Habliston v. Finra Regulation, Inc.

District Court, District of Columbia·Decided January 27, 2017·No. Civil Action No. 2015-2225·Published

Opinion

81,7(' 67$7(6 ',675,&7 &2857 )25 7+( ',675,&7 2) &2/80%,$ BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB $11 025721 <281* +$%/,6721 et al.

3ODLQWLIIV

Y

&LYLO $FWLRQ 1R  $%-

),15$ 5(*8/$7,21 ,1&

'HIHQGDQW

BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB

0(025$1'80 23,1,21

3ODLQWLIIV $QQD 0RUWRQ <RXQJ +DEOLVWRQ DQG 6H\PRXU 5 <RXQJ -U DUH LQYROYHG LQ DQ DUELWUDWLRQ DJDLQVW :HOOV )DUJR $GYLVRUV //& FRQFHUQLQJ WKHLU GHFHDVHG SDUHQWV¶ EURNHUDJH DFFRXQWV $SSDUHQWO\ WKH\ DUH H[WUHPHO\ GLVVDWLVILHG ZLWK KRZ LW LV JRLQJ VR IDU DQG WKH\ KDYH EURXJKW WKLV DFWLRQ DJDLQVW GHIHQGDQW ),15$ 5HJXODWLRQ ,QF ³),15$ 5HJXODWLRQ´  6XEVWLWXWH $P &RPSO >'NW  @ ³&RPSO´ 

 3ODLQWLIIV RULJLQDOO\ EURXJKW WKLV ODZVXLW RQ 'HFHPEHU   DJDLQVW ),15$ 'LVSXWH 5HVROXWLRQ ,QF &RPSO >'NW  @ EXW WKH\ ILOHG DQ DPHQGHG FRPSODLQW RQ 0D\   DJDLQVW ),15$ 5HJXODWLRQ ,QF $P &RPSO >'NW  @ 3ODLQWLIIV WKHQ ILOHG D VXEVWLWXWH DPHQGHG FRPSODLQW RQ -XQH   6XEVWLWXWH $P &RPSO >'NW  @ 3ODLQWLIIV DOOHJH WKDW ),15$ 5HJXODWLRQ KDV IDLOHG WR SURYLGH D IDLU DUELWUDWLRQ IRUXP EHFDXVH WKH DUELWUDWRUV DUH ELDVHG DQG WKHLU SURFHGXUDO UXOLQJV WR GDWH KDYH EHHQ XQIDLU WKDW ),15$ 5HJXODWLRQ KDV IDLOHG WR FDUU\ RXW LWV UHJXODWRU\ GXWLHV SURSHUO\ DQG WKDW WKH ELQGLQJ DUELWUDWLRQ SURYLVLRQV FRQWDLQHG LQ WKH EURNHUDJH FRQWUDFWV DUH YRLG RU XQHQIRUFHDEOH 3ODLQWLIIV DOVR VHHN GDPDJHV XQGHU  86& †  &RPSO ˆ  DQG WKH\ DVN WKH &RXUW WR DSSRLQW QHZ DUELWUDWRUV WR KHDU WKH SHQGLQJ DUELWUDWLRQ Id. ˆ  2Q -XO\   GHIHQGDQW PRYHG WR GLVPLVV WKH FRPSODLQW SXUVXDQW WR )HGHUDO 5XOHV RI &LYLO 3URFHGXUH  E    E    E   DQG  K 

RQ PXOWLSOH JURXQGV ,W DUJXHV WKDW SODLQWLIIV¶ FODLPV DUH QRW ULSH IRU UHYLHZ VLQFH WKH DUELWUDWLRQ LV RQJRLQJ GHIHQGDQW LV LPPXQH IURP VXLW XQGHU WKH GRFWULQHV RI DUELWUDO DQG UHJXODWRU\ LPPXQLW\ SODLQWLIIV KDYH IDLOHG WR QDPH LQGLVSHQVDEOH SDUWLHV GHIHQGDQW LV QRW D VWDWH DFWRU IRU SXUSRVHV RI VHFWLRQ  WKH 6HFXULWLHV DQG

 See, e.g. &RPSO ˆˆ   ±  DOOHJLQJ ),15$ YLRODWHG LWV RZQ UXOHV LQ FRQGXFWLQJ GLVFRYHU\ DQG SRVWSRQLQJ KHDULQJV  id. ˆˆ ±   ± DOOHJLQJ ),15$ DUELWUDWRUV DUH LQGXVWU\ELDVHG DQG KDYH GLVTXDOLI\LQJ UHODWLRQVKLSV  id. ˆˆ   ±  DOOHJLQJ ),15$ DFWHG ZLWK NQRZQ FRQIOLFWV RI LQWHUHVW  id. ˆˆ  %   .

