This Week At Malecki Law

Jenice L. Malecki, Co-Chair of the New York State Bar Association’s Securities Arbitration Committee, to Moderate a Timely Discussion on the Future of Investor Arbitrations

February 16, 2022 | Malecki Law Team

Next week, the New York State Bar Association’s Securities Arbitration Committee will be hosting a timely conversation on the future of mandatory arbitration. For the last 35 years, retail investors seeking recovery of stock market investment losses have had no other choice but to arbitrate their disputes at the Financial Industry Regulatory Authority (FINRA). Prior to 1987, investors were able to bring lawsuits in the courts, but that all changed with the landmark U.S. Supreme Court case, Shearson/American Express v. McMahon, 483 U.S. 1056 (1987). Moderating this event is Jenice L. Malecki, principal and founder of Malecki Law, and also the Co-Chair of the Securities Arbitration Committee. She has been on FINRA’s National Arbitration and Mediation Committee, on the board of the Public Investors Advocate Bar Association (PIABA), and is an Adjunct Professor at New York Law School. Invited speakers to the event include Michael Edmiston, the current president of PIABA, Tracey McNeil, Ombudsman for the Securities and Exchange Commission (SEC), and Angela Turiano, counsel and principal for Bressler Amery and Ross.

The benefits of arbitration have always been the economy of the process, typically involving less costs and faster recovery times than court. Compared to courts, arbitrations further allow very limited grounds for appeal. Arbitrators also have wider latitude than judges to grant relief to investors based on principles of equity and fairness – i.e., not necessarily having to adhere to legal precedent of earlier court decisions. This is a double-edged sword, however, because the potential downside is that arbitrators, who are under no obligation to explain their awards, have similar latitude to depart from substantive law to the detriment of the investor. The speed and economy of the arbitration process has also come under scrutiny, especially with the Covid-19 backlog of in-person arbitration hearings at FINRA. The fairness of the process has also long been criticized in terms of the quality of the arbitrators and the “neutral” arbitrator selection process managed by FINRA.

What makes this event particularly timely is the very recent news out of a Georgia state court decision, which overturned and vacated an arbitrator award that denied investor claims in favor of the prevailing firm, Wells Fargo. The court made this rare reversal of an arbitration award because, in the court’s determination, Wells Fargo allegedly had an undisclosed “side agreement” with FINRA to exclude certain arbitrators considered to be “investor friendly.” The court agreed with the investor’s position that this side agreement created a bias against the investor because “[p]ermitting one lawyer to secretly red line the neutral list makes the list anything but neutral, and calls into question the entire fairness of the arbitral forum.” Brian Leggett and Bryson Holdings, LLC vs. Wells Fargo Clearing Services, LLC et al., File No. 2019CV328949, Superior Court of Georgia, Fulton County (January 25, 2022). The news of this decision has intensified pressure on FINRA to not only investigate the matter, but to possibly reform the arbitration process, something that has long been called for by members of Congress and investor advocate organizations like PIABA.

Malecki Law Files Comment in Response to FINRA’s Proposed Modification to Rule 3240 Prohibiting Borrowing or Lending Arrangements Between Brokers and Their Customers

February 15, 2022 | Malecki Law Team

Yesterday, Malecki Law filed its official response to FINRA’s proposed changes to FINRA Rule 3240, in which FINRA seeks to modify the five current exceptions to the general rule that prohibits any “registered person” with a brokerage firm, from borrowing or lending to their customers. The rule applies to registered persons, which is most typically the account’s stockbroker, but applies to any licensed person with the firm. While FINRA has proposed this rule to “narrow the scope” of certain exceptions to the rule, Malecki Law filed its comment because of concerns that some of the modifications do not go far enough and still leaves room for possible abuse of the customer.

The five existing exceptions that currently permit borrowing or lending arrangements with a customer under Rule 3240 are if the customer is (1) a member of the registered person’s immediate family; (2) if the customer is a financial institution; (3) if the customer is also a registered person with the same firm; (4) if the lending arrangement is based on a personal relationship with the customer such that the arrangement would not exist had the personal relationship not existed in the first place; and (5) if the lending arrangements is based on a business relationship external to the broker-customer relationship.

Malecki Law is in favor of Rule 3240’s general prohibition against borrowing or lending to customers, because, as noted in Malecki Law’s filed comment, “there are thousands of brokers and advisors in America,” and therefore plenty “available to take over the debtor or lender’s investment account until the loan is repaid.” So while we support any proposal that narrows the rule, we believe that the inherent conflicts of interest in allowing such arrangements, even with a narrowed set of exceptions, could be entirely avoided in the first place.

