Lawyers for the investment services provider Fidelity Brokerage Services LLC on Monday asked the U.S. Supreme Court to keep in place a federal appeals court ruling that said the company could not be held liable in a private lawsuit for merely telling U.S. financial regulators about an allegedly suspicious stock transaction.
Fidelity, represented by the law firm Jones Day, is vying to leave undisturbed an April 2019 decision from the U.S. Court of Appeals for the First Circuit. A provision of the federal Bank Secrecy Act accords immunity to financial institutions that make voluntary and confidential disclosures called “suspicious activity reports.” These submissions, widely known by their acronym SARs, help federal authorities investigate potential financial misconduct.
The Jones Day team, led by partner Shay Dvoretzky, is contesting a Supreme Court petition filed in September by AER Advisors Inc. and two of its clients, William J. Deutsch, who is chairman of Deutsch Family Wine & Spirits, and his son Peter Deutsch, who serves as the company’s chief executive officer. The Deutsches and AER Advisors are represented by Howard Graff, an Arent Fox counsel in New York.
The dispute involves allegations of stock-price manipulation. Fidelity’s filing of a suspicious activity report — submitted to the U.S. Treasury Department’s Financial Crimes Enforcement Network — triggered a Securities and Exchange Commission investigation in 2012. Peter Deutsch and AER each said they spent hundreds of thousands of dollars defending themselves. Neither the SEC nor any state agency brought an enforcement action against AER or Peter Deutsch.
“Petitioners brought this action against Fidelity seeking redress for Fidelity’s fraudulent concealment of its own conduct, a cover-up of its illicit lending practices and market manipulation that created a short squeeze,” Graff said in the petition. He argued it was Fidelity’s transaction conduct, and nothing that AER and the Deutsches did, that caused a “market disruption” in shares of a company called China Medical Technologies Inc.
Graff asserted on behalf of AER and the Deutsches: “As a result of being falsely accused by Fidelity in a SAR, petitioners were subject to investigations by various state and federal securities-related agencies, and the Deutsches suffered additional business-related damages to their business — Deutsch Family Wine & Spirits — that negatively impacted the value of the equity in it.”
Dvoretzky of Jones Day countered Monday that the two federal appellate courts that have looked at liability in this area of the law have all “held that a financial institution is absolutely immune from a private suit that is based on that filing.”