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FINRA Hits Wells Fargo With $2 Million Arbitration Award Regarding Unauthorized Withdrawal Of Customer Assets

On July 3, 2013, the Financial Industry Regulatory Authority, Inc. (“FINRA”) issued an award against Wells Fargo Advisors, LLC (f/k/a Wells Fargo Securities, LLC) (“Wells Fargo”) for over $2.2 million in damages for failing to safeguard customer assets by allowing unauthorized withdrawal of funds. See College Health and Investment, Ltd. vs. Wells Fargo Advisors, LLC (f/k/a Wachovia Securities, LLC) vs. Shari Jacobowitz and Esther Spero (a/k/a Esther Burstyn) – FINRA NO. 10-3554. According to a statement made by counsel for College Health, the unauthorized withdrawals of College Health’s funds were made by a rogue secretary. On August 6, 2010, Claimant College Health and Investment, Ltd. (“College Health”) filed a Statement of Claim alleging breach of fiduciary duty, negligence, negligent supervision and breach of contract relating to the theft of cash and unspecified securities deposited in College Health’s account held in custodian of Wells Fargo. Thereafter, on October 8, 2010, Wells Fargo filed an Answer which denied the allegations in the Statement of Claim and asserted various affirmative defenses. Wells Fargo also filed Third Party Claims against Shari Jacobowitz (“Jacobowitz”) and Esther Spero (a/k/a Esther Burstyn) (“Spero”) asserting indemnification and contribution. College Health filed an Amended Statement of Claim, alleging the same causes of action, but requesting $6 million in compensatory damages, margin interest expense, prejudgment interest, punitive damages and costs. Jacobowitz and Spero did not file a Statement of Answer to Wells Fargo’s Third Party Claim. The Panel allowed extensive discovery in this matter, which included issuing nearly 50 subpoenas and permitting the parties to depose Spero. Wells Fargo filed a Motion to Strike and/or Exclude the deposition testimony from being admitted into evidence. The Arbitration Panel denied Wells Fargo’s motion and allowed Spero’s deposition transcript to be entered into evidence since Spero was unavailable to testify at the hearing. In rendering the arbitration award (“Award”), the Panel declined to make any determination regarding Wells Fargo’s Third Party Claims against Jacobowitz and Spero since they are not registered representatives associated with FINRA. The Award stated that Wells Fargo was liable to College Health for $2,298,062 in compensatory damages, which includes prejudgment interest at the legal rate permitted by Florida law. This large compensatory damage figure also includes a minor $5,000 monetary sanction imposed upon Claimant for sending letters to all nonparties who received subpoenas that were drafted by Wells Fargo. The Award states, “Claimant did not provide these letters to FINRA or to Respondent’s counsel. The letters can best be understood as intended to discourage the recipients from producing all responsive documents.” The Award also granted College Health’s request for margin interest expense in the amount of $418,987.00, including prejudgment interest, as well as $35,000 in costs.

Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Additionally, Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses. Please contact our team of attorneys for a consultation at (212) 696-1999.

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