Stifel Financial was dealt a setback in its effort to overturn a $133 million arbitration award against the firm, Advisor Hub reported.
Magistrate Judge Eduardo I. Sanchez of the U.S. District Court for the Southern District of Florida recommended that the trial judge overseeing the case deny Stifel’s motion to have the award vacated.
Stifel is challenging a decision in March 2025 by a panel of three Financial Industry Regulatory Authority arbitrators. They awarded Stifel clients David Jannetti of Miami and his three children $132.5 million in damages and legal fees in a dispute over the structured note strategy of broker Chuck A. Roberts.
The Jannettis alleged that they were misled into believing that Stifel was using low-risk structured notes in their investments. They accused the Missouri-based firm of breach of fiduciary duty, negligence, negligent supervision, fraud, breach of contract, and violation of the Florida Securities and Investor Protection Act. In ruling against Stifel, the FINRA arbitrators said that Stifel “had actual knowledge of the wrongfulness of the conduct and the high probability that injury or damage to [the Jannettis] would result and, despite that knowledge, intentionally pursued that course of conduct, resulting in damage.”
In his ruling, Sanchez noted that David Jannetti claimed in his original complaint that Roberts misrepresented the risky nature of the investments by describing them as “less risky than investing in stocks.” Roberts also said the notes had “downside protection” and “would preserve [Jannetti’s] capital” and provide a long-term average return of about 12.25%, Sanchez noted.
Sanchez also said Stifel could be liable for pre-judgement interest on top of the original award, which included $26.5 million in compensatory damages, $26.5 million in legal costs and $80 million in what Stifel called “grossly excessive” punitive damages.
In a statement, Stifel said it will continue to argue against the award.
“We disagree with the magistrate’s recommendation, which is just the first step of judicial review of a runaway arbitration award that resulted from a biased and unfair FINRA process,” the company said. “We believe the award cannot be sustained for multiple reasons, as clearly laid out in our filings.”
In its motion challenging the arbitrators’ decision, Stifel contended that one of the FINRA arbitrators, Stephanie Charny, was biased and refused to recuse herself from the case even though Stifel requested that she do so. The firm alleged that a previous FINRA arbitration ruling involving similar claims against Stifel and Roberts demonstrated Charny’s prejudice. In that case, $14.3 million was awarded to Louis and Elizabeth Deluca and their business, UBS Inc. They alleged that Stifel Financial failed to supervise the structured note strategy of Roberts, who recommended investments that resulted in losses.
Stifel asserts that the arbitrator’s “evident partiality and misbehavior prejudiced Stifel and deprived it of a fundamentally fair hearing.” The firm said the FINRA award was “a shocking, runaway award in a FINRA arbitration that was infected with fundamental prejudice by a panel member who had already pre-determined that Stifel had acted improperly and lied about her ability to be impartial when she refused to step aside.”
But in his recommendation, Sanchez sided with the investors’ contention that Stifel waited too long to object to Charney, noting that they had selected her as an arbitrator in both cases and knew during the course of the prior case that there was a risk she could rule against it.
Stifel “was aware of that ‘known potential’ conflict well before,” but “sat idle” and waited to see whether the award was favorable in the October decision, Sanchez wrote, adding that “Only upon discovering that the award was unfavorable” in the prior case, the firm “raised an eleventh-hour challenge.”
Sanchez also determined that Stifel also did not establish that Charney had a bias, stating that an “adverse award in and of itself is no evidence of bias absent some evidence of improper motivation.”
Stifel’s “assessment of Charny’s bias and partiality, and hence her supposed lack of truthfulness, is based wholly on speculation, is unsupported by any evidence, and fails to establish that Charny exceeded her authority,” Sanchez added.
The attorneys at Hyman Cotter have handled hundreds of arbitrations before FINRA, the Chicago Board Options Exchange, the Chicago Board of Trade, JAMS, the American Arbitration Association and other self-regulatory organizations nationwide. We have also appeared in courts throughout the United States in various securities-related matters. For more information about our arbitration and litigation services, please contact Hyman Cotter at (844) 316-8277 or through our online contact form.
