Remember the FINRA Case Where the Broker Challenged a Zoom Hearing Ordered Over His Objection? It’s Been Awarded

This article first appeared on Securities Arbitration Alert (SAA), here.

The arbitration underlying a suit challenging a FINRA Panel’s authority to hold a virtual hearing over a broker’s objection has been awarded.

We reported last summer on Legaspy v. FINRA, No. 1:20-cv-04700, which was filed August 11 in the U.S. District Court for the Northern District of Illinois, alleging breach of contract because the FINRA Code of Arbitration Procedure doesn’t expressly authorize hearings to be held by videoconference absent party agreement. We monitored the telephonic argument held August 12, that included as participants counsel for FINRA, Legaspy, and the other parties in the underlying arbitration. In a thorough 10-page decision issued August 14, District Judge Lefkow went through each of the Plaintiff’s assertions and rejected them. Legaspy appealed immediately to the Seventh Circuit, which in a one-page Order posted the same day declined to issue either a temporary or preliminary injunction or to expedite briefing. Judge Coney Barrett was part of the Panel.

The Rest of the Story

Here’s an update:

• The hearings proceeded as scheduled via Zoom starting August 17, 2020 for 38 sessions through February 2021. The Customers in November 2020 settled and withdrew their claims against Legaspy and Insight Securities, leaving Pershing as the sole remaining Respondent.
• The Award in Anton v. Insight Securities, Inc., Pershing LLC, and Legaspy, FINRA ID No. 19-00474 (New York, NY, Mar. 25, 2021), denied all claims against Pershing, but sanctioned it $250,000 for discovery abuse.
• Pershing moved to vacate the sanctions part of the Award on April 21, contending that the Arbitrators exceeded their authority under the Federal Arbitration Act and New York’s arbitration statute:

“Although there was genuine dispute concerning Pershing’s compliance — which prohibits the imposition of sanctions as a matter of law — it is undisputed that Pershing produced all relevant documents in time for Mr. and Mrs. Nieves to make full use of them at the final hearing. While Mr. and Mrs. Nieves complained that some of Pershing’s production should have been made earlier than it was, this timing-based complaint was unfounded and, in any event, would not and does not support a sanction award in the magnitude ordered by the panel.”

• The matter remains pending.

(ed: We had thought an adverse Award might prompt Legaspy to move to vacate on the ground that the FINRA Code of Arbitration Procedure does not empower Arbitrators to order virtual hearings over a party’s objection. This was an option noted by Judge Lefkow when he denied the stay. The settlement made that point moot.)

George Friedman

George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA…