Securities Industry Commentator by Bill Singer Esq

January 10, 2018

Wilson-Davis & Co., Inc., Plaintiff/Appellant, v. James Mirgliotta, Individually and as Administrator of the Estate of Bette Mirgliotta, Deceased,  Defendant/Appellee.(Opinion, United States Court of Appeals for the Sixth Circuit, 17-3496)
As set forth in the Syllabus to the 6Cir Opinion:

Defendant James Mirgliotta and his late wife Bette invested several hundred thousand dollars in penny stocks at the advice of financial advisors. Their investments are now worthless,and the advisors were convicted of securities fraud and are defendants in an SEC enforcement action. Plaintiff Wilson-Davis & Co., Inc. is a brokerage firm that housed the Mirgliottas' investments for just over a month. The Mirgliottas seek to hold Wilson-Davis (and others) responsible for their losses, so James, on his own behalf and on behalf of his wife's estate, filed a statement of claim before the arbitration board of the Financial Industry Regulatory Authority (FINRA). Seeking to enjoin the arbitration proceedings, Wilson-Davis, a FINRA member, filed a complaint for declaratory action and injunctive relief, asserting it lacked any obligation to arbitrate. The district court disagreed, holding the dispute fell within the scope of FINRA's mandatory arbitration provision, FINRA Rule 12200. We affirm.

The 6Cir Opinion offers this compelling rationale at pages 6-7:

We previously considered the extent to which alleged negligent and fraudulent conduct by employees of a securities brokerage firm arises in connection with a firm's business activities in Vestax Securities Corporation v. McWood, 280 F.3d at 1081-83. There, we broadly held investors may establish such a link by connecting their losses to the firm's alleged failure to supervise its brokers, even though the firm neither received commissions for the transactions nor was "even aware of the transactions that were ultimately placed through other broker-dealers." Id. at 1081-82 (citation omitted and emphasis added). This is so, we held, because "[a] dispute that arises from a firm's lack of supervision over its brokers arises in connection with its business." Id. at 1082 (citation omitted and emphasis added). 

The Mirgliottas' contentions here are straightforward: Crooked financial advisors conspired to direct the Mirgliottas' nest egg into unsuitable investments, using Wilson-Davis- Cervino's employer-as a conduit through which the Mirgliottas' savings passed. As the district court recognized, the record evidence suggests Werbel, Cervino, and Durante participated in a scheme to convince the Mirgliottas to move money to Wilson-Davis and then to New Market Enterprises. Under Vestax, a dispute arising "from a firm's lack of supervision over its brokers" constitutes a dispute that "arises in connection with the business activities" of the FINRA member, even when the FINRA member is not aware of the transactions facilitated by the broker. Id. at 1081-82. The Mirgliottas' dispute with Wilson-Davis is that it negligently supervised Cervino (including when he played a role in directing the Mirgliottas' money from Wilson-Davis to New Market Enterprises), which falls comfortably within Vestax's broad holding.  

I Can't See Clearly (And Convincing) Now In Morgan Stanley FINRA Arbitration ( Blog)
Umm . . . someone . . . anyone . . . puhlease . . . I'm not askin' for much . . . not a whole lot . . . but, you know, like tell me just what the hell this FINRA public customer arbitration is about? I'm not blaming the parties but I'm sorta wonderin' if FINRA couldn't have, you know, read through a draft of the proposed FINRA Arbitration Decision and, well, okay, like maybe asked for a tad more content and context as in, well, like, how should I put it, like, just what the hell is it that the Claimants alleged had happened at Morgan Stanley Smith Barney concerning, lemme see, oh yeah, concerning their "purchase of call options in Apple, Inc. stock." Maybe it's all that expensive law school training that I paid for or maybe it's that I'm a demanding pain in the ass who's never satisfied but, whatever, is it asking all that much to simply get the facts? Who purchased the Apple calls and why did the customers complain about the purchase and how did that purchase result in something shy of $3 million in losses? How's that Johnny Nash song go?

I can't see clearly now, the rain is here,

I can't see all the obstacles in my way

Here are the dark clouds that have me blind

It's gonna be a dark (dark), dark (dark)

FINRA Arbitration day.