A state judge in California has granted a reprieve to two brokers who were on the verge of being suspended, according to AdvisorHub.
Orange County Superior Court Judge David A. Hoffer issued a temporary restraining order that puts off any disciplinary action from the Financial Industry Regulatory Authority in the case of the two North Carolina-based brokers, Michael S. Barrows and Eric J. Ludovico. The matter involves an arbitration award that the two are disputing,
In October 2023, a three-member FINRA arbitration panel ruled against Barrows and Ludovico and awarded slightly over $1 million in damages to an investor who bought GWG Holdings Inc. L bonds in 2018. The two brokers were found jointly liable based on allegations that they made unsuitable recommendations to buy the illiquid L-Bonds from GWG Holdings, which is now defunct.
Hoffer’s TRO temporarily bars FINRA from terminating or suspending the licenses of Barrows and Ludovico. The order also temporarily waives any obligations that Barrows and Ludovico have to post a bond to cover the award while they are appealing the arbitrators’ decision.
Hoffer will conduct a hearing December 9 to evaluate issuing a permanent injunction. He did not provide a written explanation for the order.
Barrows and Ludovico filed a complaint November 13 contending that FINRA engaged in an “unjust and illogical misapplication of its own rules regarding suspension of its member’s license while a member’s action to vacate an adverse arbitration award is pending.” They said the authority’s attempt to suspend them pending appeal “especially illogical” and said it “warrants injunctive relief.”
They said that since their attempt to vacate the arbitration award “remains pending and active”, they “seek relief from FINRA’s threat to suspend their licenses.” Their lawyer, Seth Rubinson, asserted that suspending their licenses would cause irreparable and catastrophic harm.
“It is crucial that FINRA treat licensure suspension with the utmost seriousness it deserves,” Rubinson said. “My clients have an active vacatur case on appeal which should prevent licensure suspension contrary to FINRA’s position that only an appeal with supersedeas bond should do so.”
In opposing the restraining order, FINRA asserted that its rules and California state law hold that a court judgment affirming an arbitration award means the decision is “final and enforceable.” The authority said the brokers must post bond or face suspension, adding that the brokers’ action is “an improper effort” to stay the final judgment pending appeal.
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