Compliance

FINRA Reverses Hearing Panel Decision and Dismisses Complaint against Sallah Astarita & Cox client.

In an unusual reversal and dismissal, Mark Astarita of Sallah Astarita & Cox, LLC obtained a full reversal of a Hearing Panel decision in an enforcement proceeding which barred his client for life and ordered him to pay $250,000 in restitution, plus 6 years of interest.

The case, which was filed by FINRA Enforcement only days before it would lose jurisdiction over the Respondent, made allegations of conversion, breach of fiduciary duty, “hindering” and misrepresentation. The complaint was based on a misreading of documents, and an odd view of the underlying transactions, and a breach of fiduciary duty where no such duty existed. After three days of hearing, the Hearing Panel barred the client for life and ordered him to pay $250,000 in restitution to a non-party to the transaction.

The Hearing Panel issued a 36 page decision, which misconstrued facts, and accepted a theory of liability which was not presented in the complaint.

Mark Astarita represented the Respondent in the investigation and at the hearing and filed an appeal of the decision with the National Adjudicatory Council. Last week, the NAC reversed and took the unusual step of dismissing the complaint.

In its decision, the NAC rejected each substantive finding made by the Hearing Panel. After stating that the ethical standards imposed under FINRA Rule 2010 go beyond legal requirements, and depend on general rules of fair dealing, the reasonable expectations of the parties, marketplace practices, and the relationship between the parties, the NAC found that Enforcement failed to establish that Potter violated FINRA Rule 2010 in his dealings as an uncompensated middle man for a transaction between two sophisticated parties.

The NAC ruled that the client was not a fiduciary, and had no duty to speak, and there was no evidence that the parties relied heavily on him or his Judgment. The NAC found that the Developer did not rely on the client’s expertise as a securities professional, did not ask for his advice, and he did not offer advice. The NAC also found that despite the Hearing Panel’s finding that the client told one party that he was an uninterested third party, “there is no evidence, however, that Potter made any such representation before the Developer entered into the Agreement.”

The NAC found that “the record does not support a factual finding that the Developer expected the client to act as a fiduciary, that Enforcement failed to Establish that he converted the funds.

The NAC decision is 31 pages and is a full analysis of the facts, the law, and the defenses presented and reversed the decision and the lifetime bar.

NAC decision is here – findings of violation reversed, sanctions vacated, and complaint dismissed.

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Mark J. Astarita is a veteran securities attorney who represents investors and financial professionals nationwide in securities investigations and arbitrations. Have a question? Email him at mja@sallahlaw.com or call his office at 212-509-6544.