Practice Area(s): General Litigation, Securities Litigation
Client/Industry: Regional broker/dealer
Attorney(s): Scott Matasar, Fritz Berckmueller
Situation Summary:
Calfee was hired to represent a large regional broker/dealer as a plaintiff in a securities arbitration against an investment management firm that maintained institutional trading accounts on behalf of various high-net worth clients and hedge funds with our client. The management firm placed a purchase order for 250,000 shares of a publicly-traded security, which our client fulfilled by purchasing the shares on the open market at a cost of over $7 million. The investment management firm subsequently failed to fund the purchase even after an extension of the settlement date, blaming the failure on the inability of its client to raise the necessary funds. Following the expiration of the settlement period, Calfee’s client liquidated its position in the security at a substantial loss.
Calfee Approach:
Our client brought an arbitration action with FINRA against the management firm to recoup its losses from the liquidation of the securities purchased. During the course of discovery -- both through documents produced by the management firm and through independent investigation -- Calfee learned that the CEO, sole shareholder and sole officer of the management firm also was the incorporator, president, sole shareholder and director of the management firm’s alleged client that had failed to fund the purchase order. The broker/dealer promptly sought to amend the claim, adding the CEO of the investment management firm as an additional individual respondent in the action.
Despite the extraordinary nature of this request, following extensive briefing and oral argument on the issue, the Arbitration Panel granted the motion, after which Calfee pursued a thorough investigation into the investment management firm, its CEO and its supposed “client” to uncover pertinent information that aided the broker/dealer in seeking an award at arbitration.
Resolution:
Following the arbitration, the FINRA Arbitration Panel ruled unanimously in the broker/dealer’s favor and granted each element of relief requested. This included awarding the full amount of compensatory damages sought, pre-judgment interest, post-judgment interest and forum fees. Equally significantly, the Arbitration Panel’s detailed award found that both the management firm and its client were merely the CEO’s alter ego. The Panel also found that the broker/dealer had established sufficient grounds to pierce each company’s corporate veil. Most importantly, the Panel held the management firm’s CEO jointly and severally liable for the seven-figure damage award, relying heavily on documents and other evidence Calfee located during its investigation of the CEO’s other business activities.
The results described in each case study are dependent on the specific factual and legal circumstances of the matter described, and constitute neither legal advice nor a guarantee of similar results with respect to any other matter.