Arbitration decisions are rarely overturned. People choose to resolve case by arbitration because the results are usually faster, less costly and final. By final we mean that the parties don’t have to wait for years of appeals before a case is finally over. For investors wishing to pursue claims against stockbrokers, most claims must be submitted to arbitration before the Financial Industry Regulatory Authority – FINRA for short.
Rarely is a FINRA decision overturned but it does happen including an $11 million award overturned this month by a Manhattan state Supreme Court judge. (In New York State, the Supreme Court is a trial court.)
John Fiorilla was a financial adviser to the Vatican. Several years ago he inherited $16 million of stock in the Royal Bank of Scotland. He invested that stock with Smith Barney and one of their stockbrokers, Robert Loftus. Fiorilla claimed that the brokerage firm promised to hedge the account against losses. Instead, his investments remained highly concentrated in RBS stock. Between 2007 and 2009, the value of his RBS stock dropped from $35 a share to just $2.00.
Fiorilla filed an arbitration complaint with FINRA which ultimately awarded him $11,000,000. Citibank, which acquired Smith Barney, challenged the award in a Manhattan court. Last week the court vacated the award leaving Loftus with almost nothing.
Plaintiffs’ lawyers watch challenges to arbitration awards carefully. Rarely will a court set aside a decision of an arbitration panel. So what happened here and should investors worry?
No. While we never like to see FINRA arbitration decisions challenged, we don’t think there is much danger from this case.
The judge found that before the arbitration award Fiorilla’s lawyer sent an email to the brokerage firm’s lawyer saying the matter had been settled for $800,000. The judge concluded that the case was over at that point and there was nothing left for the arbitrators to decide.
Parties are free to settle at any time. In this case, we wonder if Fiorilla simply had a case of buyer’s remorse and changed his mind. Oral or email settlements can be enforceable if clear on their terms. While we don’t know all the details of the emails and settlement discussions, obviously the court found that a settlement had been reached.
What is the takeaway? FINRA arbitration awards are not in jeopardy by this decision. We still like that arbitration panels can include all public (versus industry) members and that the average case is over in just 14 months. While jury trials might sometimes return higher verdicts, they are more costly, take longer and often lead to years of appeals. Unfortunately, we know many victims who died before ever seeing any of their money because of lengthy court delays.
If you have a pending case, be careful if you authorize your attorney to settle and understand that a simple exchange of emails may be sufficient to be binding. Once a lawyer agrees to a settlement, its sometimes hard to change the terms.
If you lost money to a stockbroker, investment adviser, real estate fraud or Ponzi scheme, give us a call. Our fraud recovery lawyers have handled cases throughout the United States.
Stockbrokers and investment advisers can’t guarantee their recommendations but they are responsible for following your directions, understanding your investment needs and only recommending suitable investments. Brokers who breach those duties may be responsible for your losses.
If you feel like you are a victim of stockbroker fraud, call us. Our team of investment fraud lawyers can help you get your money back. Most cases can be handled on a contingent fee basis meaning no legal fees unless we recover money for you. (Our minimum loss requirement is generally $100,000.) For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at Services are provided anywhere in the U.S.
Post by Brian Mahany, Esq.
(Photo by photoholic and courtesy of freedigitalphotos.net)