Keesal, Young & Logan recently obtained a total victory for its broker-dealer client in a multi-million-dollar margin liquidation arbitration. In June 2017, the FINRA arbitration panel granted the broker-dealer’s motion to dismiss upon the close of the claimant’s case-in-chief, after two and a half weeks of testimony. The panel issued its final award in July 2017, dismissing the claimant’s claims in their entirety.
The claimant in this matter was a limited liability company that operated pooled bond funds for accredited investors under SEC Regulation D. The claimant’s largest fund domiciled its account with the broker-dealer, and this fund also maintained a $10 million securities-backed line of credit through the broker-dealer. The dispute arose when the broker-dealer liquidated the claimant’s portfolio of esoteric fixed income securities—interest-only and inverse interest-only derivatives of collateralized mortgage obligations—in accordance with the terms of the credit line agreement between the parties. The claimant contended that the broker-dealer wrongfully liquidated these securities and breached its duty of best execution in the sales, resulting in alleged losses of between $5 million and $9 million.
The claimant rested its case after approximately twelve hearing days, including eleven witnesses. The broker-dealer promptly moved to dismiss the arbitration on the ground that the claimant had failed to establish a viable claim for damages during its case-in-chief. The panel granted the motion, resulting in the immediate termination of the hearing and the dismissal of the claimant’s case in its entirety.
Keesal, Young & Logan was assisted by in-house counsel for the broker-dealer, which handled this matter in-house from its initial filing in 2014 through the majority of discovery, before retaining KYL as lead trial counsel.
The KYL attorneys representing the broker-dealer were Neal Robb and Ryan Lean. Paralegal Leslie Smith provided additional support.