Investors have filed a brief in federal court opposing a bid by Stifel Financial to vacate a $133 million arbitration award that resulted from the strategy of one of the firm’s brokers, Advisor Hub reports.
Stifel is challenging a decision in March 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. Stifel claims one of the arbitrators was biased, and filed a motion in U.S. District Court in Miami to overturn the award.
But in their own brief, filed July 18, the Jannettis assert that Stifel “has abjectly failed to meet its heavy burden to demonstrate her partiality or misconduct,” that its attempt to vacate the ruling “badly misstates” its legal argument, and that the request is “frivolous.”.
The Jannettis alleged that they were misled into believing that Stifel was using low-risk structured notes in their investments. They accused the firm of breach of fiduciary duty, negligence, negligent supervision, fraud, and breach of contract. The FINRA arbitrators decided 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.”
The panel said Stifel failed “to exercise heightened supervision, including retraining as required” for Roberts, adding that the firm’s “egregious conduct” caused an overconcentration of structured notes and limited industries in the Jannettis’ accounts.
In its motion challenging the decision, Stifel argued that one of the 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 failed to supervise the structured note strategy of Roberts, who recommended investments that resulted in losses.
Stifel contended 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 the investors contend in their brief that Stifel’s motion to vacate should be dismissed in part because the firm had included Charney on its list of prospective arbitrators and did not strike her pre-arbitration. “Stifel knowingly assumed the obvious and foreseeable risk that Charny could issue an unfavorable award” in the other case “while still serving as an arbitrator in the Jannetti Arbitration,” the investors said.
“That an arbitrator previously issued an adverse award against a party in a similar case—including punitive damages—simply does not constitute evidence of bias, misconduct or exceeding authority, let alone the kind of definitive and direct evidence required for vacatur,” their brief states.
A Stifel spokesperson declined to comment on the investor’s filing.
Roberts, who left Stifel voluntarily on June 30, was barred by FINRA after he declined to cooperate with its investigation into whether his recommendations were not in his clients’ best interests and whether he had inaccurately described the products to customers. Roberts did not admit or deny the allegations as part of the settlement.
The attorneys at Hyman Cotter PC 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 PC at 312-291-4600 or through our online contact form.
