Former Executives Liable for Brokerage’s Bad Bets
Wall Street Journal
A securities arbitration panel is holding the senior executives of a defunct brokerage firm personally liable for money-losing bets made by its brokers.
A Financial Industry Regulatory Authority arbitration panel last week ordered the top three officials of Allied Beacon Partners Inc. of Richmond, Va., to pay about $2.3 million to an Illinois restaurateur family.
While it is routine for aggrieved investors to target firms, the Bosco family of Des Plaines, Ill., went a step further. It went after the principals themselves, when the firm said it wasn’t able to pay following the first Finra panel ruling in the family’s favor.
Last year, the Bosco family won its first Finra arbitration panel case against Allied Beacon for $1.6 million. But the firm didn’t have the money and closed. The family then decided to target former Allied Beacon officials in a second arbitration dispute, which it won on Friday.
The Bosco family filed a claim against Robert Mather, who briefly was Allied Beacon’s chief executive when the firm was wound down; Roger Leibowitz, who was the firm’s treasurer; and Richard Landi, the operations chief.
Some securities lawyers said they couldn’t remember a similar case that found officers liable for an award against a broker-dealer, particularly if they were not at fault.
However, Philip Aidikoff, a lawyer with Aidikoff, Uhl & Bakhtiari of Beverly Hills, Calif., said lawyers who worry that the brokerage firm doesn’t have enough money to pay harmed investors have targeted so called “control people”–the firms’ officers in arbitration claims. “Control people are liable. Period,” he says.
At issue are losses the family suffered from a private-placement investment that turned out to be a Ponzi scheme. Allied Beacon had tried to settle the claim to prevent the firm from closing but no agreement was reached, according to the claim filed with Finra.
The three executives aren’t accused of being part of the Ponzi scheme; they also weren’t party to the original arbitration claim. But the Bosco family argued in their claim the three are liable because they ran Allied Beacon.
The three principals have denied they are liable for the debt of the firm they ran.
In Friday’s ruling, the arbitration panel sided with the family, awarding the Boscos about $2.3 million in damages and interest from the three executives, and from Allied Beacon funds that were previously frozen with RBC Capital Markets LLC, the firm’s clearing firm.
“The award is not founded under the law or the facts,” said Mr. Mather’s lawyer, Debra Jenks of Ciklin Lubitz Martens & O’Connell in West Palm Beach, Fla. “The arbitration panel totally and completely exceed all balances of its authority.” She said she is considering filing a motion in court to vacate the award.
A spokeswoman for RBC declined to comment.
The three principals now work at New York-based Cabot Lodge Securities and have a spotless BrokerCheck record. A person answering the phone at Cabot Lodge said the company had no comment.