DOOHJLQJ ),15$ KDV QR PHDQLQJIXO PHWKRG RI RYHUVLJKW EHFDXVH DUELWUDWLRQV DUH KHOG LQ SULYDWH DQG KDYH LQDGHTXDWH DSSHDO PHFKDQLVPV  id. ˆˆ  ±      DOOHJLQJ WKH DUELWUDWLRQ LV QRW DQ LPSDUWLDO KHDULQJ EHIRUH XQELDVHG DUELWUDWRUV  id. ˆˆ ±      DOOHJLQJ SODLQWLIIV¶ GLVFRYHU\ UHTXHVWV ZHUH XQIDLUO\ GHQLHG RU UHMHFWHG  id. ˆˆ      DOOHJLQJ SODLQWLIIV ZHUH XQIDLUO\ GHQLHG SRVWSRQHPHQW RI D KHDULQJ GDWH IRU H[WUDRUGLQDU\ FLUFXPVWDQFHV  id. ˆ  DOOHJLQJ UHSODFHPHQW DUELWUDWRUV ZLOO EH ELDVHG 

 See, e.g. &RPSO ˆ  DOOHJLQJ IDLOXUH WR HQWHU DQ HQIRUFHPHQW DFWLRQ DJDLQVW :HOOV )DUJR IRU YLRODWLRQV RI ),15$ UXOHV  id. ˆˆ  $   $   DOOHJLQJ ),15$ DQG ),15$ 5HJXODWLRQ DOORZHG YRWLQJ ),15$ PHPEHUV WR UHPDLQ OLFHQVHG ZLWK LQDGHTXDWH VXSHUYLVRU\ SURFHGXUHV  id. ˆ  DOOHJLQJ YLRODWLRQV RI IHGHUDO DQG VWDWH VHFXULWLHV ODZV DV ZHOO DV ),15$ 5XOHV  id. ˆ  DOOHJLQJ ),15$ FRQFHDOHG FULPLQDO PLVFRQGXFW DQG GHFHSWLYH VDOHV SUDFWLFHV E\ :HOOV )DUJR 

 See, e.g. &RPSO ˆˆ   ± DOOHJLQJ WKH SURYLVLRQV VKRXOG EH GHFODUHG YRLG DJDLQVW SODLQWLIIV EHFDXVH GHIHQGDQW YLRODWHG SODLQWLIIV¶ FRQVWLWXWLRQDO ULJKWV  ˆ  DOOHJLQJ WKH\ VKRXOG EH YRLG RU YDFDWHG EHFDXVH ³WKH\ ZHUH REWDLQHG DJDLQVW WKH >S@ODLQWLIIV¶ ZLOO´  ˆ  DVNLQJ WKH &RXUW ³WR GHFODUH ),15$ SUH GLVSXWH ELQGLQJ DUELWUDWLRQ SURYLVLRQV    YRLG RU QRW HQIRUFHDEOH´ EHFDXVH ),15$ 5HJXODWLRQ ³PDWHULDOO\ EUHDFKHG ),15$ $UELWUDWLRQ 5XOHV´  

([FKDQJH $FW GRHV QRW FUHDWH D SULYDWH ULJKW RI DFWLRQ IRU DOOHJHG YLRODWLRQV RI UXOHV HQDFWHG XQGHU WKH $FW DQG SODLQWLIIV¶ UHTXHVW WKDW WKH &RXUW DSSRLQW QHZ DUELWUDWRUV LV PRRW EHFDXVH UHSODFHPHQW DUELWUDWRUV KDYH DOUHDG\ EHHQ DSSRLQWHG 0RW WR 'LVPLVV WKH &RPSO >'NW  @ ³'HI¶V 0RW´

