A federal judge last Friday denied a motion by Raymond James to vacate a $1.8 million arbitration award in a case involving sales of penny stocks to elderly investors.
The decision by Judge Carlton W. Reeves of the U.S. District Court for the Southern District of Mississippi took the brokerage firm to task for trying to use a ruling by a Mississippi circuit court against separate plaintiffs regarding similar investments.
In the circuit court case, the plaintiffs failed to produce discovery documents and the judge granted summary judgment to Raymond James. The firm then tried to leverage that outcome against claimants in the arbitration case.
Reeves said that if the circuit court plaintiffs lacked evidence of Raymond James’ concealment of the penny stock rip-off, it was not germane to the case heard in the Financial Industry Regulatory Authority Inc.’s arbitration system.
“Their failure says nothing about the [arbitration case] claimants’ evidence of fraudulent concealment, which apparently was voluminous enough to support a 17-day arbitration,” Reeves wrote. “As proven by a treasure trove of documents and testimony, the wrongdoing was substantial and extraordinary steps were taken to conceal the transgressions.”
Raymond James argued that the arbitration panel intentionally disregarded the circuit court’s ruling and that one of the arbitrators, Jim Warren, was biased against the circuit court judge.
“No amount of hand-waving over Jim Warren should take away from the reality that Raymond James’ employees and managers defrauded their clients,” Reeves wrote. “The panel made an explicit factual finding of fraud, and the Court is bound by that finding.”
The original arbitration case was decided in the claimants’ favor last May. The incident involved penny-stock investments in energy companies. The sales began in 2006 at a then-Morgan Keegan branch office in Jackson, Miss. Raymond James acquired the firm in 2012.
Attorneys for the plaintiffs, most of whom are elderly investors, criticized Raymond James for seeking to overturn the award.
“Just being upset with the decision is not what a motion to vacate is for,” said Judson Lee, owner of an eponymous law firm in Madison, Miss. “If it’s a tactic to get around the arbitration result, then that is reprehensible.”
Another attorney for the plaintiffs said the decision on the motion to vacate was consistent with the arbitrators’ ruling.
“It was a complete failure of [Raymond James’] management and a willingness to look the other way,” said Robert Greenlee, a partner at Whitfield Law Group in Flowood, Miss.
A Raymond James spokesperson declined to comment.
Brokerage firms’ attempts to undo an arbitration decision rarely succeed because of the deference federal courts give to arbitrators, said Peter Mougey, a partner at Levin Papantonio.
“Most of these motions to vacate are nothing more than a thinly veiled attempt to delay cases and intimidate elderly claimants in order to reduce settlement values,” Mougey said.
The payment of an arbitration award is delayed until the motion to vacate works its way through the court system.
Andrew Stoltmann, a Chicago securities attorney, said it’s usually a brokerage firm defendant rather than an investor claimant going to court to try to reverse an arbitration decision.
“These are tactics by brokerage firms to harass meritorious claimants,” Stoltmann said. “It’s abusive because these are becoming more and more common, and so many of them, like this one, are frivolous.”