Posts tagged with "margin call"

Court Denies Motion to Vacate and Confirms FINRA Arbitration Award for Securities Brokerage of over $150,000 plus Interest

Freedom Investors Corporation v. Kahal Shomrei Hadath and Sydney V. Pinter, 2012 WL 383944 (S.D.N.Y. Feb. 7, 2012)

Freedom Investors Corp. (“Freedom”), a securities broker-dealer and a member firm of the Financial Industry Regulatory Authority (“FINRA”), filed a petition to confirm an arbitration award pursuant to § 9 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  Sydney V. Pinter (“Pinter”), who controlled Kahal Shomrei Hadath (“Kahal”), a not-for-profit religious entity, filed a cross motion to vacate the arbitration award alleging misrepresentations by Freedom’s agent and improper connections between Freedom’s Chief Executive Officer and the FINRA arbitration panel.

Case Dispute

The underlying dispute in this case arose from a brokerage account that Kahal maintained with Freedom.  In July 2008, Kahal and Pinter used margin credit to purchase preferred stock; however, the stock price dropped dramatically and prompted a margin call by Freedom’s clearing house. When Kahal and Pinter failed to deposit additional funds in the account, the clearing house liquidated the account’s remaining holdings and Freedom paid the remaining margin debt of $149,222.85. Freedom then sought to recover this amount from Kahal and Pinter.

FINRA appointed a panel of three arbitrators to hear the matter after both parties agreed to submit the dispute to arbitration for a decision and award.  On March 22, 2011, the FINRA panel entered an award in favor of Freedom, finding Kahal and Pinter jointly and severally liable for $149,223 in damages, plus eight-percent prejudgment interest, and $5,000 in sanctions for failure to produce documents during the arbitration’s discovery phase.

By August 25, 2011, Kahal and Pinter had failed to comply with the terms of the arbitration award; therefore, Freedom filed this petition for award confirmation in federal district court.  On January 4, 2012, the court received from Pinter an undated “Motion for Oral Arguments to Set Aside Arbitration Award,” which the court construed as opposition to Freedom’s petition and a cross-motion to vacate the arbitration award.  Freedom opposed the motion to vacate.

Dismissal Motion to Vacate on Two Grounds

The court dismissed Pinter’s motion to vacate on two grounds.  First, the motion to vacate was untimely.  “Notice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered.” 9 U.S.C. § 12. The arbitration award was issued March 11, 2011, but the motion to vacate was not submitted until January 4, 2012, approximately ten months later.  Second, the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a), provides four narrowly delineated circumstances in which a federal district court can vacate an arbitration award:

(1) where the award was procured by corruption, fraud or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

The issue with Pinter’s Allegations

Pinter’s allegations raised no credible argument of evident partiality on the part of the arbitration panel and, therefore, he failed to carry his significant burden of showing that the arbitration panel acted in manifest disregard of the law.

The court determined that Freedom sufficiently supported its petition and demonstrated that there is no question of material fact. Therefore, the court granted Freedom’s motion to confirm the arbitration award against the defendants and denied Pinter’s petition to vacate the arbitral award.  Final judgment for Freedom was in the sum of $183,724.18 and costs.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.