DW  0HP RI /DZ LQ 6XSS RI 'HI¶V 0RW >'NW  @ ³'HI¶V 0HP´

DW ± 3ODLQWLIIV IDLOHG WR RSSRVH PDQ\ RI WKHVH DUJXPHQWV VR WKH PRWLRQ KDV EHHQ ODUJHO\ FRQFHGHG :LWK UHVSHFW WR WKH RSHQ LVVXHV WKH &RXUW FRQFOXGHV WKDW SODLQWLIIV¶ FODLPV DUH QRW ULSH IRU UHYLHZ DQG WKDW GHIHQGDQW LV HQWLWOHG WR DUELWUDO LPPXQLW\ 7KHUHIRUH WKH PRWLRQ WR GLVPLVV ZLOO EH JUDQWHG %$&.*5281'

3ODLQWLIIV¶ SDUHQWV ZKR DUH QRZ GHFHDVHG PDLQWDLQHG LQYHVWPHQW DFFRXQWV ZLWK :DFKRYLD 6HFXULWLHV ,QF QRZ :HOOV )DUJR $GYLVRUV //& ³:HOOV )DUJR´  DQG WKH\ ZHUH WKH XQIRUWXQDWH YLFWLPV RI FULPLQDO PLVFRQGXFW &RPSO ˆˆ   $ :HOOV )DUJR EURNHU &KULVWRSKHU &XQQLQJKDP ZDV FRQYLFWHG RI WDNLQJ RYHU  PLOOLRQ IURP SODLQWLIIV¶ SDUHQWV DQG RWKHU FXVWRPHUV Id. ˆ  7KHUHDIWHU SODLQWLIIV DFWLQJ LQ WKHLU SDUHQWV¶ VWHDG EURXJKW VXLW DJDLQVW :HOOV )DUJR DQG )XOFUXP 6HUYLFHV ,QF ³)XOFUXP´  DOOHJLQJ WKDW WKH\ NQRZLQJO\ DQG UHFNOHVVO\ DOORZHG WKH WKHIW WR RFFXU OHDGLQJ WR D ORVV RI RYHU  PLOOLRQ Id. ˆ  8QGHU WKH WHUPV RI WKH DFFRXQW DJUHHPHQWV ZLWK :HOOV )DUJR DQG )XOFUXP SODLQWLIIV ZHUH UHTXLUHG WR VXEPLW WKHLU FODLPV WR D ELQGLQJ DUELWUDWLRQ SURFHHGLQJ DGPLQLVWHUHG E\ WKH )LQDQFLDO ,QGXVWU\ 5HJXODWRU\ $XWKRULW\ ,QF ³),15$´  See &RPSO ˆ  ),15$ LV D SULYDWH QRWIRU SURILW 'HODZDUH FRUSRUDWLRQ id. ˆ  DQG DFFRUGLQJ WR GHIHQGDQW LV D VHOIUHJXODWRU\ RUJDQL]DWLRQ ³652´  UHJLVWHUHG ZLWK WKH 6HFXULWLHV DQG ([FKDQJH &RPPLVVLRQ ³6(&´

DV D QDWLRQDO

 $ VHOIUHJXODWRU\ RUJDQL]DWLRQ LV GHILQHG DV ³DQ\ QDWLRQDO VHFXULWLHV H[FKDQJH UHJLVWHUHG VHFXULWLHV DVVRFLDWLRQ RU UHJLVWHUHG FOHDULQJ DJHQF\´  86& † F D  



