represented a major brokerage firm.  For the past 13 years, I have concentrated on representing investors.  In my many years of litigating securities fraud cases, I have encountered many excellent securities attorneys and financial advisors.

Veterans who suspect that they have possible claims against their financial advisor should seek out an attorney who is  experienced in handling such claims.  In seeking experienced counsel, veterans should look into the background and experience of eaah prospetive attorney to learn if he or she has ever worked for a federal or state securities regulator and how many investor claims he or she has litigated.

Firing Shots Into the Crowd

On the morning of Friday, August 24, 2012, visitors to the Empire State Building were lining up to ascend the famous structure.  The area was crowded, as usual, with tourists and office workers.   There was nothing out of the ordinary until police began firing shots into the crowd.  A total of 16 shots were fired.

Earlier, a disgruntled employee, armed with a handgun, had approached and killed a former co-worker.  As he was fleeing the scene, he drew a handgun, and two pursuing police officers opened fire.  In addition to killing the gunman, nine innocent pedestrians were hit by the officers’ shots.

As the victims from this police shooting have attempted to recover from the city for their injuries, they have found that the city and the police department are not receptive to making these victims whole.

Relying upon a 2010 New York Court of Appeals decision that held that the Police Department guidelines require officers to exercise professional judgment when they open fire around bystanders, the New York court ruled that police are not barred from discharging their weapons when innocent bystanders are present.  They are prohibited from doing so only when it would “unnecessarily endanger innocent persons.”  New York has grasped onto this language and has made a practice of refusing to settle cases where bystanders were injured or killed by police gunfire.  Moreover, the city has tried to have these cases thrown out without a trial.  Without a day in court, victims are left to wonder if the city is interested in ensuring that police making such judgment calls are giving what could be a life-or-death decision adequate weight.  The city and the Police department have asserted that police officers’ decisions should be protected from excessive second-guessing, but should this protection go so far as to insulate police departments from decisions where deadly force is used and innocent civilians are injured or killed as a result?

Nine innocent persons shot by police.  The concern is not excessive second-guessing, it is excessive shooting.  The bystanders deserve their day in court.

Financial Advisors “On the Move” – Protocol and Covenants You Should Know

1024_heilman_nyse_bull Whether the move is voluntary or as a result of an unexpected termination, financial advisors moving to new brokerage firms face a legal and business quagmire that may affect their ability to serve new and existing clients: What about the client list and the accounts that were serviced with the former firm? Can the new firm be sued for “raiding?”  Is the former firm going to sue, or seek to restrain the financial advisor (alleging tortious interference with contractual relations, breach of covenants not to compete, misappropriation of trade secrets, breach of a fiduciary duty or duty of loyalty, or other related business torts)?  What about U-5 issues?  Will the financial advisor be precluded from working with the clients and in the industry that he has known for years?  And, is the financial advisor entitled to damages against the former employer for claims based on wrongful discharge, or for unpaid commissions and other compensation? Savvy financial advisors shouldn’t make this move without legal advice concerning their rights and duties under this potentially injurious predicament. Among the key considerations are whether the former and new employer brokerage firms are both signatories to the Protocol for Broker Recruiting, and whether the Protocol applies in the individual situation. Also determinative are the terms of the employment agreement, and whether the restrictive covenants are enforceable under state law.   In Virginia, covenants not to compete that have the effect of restraining trade are disfavored and strictly construed against the employer.   The covenants must be narrowly drawn and the restrictions limited by geographic area, time, and scope.   Virginia courts have found the following covenants to be invalid:

  • Those seeking to prohibit the employee from competing with any branch of the former employer’s operations, when the employee had no connection to some of those branches
  • Those seeking to prevent the employee from engaging “directly or indirectly” with business in any area in which the employee had previously worked for two years from the date of termination
  •  Those seeking to prohibit the former employee from working, directly or indirectly, and within a 50 mile radius of any of the employer’s offices, in any capacity, with a competing company for one year after the former employee’s departure from the employer
  • Those seeking to prevent the former employee from engaging, directly or indirectly, with businesses similar to the employer within 100 miles of the employer’s office
  •  Those seeking to prohibit the former employee from contracting with any of the employer’s clients
  • Those seeking to prevent the former employee from working, directly or indirectly, for any company that might solicit business from the employer’s customers for one year after the former employee’s termination

Just because an employment contract has a restrictive covenant does not mean that it is enforceable.  Don’t take the former employer’s (or its lawyer’s) word for it.  Ask an independent lawyer to review the contract, and the move just might be a little smoother.