Attorney Jenice L. Malecki to Speak this Week on FINRA Expungements and Employment Arbitrations at the American Bar Association’s Women in Litigation Conference

November 16, 2021 | Malecki Law Team

Jenice L. Malecki, Esq., founder of the New York City securities law firm Malecki Law, is scheduled to speak this Friday November 19th at the American Bar Association’s Women in Litigation Joint CLE Conference. The conference is scheduled November 17-19, 2021 at the Boston Park Plaza in Boston, Massachusetts. The conference highlights leading women litigators in a number of legal areas, with Ms. Malecki invited to speak on FINRA expungement matters, defamation lawsuits, and wrongful terminations relating to employment arbitrations litigated in FINRA’s dispute resolution forum.

For the last thirty years, Ms. Malecki has been an industry trailblazer as a leading female litigator in securities matters, having represented throughout her career a cross section of retail investors, brokerage firms, and employees within the securities industry. The breadth of Ms. Malecki’s experience and success is atypical in the legal profession, and particularly in securities litigation, because the field has been traditionally male dominated. She is an adjunct securities law professor at the New York Law School and has published scholarly works on women’s issues in the law, amongst numerous other securities-related topics. Earlier this year, Ms. Malecki authored a paper published in the Public Investors Advocate Bar Association (PIABA) Bar Journal, Vol. 28, No. 1, entitled Minorities and Women in the Securities Industry: The Disproportionate Impact of Securities Fraud Exploitation. Ms. Malecki was also a panelist at last year’s PIABA Annual Meeting and Securities Law Seminar where she spoke on the issue of Women Lawyers, Arbitrators, and Expert Witnesses.

Ms. Malecki is an ex-vice president of PIABA and sat on the advisory board for FINRA’s National Arbitration and Mediation Committee. She was recently appointed in September of this year as co-chair of the New York State Bar Association’s (NYSBA) Commercial & Federal Litigation Section’s Securities Arbitration Committee. The committee recognizes Ms. Malecki’s experience in the securities arena with the goal of promoting healthy industry relationships between litigators, administrative bodies, and the courts.

Securities Attorney Jenice L. Malecki Quoted in Connection with Attorney General Warning on Faith-Based Affinity Scams

November 2, 2021 | Malecki Law Team

Yesterday, a writer for The Inter-Mountain, a West Virginia daily newspaper, published a warning from its state attorney general, Patrick Morrissey, that residents should be careful “not to fall prey to faith-based scams.” The article does not discuss any specific scam but quotes a general press release from Mr. Morrissey’s office regarding “affinity frauds,” where victims of financial scams are targeted through their common bond, often a religious community. The article is notable in part because it quotes Jenice L. Malecki, a New York securities lawyer from Malecki Law, who has been featured frequently in the media and on CNBC’s American Greed, where she explained how people in these communities fall victim by letting their guard down “[e]specially in affinity situations, where people feel more comfortable for one reason or another, be it a church or an ethnic community, they tend not to look as hard as they should at what’s in front of them.”

While Mr. Morrissey’s warning is important and discusses the threat of scammers from outside the community, investors should additionally be aware that victims of affinity frauds are often victimized directly by someone prominent within the community itself, often the leader or pastor of the community. For instance, the warning focuses on scams where such a leader is impersonated by someone from outside the community, where scammers “have hacked a minister’s or faith -based charity’s online account, then emailed” its victims to ask for money. Further illustrating this, the warning states that “Scammers may claim the pastor is stuck or overseas and needs gift cards sent to get home, or they could solicit funds for a project.” The SEC, however, emphasized the threat more broadly in a 2013 publication where it warned on affinity frauds how the “fraudsters who promote affinity scams frequently are – or pretend to be – members of the group.” The SEC also noted that “many affinity scams involve ‘Ponzi’ or pyramid schemes, where new investor money used to make payments to earlier investors to give the false illusion that the investment is successful.”

