February 9, 2021
A recent FINRA arbitration just doesn’t seem to add up. It started in 2019 with an arbitration Complaint. The case then moved into federal court in 2020 as the litigants battled over whether the dispute belonged in court or arbitration. In 2020, the dispute is returned to FINRA, where the case is argued via ZOOM teleconferences. In 2021, the Panel issues a sledgehammer of an award, which will likely surpass $20 million in damages, interest, fees, and costs. Notably, there was a finding that JP Morgan Securities and one of the individual respondents had engaged in elder abuse. And then you look to see if the arbitrators exercised their prerogative to refer the case to FINRA-the-regulator. And you look. And look. But no such referral. $20-plus million. Elder abuse. And, yet, no referral to FINRA regulatory investigation? What more does it take. Just what am I missing here?
July 2019 FINRA Complaint
As the curtain rises on Act II of our drama, the battle rages on after Beverly Schottenstein filed in July 2019 a FINRA Arbitration Complaint against Avi Schottenstein, Evan Schottenstein, and JP Morgan Securities. In a FINRA Arbitration Statement of Claim filed in 2019, Claimant asserted constructive fraud/abuse of fiduciary duty; fraudulent misrepresentations and omissions; and violation of Chapter 415, Fla. Statutes. Beverley B. Schottenstein, individually and as Co-Trustee Under the Beverly B. Schottenstein Revocable Trust U/A/D April 5, 2011, as Amended, Claimant v. JP Morgan Securities, LLC; Evan A. Schottenstein; and Avi E.Schottenstein, Jointly and Severally, Respondents (FINRA Arbitration Award, Case No. 19-02053).
As set forth in part in the FINRA Arbitration Award:
[T]he causes of action relate to the allegedly unauthorized purchase and/or sale of various securities in Claimants’ account, including, but not limited to, multiple auto-callable structured notes and various other securities for which Respondent JPM was a market maker, including Apple stock, as well as initial public offerings (IPOs) and follow-on offerings (FPOs).
Given the plethora of Schottensteins (and intending no disrespect), I’m going to start referring to them each by just their first name.
Beverley alleged that Avi and Evan, who were both financial advisors at JP Morgan, made unauthorized purchases of securities in her account and, without her consent, enrolled her in the electronic delivery of her account statements/communications. For those transgressions, Beverly sought over $10 million in damages from Avi, Evan, and JP Morgan.
2020: A Federal Case
In the United States District Court for the Southern District of Florida (“SDFL”), Avi and Evan filed a Petition to Enforce FINRA Arbitration Subpoenas pursuant to Section 7 of the Federal Arbitration Act (the “FAA”). The threshold issue for the Court is whether it has subject matter jurisdiction (as set forth in 28 U.S.C. Section 1332) based upon the fact that the parties to the underlying FINRA arbitration are citizens from different states and the matter in controversy exceeds $75,000. Avi Schottenstein and Evan Schottenstein, Petitioners, v. Wells Fargo Bank, N.A. and Alexis Schottenstein, Respondents (Order Denying Petition, 20-MC-81924 / December 17, 2020)
http://brokeandbroker.com/PDF/SchottensteinSDFLOrder201218.pdf) (the “SDFL Order”). By way of some additional color, Avi and Evan allege that:
[B]everley’s granddaughter, Alexis Schottenstein (“Alexis”), has stoked the controversy based on her dissatisfaction with her treatment in Beverley’s estate plan. [DE 1, p. 3]. Petitioners in this federal action believe that Alexis helped develop Beverley’s claims against JP Morgan and themselves. Id. Beverley worked at Wells Fargo from 2009-2013 in its Largo, Florida bank branch. Id. Wells Fargo terminated Alexis in 2013 allegedly due to numerous customers’ complaints that Alexis enrolled their respective Wells Fargo accounts in online statement delivery without the customers’ knowledge and/or authorization. Id. So Petitioners in this federal action issued the subpoenas to Alexis Schottenstein and Wells Fargo requiring them to appear at the Arbitration, testify and produce documents.
Beverley (the Claimant in the pending Arbitration) did not oppose Petitioners’ Motion for the Alexis Schottenstein Trial Subpoena, but Alexis did object. [DE 20, p. 4]. On or about September 15, 2020, a majority of the Arbitration Panel signed the trial subpoena directed to Alexis. Id. On or about October 8, 2020, Petitioners provided the executed trial subpoena to Alexis Schottenstein’s Florida counsel, and counsel advised Petitioners that Alexis would not comply with the Subpoena. Id.
On or about June 24, 2020, Petitioners filed a Motion for Subpoena for the Production of Documents from Wells Fargo Pursuant to the FINRA Code of Arbitration Procedure. [DE 20, p. 5]. Beverley opposed the Motion, but the Arbitration Chairperson deemed the documents Petitioners sought from Wells Fargo to be relevant to Petitioners’ defenses, and the Arbitration Chairperson executed a Subpoena for Production to Wells Fargo. Id. On or about July 29, 2020, Petitioners served Wells Fargo with the Wells Fargo Subpoena through its registered agent in Florida. Id. Shortly thereafter, Wells Fargo filed its objections. Id. Petitioners later requested that the Arbitration Panel execute a trial subpoena directed to the records custodian of Wells Fargo. Id. On or about September 23, 2020, the Arbitration Chairperson overruled the Wells Fargo Objections, and a majority of the Arbitration Panel executed a trial subpoena for the testimony and production of documents from the Wells Fargo records custodian. Id. On or about October 8, 2020, Petitioners provided the executed Wells Fargo Trial Subpoena to Wells Fargo’s counsel. Id. at p. 6. Wells Fargo’s counsel advised Petitioners that Wells Fargo would not comply with the Subpoena. Id.
at Pages 2 – 3 of the SDFL Order
SIDE BAR: By way of recap:
- Alexis is Beverley’s granddaughter
- Beverley worked at Wells Fargo from 2009-2013
- Wells Fargo terminated Alexis in 2013
- Avi and Evan Schottenstein issued subpoenas to Alexis and Wells Fargo requiring their appearance at the FINRA arbitration and their production of documents
- Beverley did not oppose the subpoenas
- Alexis opposed the subpoena
- Wells Fargo refused to comply with its subpoena
- By a 2:1 vote, the FINRA arbitrators directed Alexis and Wells Fargo to comply with the subpoenas