Securities /Brokerage Firm Litigation News

Our Securities/Brokerage Firm litigation team, led by Mark Krudys, achieved several recent victories on behalf of our clients in front of the Financial Industry Regulation Authority (FINRA) Panel.  In March 2013, our securities team obtained a $300,000 award from FINRA on behalf of a former executive of Anderson & Strudwick, a former Richmond brokerage firm, against five guarantors of a loan that our client made to A&S.  When A&S defaulted on the loan, the five guarantors, former executives at A&S, refused to honor their guaranties.  The FINRA Panel awarded the principal amount of the loan, interest, attorney’s fees, and filing costs.

In June 2013, our team won another FINRA award on behalf of the same former Anderson & Strudwick executive for unpaid employment benefits in the sum of $361,026, plus attorney’s fees and pre- and post-judgement  interest.

In June 2013, our team achieved a signicant ruling from the FINRA Panel against First Command, a Texas-based brokerage firm that markets financial products to the military community.  Our client, a former military officer turned investment advisor, sought to enjoin First Command from enforcing against our client an onerous non-compete clause contained in First Command’s standard employment contract with its investment advisors.  The FINRA Panel ruled that the non-compete clause was unenforceable.  This ruling may have implications for hundreds of First Command investment advisors.

Large Estate May Pass to New York State

“He was a very smart man but he died like an idiot,” is the frank and harsh assessment made by Paul Skurka concerning his friend and fellow Holocaust survivor, Roman Blum, who died last year at the age of 97 without a will. Blum had no known heirs and no surviving members. Blum’s estate is valued at almost $40 million. It is the largest unclaimed estate in New York State history, according to the state comptroller’s office. The public administrator handling the case has hired a genealogist to search for relatives. If none are identified, the money will pass to New York State.

Mason D. Corn, his accountant and friend for 30 years told the New York Times, “I spoke to Roman many times before he passed away, and he knew what to do, how to name beneficiaries.” Julie Satow, “He Left a Fortune, To No One, N.Y. Times, Apr. 28, 2013, MB. P. 1. “Two weeks before he died, I had finally gotten him to sit down. He saw the end was coming. He was becoming mentally feeble. We agreed. I had to go away, and so he told me, ‘O.K., when you come back I will do it.’ But by then it was too late. We came this close, but we missed the boat.”

According to the N.Y. Times, Blum’s funeral was attended by a small number of mourners, most of them elderly fellow survivors or children of survivors.

In her article, Satow provides an interesting description of Mr. Blum’s early years in the U.S.:

In 1949, the Blums came to New York and settled in Forest Hills, in Queens. There, they joined a tightknit community of survivors, many of whom they knew from the Zeilsheim camp.

“They all lived the same type of lifestyle, going to the bungalow colonies together, the Catskills, everything was done as a group,” said Jack Shnay, a child of survivors who grew up in Forest Hills with the Blums. “Initially, they all lived in apartments in Rego Park; then they starting buying or building private homes.”

“Every weekend was a party,” said Charles Goldgrub, the child of survivors and Mr. Blum’s godson, who also grew up in Queens. “They had survived Hitler so they thought they would live forever.”

On weekends, the survivors would often gather to play high-stakes poker and drink plum brandy. They rarely discussed their wartime experiences, but sometimes, as a group and tipsy, they would grow emotional. Mr. Blum’s favorite tune was the 1968 single by Mary Hopkin, “Those Were The Days,” recalled Michael Pomeranc, a hotelier who grew up in Forest Hills and whose parents, also survivors, were close to the Blums. “He was always singing that song, and especially if he’d had a bit to drink, he’d try to get everyone to join in with the lyrics,” Mr. Pomeranc said.

Blum’s circumstances indicate that, given the opportunity, he could have identified charities that he found to be doing meaningful work. Many people who don’t have a will, don’t because they simply have never gotten around to addressing the matter. Local business professionals can generally identify competent estate planning lawyers. Modifications to wills may be made through “codicils.” Waiting to devise a plan for the distribution of assets may result in no plan at all.