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Regulation and Compliance > Federal Regulation > FINRA

Wunderlich Challenges FINRA Arb Award After Zoom Hearing

By Jeff Berman

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Outisde the FINRA building in New York. Outisde the FINRA building in New York. (Photo: Shutterstock)

B. Riley Financial subsidiary Wunderlich Securities on Tuesday filed a petition to vacate the $11.4 million award that a three-person Financial Industry Regulatory Authority Office of Dispute Resolution panel recently ordered the firm to pay to New York-based investment firm Dominick & Dickerman and one of its executives, who were the claimants in the arbitration.

In Wunderlich’s petition, filed in U.S. District Court for the Southern District of New York, Wunderlich slammed the panel, claiming it was “inattentive” during the last hearing in the arbitration, March 12, which was held virtually by agreement of each side due to concerns over COVID-19. It was the first FINRA arbitration award involving a Zoom virtual hearing, the regulator said.

During the Zoom hearing, arbitrator Joel Finard looked at other screens, “typing, and eating during the course of the presentation,” Wunderlich claimed in the petition. Arbitrator Jill Gross, meanwhile, “blocked her screen during the hearing, preventing the parties from confirming that she was even participating,” Wunderlich alleged. Also, “at one point during closing arguments” for Wunderlich and Gary Wunderlich, the founder and former CEO of Wunderlich Securities and parent firm Wunderlich Investment Co., Chairperson A. Rene Hollyer “walked away from his screen,” the petition claimed, adding the presentation resumed only once Hollyer returned to his screen.

Wunderlich also criticized the panel over its conduct in the earlier hearings, which were all held at the offices of Dominick & Dickerman’s counsel in New York City. Among other things, “when the Panel was not interrupting testimony, they would appear to be inattentive and failed to follow the proceedings,” Wunderlich claimed, also alleging the panel was biased against it.

The award should be vacated because the panel “so imperfectly executed its mandate that it crafted an indefinite award that fails even to identify the grounds on which the Claimants won or the claims for which” Wunderlich was “supposedly liable”; it “failed to afford Petitioners a full and fair opportunity to present their case”; and “exceeded its authority and manifestly disregarded applicable Delaware law,” Wunderlich said.

FINRA on Thursday declined to comment on Wunderlich’s petition. Edward J.M. Little, senior counsel at New York law firm Hughes Hubbard & Reed, which represented Dominick & Dickerman in the arbitration, disagreed with Wunderlich’s claims, saying: “The arbitration was handled extremely well by an experienced and attentive panel, and we expect the award to be confirmed in its entirety.”

Dominick & Dickerman and Michael John Campbell, a managing director at the firm, had claimed Wunderlich was guilty of common law fraud, negligent misrepresentation, violation of Section 10(b) of the Securities Exchange Act of 1934, breach of contract and violation of FINRA Rule 2010 (governing standards of commercial honor and principles of trade), according to FINRA.

The dispute arose after Wunderlich bought Dominick & Dickerman’s wealth management business in 2015, but specifics were not cited in the award, which was posted on FINRA’s website April 7.

However, Wunderlich’s petition provided many of those specifics, saying the arbitration addressed a dispute over the sale to WIC by Dominick of assets making up Dominick’s private wealth management business. That sale was completed pursuant to an Asset Purchase Agreement between Dominick and WIC and executed Sept. 29, 2014. “As originally structured, WIC agreed to pay Dominick a mix of stock plus $2.5 million in cash in exchange for its private wealth management business,” according to the petition. Just before closing, the firms renegotiated terms of the transaction, with Dominick agreeing to receive additional stock consideration (in the form of common stock and warrants) in lieu of any cash consideration, the petition said.

The transaction closed Jan. 23, 2015. More than two years later, however, “Dominick suddenly experienced seller’s remorse,” following a subsequent M&A transaction, in which WIC was bought by B. Riley Financial July 7, 2017, according to the petition. Following that later transaction, “Dominick realized that it would not be receiving as much as it had hoped for its common stock and warrants — which ranked below a class of WIC preferred stock, a fact that Dominick knew all along,” Wunderlich claimed, adding Dominick then decided to sue.

On or around July 24, 2017, Dominick and Campbell submitted the M&A dispute to FINRA arbitration, alleging Wunderlich lied to them about WIC’s financial condition and failed to disclose it was in the midst of a cash flow crisis in the runup to the closing of the sale, the petition claimed. “Dominick and Mr. Campbell alleged they were unaware of this cash flow crisis despite knowing full well that, shortly before closing, WIC dispensed with the $2.5 million cash component of the deal,” according to the petition.

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Jeff Berman

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