Law 360

May 12, 2017

Clearing Broker Ducks $68M Loss Claim In FINRA Arbitration

Clearing Broker Ducks $68M Loss Claim In FINRA Arbitration
Share us on: By Jack Newsham
Law360, New York (May 11, 2017, 4:19 PM EDT) — Broker-dealer C.L. King & Associates Inc. has slipped a claim for $68 million in damages brought by several trusts that suffered deep losses on trades the financial firm cleared, according to a recent decision by arbitrators with the Financial Industry Regulatory Authority.

C.L. King and its president Candace King Weir were accused by trusts linked to the Gorguze family of “enabling” the defunct investment firm NSB Advisors LLC to pursue risky investment strategies “through excessive margin lending and other wrongful practices,” according to the award, which is dated May 8.

A three-person arbitral panel rejected the trusts’ claim, although its decision did not explain its reasoning. Seyfarth Shaw, which represented the broker-dealer and its president, said the case involved more than 15 witnesses and 39 days of hearings, and its lawyer Chris Robertson praised the decision and said he believed it could withstand any potential challenges.

“The legal liability of a clearing broker conducting the actions that C.L. King was conducting is very limited,” he said, saying the company did not advise on the trusts’ investment strategies. He said arbitrators rejected the notion that the firm had “any suitability obligation or fiduciary obligation beyond issuing statements, custody of the assets” and other limited duties.

The trusts bear the names of the deceased industrialist and donor Vincent T. Gorguze, his wife Gloria and his daughter Lynn, who leads the family’s investment firm Cameron Holdings Corp., along with two grandchildren. A person who answered the phone at Cameron Holdings referred questions to the trusts’ law firm, which didn’t immediately respond to a request for comment Thursday.

Robertson said the trusts had a strategy that was long on stocks in the energy industry and short on securities that represented a broad swath of the market. In 2012, he said, the strategy did disastrously, and the trusts took legal action against NSB, the advisory firm, and eventually C.L. King. The trusts recovered $5 million from NSB, according to the FINRA award and Robertson, but still sought $68 million from C.L. King even after reducing their damages by that amount.

NSB filed for bankruptcy in 2015, saying C.L. King scared their clients off, and court papers from April said NSB’s estate is still trying to recover damages from C.L. King.

FINRA arbitration records also show that C.L. King has prevailed in a $13 million claim it brought against William Nicklin, NSB’s manager. Another claim brought against C.L. King by members of the Nicklin family and related entities for $12.8 million was rejected earlier this year.

The trusts are represented by John G. Rich and Ross B. lntelisano of Rich lntelisano & Katz LLP.

C.L. King and Weir are represented by Christopher F. Robertson of Seyfarth Shaw LLP and Richard A. Roth of The Roth Law Firm PLLC.

The case is Lynn E. Gorguze Separate Property Trust et al. v. C. L. King & Associates Inc. et al., case number 14-02898 with the FINRA Office of Dispute Resolution.

–Editing by Emily Kokoll.

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