VHFXULWLHV DVVRFLDWLRQ 'HI¶V 0HP DW  ,WV ZKROO\ RZQHG VXEVLGLDU\ ),15$ 5HJXODWLRQ RSHUDWHV D GLVSXWH UHVROXWLRQ IRUXP WKDW DGPLQLVWHUV ),15$ DUELWUDWLRQV &RPSO ˆ  $FFRUGLQJ WR GHIHQGDQW ),15$ 5HJXODWLRQ¶V 2IILFH RI 'LVSXWH 5HVROXWLRQ DSSRLQWV DUELWUDWRUV PDLQWDLQV WKH DUELWUDWLRQ ILOHV SURFHVVHV SOHDGLQJV DQG PRWLRQV GUDIWV RUGHUV ZLWK DUELWUDWRU GLUHFWLRQ DQG WUDQVPLWV GRFXPHQWV EHWZHHQ WKH SDUWLHV 'HI¶V 0HP DW  3ODLQWLIIV¶ IRUW\IRXU SDJH VXEVWLWXWHG DPHQGHG FRPSODLQW LV KDUGO\ D ³VKRUW DQG SODLQ´ VWDWHPHQW RI WKH FODLPV )HG 5 &LY 3  D  EXW LW ERLOV GRZQ WR IRXU FRXQWV See &RPSO ,Q &RXQW , SODLQWLIIV DOOHJH WKDW WKH FRQWUDFWXDO ³),15$ SUHGLVSXWH ELQGLQJ DUELWUDWLRQ SURYLVLRQV VKRXOG EH YDFDWHG RU GHFODUHG YRLG´ EHFDXVH WKH\ YLRODWH SODLQWLIIV¶ FRQVWLWXWLRQDO ULJKWV Id. ˆˆ   ± ,Q &RXQW ,, WKH\ DOOHJH WKDW WKH DUELWUDWLRQ SURYLVLRQV VKRXOG EH GHFODUHG YRLG EHFDXVH ),15$ 5HJXODWLRQ KDV PDWHULDOO\ EUHDFKHG ),15$ DUELWUDWLRQ UXOHV Id. ˆ  ,Q &RXQW ,,, SODLQWLIIV EULQJ D FODLP IRU GDPDJHV XQGHU  86& ††  DQG  DOOHJLQJ WKDW ),15$ 5HJXODWLRQ DFWHG ³XQGHU FRORU RI ODZ´ WR GHQ\ SODLQWLIIV WKHLU FRQVWLWXWLRQDO ULJKWV XQGHU WKH GXH SURFHVV DQG HTXDO SURWHFWLRQ FODXVHV Id. ˆ  6SHFLILFDOO\ SODLQWLIIV FODLP WKDW ),15$ 5HJXODWLRQ ³NQRZLQJO\ YLRODWHG LWV GXW\ WR DFW REMHFWLYHO\ DQG LPSDUWLDOO\´ DQG DFWHG ZLWK WKH

 ),15$ LV D UHJLVWHUHG QDWLRQDO VHFXULWLHV DVVRFLDWLRQ SXUVXDQW WR WKH 6HFXULWLHV ([FKDQJH $FW RI   86& † D et seq. ³([FKDQJH $FW´  'HI¶V 0HP DW 

 7KH 6(& DXWKRUL]HG ),15$ WR LQFOXGH SUHGLVSXWH ELQGLQJ DUELWUDWLRQ SURYLVLRQV LQ WKHLU FXVWRPHU DFFRXQW DJUHHPHQWV 2UGHU *UDQWLQJ $FFHOHUDWHG $SSURYDO 5HJDUGLQJ 5XOH *RYHUQLQJ 3UHGLVSXWH $UELWUDWLRQ $JUHHPHQWV ZLWK &XVWRPHUV  )HG 5HJ  'HF    $GGLWLRQDOO\ WKH 6(& DXWKRUL]HG ),15$ WR GHOHJDWH LWV DGPLQLVWUDWLRQ RI DUELWUDWLRQV WR ),15$ 5HJXODWLRQ DQG ),15$ KDV GRQH VR See 2UGHU $SSURYLQJ 3URSRVHG 5XOH &KDQJH WR 0HUJH ),15$ 'LVSXWH 5HVROXWLRQ ,QF LQWR DQG ZLWK ),15$ 5HJXODWLRQ ,QF  )HG 5HJ  'HF    see also ),15$ 5XOH  'HOHJDWLRQ $XWKRULW\ DQG $FFHVV 

Free access — add to your briefcase to read the full text and ask questions with AI

Habliston v. Finra Regulation, Inc., (D.D.C. 2017).

Habliston v. Finra Regulation, Inc. (Habliston v. Finra Regulation, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.