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Regulation and Compliance > Federal Regulation > FINRA

FINRA Arb Panel Slams BD Over Bad Investments for Elderly Client

By Jeff Berman

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FINRA office in New York. (Photo: Ron Pechtimaldjian/ALM) FINRA office in New York. (Photo: Ronald Pechtimaldjian/ALM)

A Financial Industry Regulatory Authority arbitration panel on Thursday ordered Chicago broker-dealer PTI Securities & Futures to pay $127,500 in compensatory damages plus legal costs to an elderly customer after one of the firm’s brokers made unsuitable and reckless investments on her behalf, according to FINRA.

PTI and Gregg Rzepczynski & Associates, the Chicago law firm representing it, did not immediately respond to requests for comment Friday, one day after the FINRA Office of Dispute Resolution posted the award on the regulator’s website.

The claimant — Martin Birnbaum, power of attorney for Yonata Berman — asserted multiple causes of action in the dispute, including violations of the Illinois Security Act of 1953, violations of the Illinois Elder Abuse and Neglect Act, breach of fiduciary duty, negligence, negligent supervision, breach of contract and unjust enrichment.

The claimant alleged that PTI broker David Aaron Andalman “recklessly invested Claimant’s funds in unsuitable investments in disregard [of] her age, risk tolerance and income needs.” Also claimed was that Andalman “engaged in high-volume trading of risky equities, exchange-traded funds and options on margin, which resulted in Claimant suffering significant financial damages.” The claimant also accused PTI of failing to supervise the broker properly as it related to the handling of Berman’s investment account.

In a counterclaim, Andalman said Birnbaum was given power of attorney over Berman’s financial affairs and that he had breached his fiduciary duties to her. Andalman also alleged Birnbaum made no effort to notify the broker of Berman’s “purported health issues, never followed up with Andalman or objected to the trading” in Berman’s account. Andalman also requested that the FINRA arbitration panel require Birnbaum to contribute to any monetary damages if it opted to find liability and award damages.

The FINRA panel apparently ended up taking that into account. Although the panel found Andalman liable and ordered him to pay the claimant $42,500 in compensatory damages, it also found liability on the part of the claimant, who was ordered to pay Andalman $21,500 in compensatory damages, effectively reducing the compensatory damages Andalman must pay to $21,000.

The panel, however, also ordered Andalman to pay the claimant $1,100 in costs and $10,000 in expert witness costs, and also ordered PTI to pay the claimant $1,100 in costs and $10,000 in expert witness costs. The requests of Andalman and the firm for expungement of their FINRA Central Registration Depository records were denied by the panel.

Also assessed by the panel were $12,937 of hearing session fees to the claimant, $6,750 of those fees to Andalman and $6,187 of those fees to PTI.

The claimant had requested more than $836,000 in statutory damages and more than $239,00 in well-managed portfolio damages, in addition to $175,045 in “total out-of-pocket damages.” Eccleston Law, the law firm representing the claimant, declined to comment.

“We are disappointed with the FINRA arbitration process and the results in this particular case,” Aaron Schwartz, an associate attorney at Seiden Law Group, the Chicago law firm representing Andalman, told ThinkAdvisor Friday. “The evidence in this case and the ultimate award confirms that claimant in this case was ultimately responsible for the very claims he brought on behalf of his client, as power of attorney,” he said, adding: “The trading activity was wholly consistent with the customer’s explicit instructions and risk tolerance.”

Schwartz also argued that it “should be concerning to the securities industry that arbitrators— who are unfamiliar with options trading—have unchecked power and ability to decide cases without explanatory opinions.” Andalman “did everything in his power to make sure that the customer was apprised of the various risks of options trading and he remained in constant contact with the customer throughout the duration of the trading activity,” he said, adding: “We believe it was a manifest disregard of the law for the arbitration panel to issue the award that it did, especially in light of the fact that the Panel found the claimant liable for the very conduct alleged.”

— Check out FINRA Files Complaint Against Ex-Rep Who Didn’t Testify Against BD on ThinkAdvisor.

Jeff Berman

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