A panel of arbitrators from the financial industry regulator on Thursday presented the agency’s biggest award since 2018 in a case brought by a grandmother against J.P. Morgan Securities and two former brokers – their grandchildren – had filed for unauthorized trading.
Beverley Schottenstein, 94, of Bal Harbor, Florida, received nearly $ 19 million in damages, plus legal fees. She had accused JP Morgan and Evan A. Schottenstein in New York City and Avi E. Schottenstein in Los Angeles of fraud and breach of trust for unauthorized purchases of securities between 2014 and 2019, and used them for electronic delivery of declarations without registered authorization .
Specifically, respondents purchased several automatically redeemable structured notes and other securities for which J.P. Morgan was a « market maker » including Apple stock, as well as initial public offerings and follow-up offers as per Finra’s case summary.
« Our customer is very satisfied and so are we, » said Beverley Schottenstein’s attorney Scott Ilgenfritz, partner at Johnson, Pope, Bokor, Ruppel & amp; Burns in Tampa, Florida. « We feel that the referees have thought carefully and given a fair and appropriate award. »
Beverley Schottenstein initially sought more than $ 10 million in damages in her July 2019 motion, but increased her motion to more than $ 69 million after the evidence hearings, all of which were held by the Zoom video conference, were completed.
A spokeswoman for J.P. Morgan declined to comment on the price or whether it will take the rare step of asking a court to overturn the decision. The brokers were part of Bear Stearns’ retail brokerage business, which JPMorgan acquired during the 2008 financial crisis, which includes approximately 475 brokers.
The panel of three “public” arbitrators from outside the industry decided that J.P. Morgan, Evan and Avi are each responsible for constructive fraud and common law fraud, and that J.P. Morgan and Evan are also responsible for elderly abuse in violation of the Florida statutes. As usual, they did not explain their decision at the time of the award.
The panel made J.P. Morgan Securities was responsible for $ 4.7 million in damages and ordered the company to pay Beverley Schottenstein an additional $ 4.3 million to liquidate an investment in a Coatue Private Equity Fund and costs of $ 172,631.
Evan was individually fined $ 9 million in damages and costs of $ 172,631, while Avi was fined $ 602,251 in damages.
J.P. Morgan and Evan each pay half of Beverley’s legal fees.
The Schottenstein brothers’ lawyers did not respond to requests for comment. The former realtors who, since leaving J.P. Morgan were no longer registered with Finra in July 2019, could not be reached for comment.
J.P. Morgan fired Evan for « concerns about trading activity for a family member and the accuracy of related records, » according to BrokerCheck.
Avi, who in July 2019 also joined J.P. Morgan has left no notice of termination on his BrokerCheck record.
Evan started his brokerage career at Citigroup in 2006, moved to Morgan Stanley in 2009 and joined J.P. in 2014. Morgan, while Avi started his career at Morgan Stanley in 2009 and joined J.P. Morgan came.
Ilgenfritz said the matter prompted Finra’s law enforcement agency to launch an investigation into the broker’s activities.
A Finra spokesman did not immediately respond to a request for comment on whether an investigation was in progress.
Bill Singer, a securities attorney not involved in the case, described the decision as a « very sobering » warning to industry respondents in arbitration proceedings during the Covid-19 shutdown.
While personal trials may not have changed the outcome, it is a daunting task to blame realtors and a Wall Street firm that misconducted over video conferencing during the holiday season.
The brothers Schottenstein and J.P. Morgan had objected to Beverley Schottenstein’s motion in July 2020 to conduct the arbitration proceedings virtually, but the panel granted the senior Schottenstein’s motion.