So investors should be aware that fraudulent schemes can come from both within the group (i.e., community leaders themselves) as well as outside the group. Ponzi schemes are still highly prevalent, and investors should be on alert and watch their investments carefully. Malecki Law has recovered millions of dollars for investors across numerous types of frauds and Ponzi schemes, including her famous representation of over 120 victims from the Bronx, New York, in the Robert Van Zandt Ponzi scheme, as well as successful, multi-million dollar recoveries in other schemes involving the imprisoned Hector May, and the Biscayne Capital fraud that victimized Latin American investors of over $155 million. Most recently, the firm filed an action against the brokerage firm Henley & Company on behalf of an investor who was victimized by the late Ponzi schemer Phil Incorvia. The lawsuit against Henley alleges that the firm effectively allowed the scheme to flourish for the last 15 years because Henley allegedly failed to properly supervise Mr. Incorvia and the office he worked out of since 2006.

Malecki Law Investigating Possible Ponzi Scheme or Misappropriation of Funds in Connection with Henley and Company LLC and its Financial Adviser Philip R. Incorvia

September 24, 2021 | Malecki Law Team

Malecki Law is currently representing clients and investigating allegations against the brokerage and investment advisory firm Henley & Company, LLC and its recently deceased financial adviser, Philip Incorvia. Public records show Mr. Incorvia openly and notoriously operated Jefferson Resources Inc. since 1992 (nearly 30 years, while being registered as a FINRA Series 7 licensed broker with Henley & Company – using Henley & Company as the website address for the company). Mr. Incorvia was employed approximately 15 years with Henley and Company, operating both out of its offices in Shoreham and Uniondale, New York. Malecki Law is looking for whistleblowers, witnesses, and other victims.

Malecki Law’s investigation relates to a possible Ponzi scheme and/or misappropriation of funds involving many investors and potentially many millions of dollars in losses. The losses occurred across a number of purported “investments,” including but not limited to Jefferson Resources Inc., Vanderbilt Realty Investors, Inc., and JRI Hedge Fund. The investments were purporting to be mutual funds, hedge funds, and index funds, but it is believed that they were fictitious. Some were “income producing” while others rolled over.

A Ponzi scheme is a fictitious investment or scam, in which the Ponzi operator typically uses investor money for personal use and non-investment related purposes. Earlier investors are typically given “returns” which consist of principal coming from newer investors. Ponzi schemes tend to collapse when there are no more new investors to tap into, which often happens during adverse market conditions. In this case, it is believed that there was no one left to continue the Ponzi scheme when Mr. Incorvia passed away in August 2012, so it collapsed.

Jenice Malecki Appointed as Co-chair of the New York State Bar Association Commercial & Federal Litigation Section’s Securities Arbitration Committee

September 22, 2021 | Malecki Law Team

Jenice L. Malecki, Esq., founder of Malecki Law in 1999, was appointed today as co-chair of the New York State Bar Association Commercial & Federal Litigation Section’s Securities Arbitration Committee. Ms. Malecki has over 30 years of experience in securities arbitration and regulation, as well as whistleblowing claims and commercial arbitration and litigation. Having also been appointed to the FINRA board advisory group called the National Arbitration and Mediation Committee, as well as having been on the board of the Public Investors Arbitration Bar Association board, Ms. Malecki is uniquely qualified to lead this committee. Ms. Malecki has represented clients around the country and the world, including clients from Europe, Asia, Israel, Hong Kong, Puerto Rico, Mexico and South America. This broad representation has given Ms. Malecki in-depth expertise in arbitrations, mediations, settlements, and hearings – both live and over Zoom – as directed in court, at FINRA and before regulatory bodies. Ms. Malecki has also worked on high profile class action cases and appeared on various media shows including but not limited to Wall Street Journal Live, ABC’s Eyewitness News and NBC’s Today Show. All of this demonstrates Ms. Malecki’s knowledge and passion for securities work.

The New York State Bar Association (NYSBA) was founded in 1876 in an effort to cultivate and develop the law. Educating the public, as well as evolving with the changes of the legal profession, are part of the mission. The NYSBA promotes and champions equal justice through state and federal legislation. With over 70,000 members, the NYSBA attempts to nurture the science of jurisprudence while also encouraging changes in the law to effectively arbitrate justice.

Within the NYSBA, a committee was created in 1988 to continue to develop effective representation as well as encourage improvements to the law in areas of commercial and federal litigation. The committee works to foster healthy relationships between various administrative bodies, litigators, and judges to stimulate and encourage research, and collaborative thought on issues that affect commercial and federal litigation. Regulating and promoting legislation that would affect commercial and federal litigation. The extensive network will assist in providing resources for legal educational programs as well as other resources that inform on topics relevant to commercial and federal litigation.

With Market Events Like Evergrande, Retirees Should Know That They Can Recover Investment Losses from Their Brokerage Firm

September 21, 2021 | Malecki Law Team

Investors are still watching which way the market is ready to turn after yesterday’s 600-point drop in the Dow Jones Industrial average, the biggest one-day drop in over two months. While world markets appeared to be reacting to the prospect of loan defaults by the Evergrande Group – China’s second largest real estate company and the world’s largest property developer –retail investors, and retirees in particular, should keep in mind that this might be the beginning of something bigger. Given that U.S. equities remain at historic highs, portfolios still have a long way to fall. It is still unclear what ripple effect Evergrande will have even within China, as the Chinese government has yet to formally decide on whether it will bail out Evergrande or let it fail. But both scenarios are fueling fears of contagion within the U.S. and world markets. Some are calling this China’s “Lehman’s moment,” despite Evergrande’s debt only being about roughly half of the $600 billion in liabilities that Lehman had when it defaulted. There are rumblings, however, that Evergrande is the canary in the coal mine for China’s numerous other property companies, representing an outsized portion in driving China’s economy and GDP. The net effect on retail investors in the U.S., thus, depends to some degree on the level of Chinese investment and debt holdings by U.S. companies and financial institutions.

HSBC, BlackRock, and J.P. Morgan have been said to have significant exposure to the Chinese market generally, as do many individual U.S. companies, ranging from Wynn Resorts to Apple. As always, retail investors who are overconcentrated in any single company or market sector face the biggest risk. While the stock of many of these companies might seem relatively “safe” over the long term, not every investor can wait for the stock market to rebound. Seniors and retirees are a prime example, as this is a group regularly identified by U.S. regulators (e.g., FINRA and the SEC) as being vulnerable because they are typically saddled with higher expenses (e.g., medical and age-related expenses) at a time when they need liquidity and are no longer working or earning an income. For this reason, stockbrokers and financial advisors have a legal duty to retirees to recommend investments and an investment strategy that is suitable for this stage of life and the possibility that the stock market will not just continue to rise in perpetuity.

For retirees, overconcentration of an investment portfolio is often the culprit of an investment strategy or recommendation gone wrong. As we have written in this space before, brokers and financial advisors have long been required to have a reasonable basis for recommending an investment or strategy. And as of June 30, 2020, brokerage firms have had to comply with a new SEC rule, Regulation Best Interest (Reg BI), which further requires every recommendation to be in a customer’s best interests. Overconcentrating a retiree’s investment portfolio in largely equities (or worse, a single equity) is typically not in a retiree’s best interests and is what makes a portfolio most vulnerable to significant market events like Evergrande. Even though regulators do their best to raise the public’s awareness of this fact, retail enthusiasm during a bull market often drowns out the well-worn refrain to not put all your eggs in one basket. FINRA’s “Concentrate on Concentration Risk” publication is just one such warning.

Jenice L. Malecki Takes on Role as Adjunct Professor at New York Law School in its Securities Arbitration Seminar and Field Placement

September 17, 2021 | Malecki Law Team

A Cum Laude graduate alumni of New York Law School, Jenice L. Malecki, Esq., has taken on a mentor and adjunct professorial role as a professor in the Securities Arbitration Seminar and Field Placement. While at New York Law School, Professor Malecki was a member of the International Law Journal and a teaching assistant. She was part of a novel program at the time, when at Manhattanville College in Westchester, she was part of a BA/JD program, earning law school credits in undergraduate school. Now coming full circle and giving back, Professor Malecki has expended her previous role as a frequent guest lecturer and moot court judge for the Securities Arbitration Clinic at New York Law School, as well as other law schools including Fordham, Brooklyn Law School, Pace Law School, Yale Law School and Columbia Law School. Since founding New York Law School in 1999, Professor Malecki has regularly hired students from New York Law School as summer and school-year interns. Now, student receive an opportunity to work and receive academic credit while being mentored, supervised, and encouraged to develop a deep understanding of securities litigation and arbitration strategy.

The Securities and Arbitration Field Seminar teaches students how to interact with prospective clients, conduct client interviews, tackle legal analysis, draft pleadings as well as represent clients in arbitration proceedings before FINRA. The course involves both seminars and fieldwork experience. They engage in vigorous research, investigation and fact finding, as well as sit in on strategy discussions, write memoranda, briefs and pleadings, as well as assist in the review of discovery and case organization. Practical experience is invaluable to students, who can “hit the ground running” when they graduate with experience.

New York Law School was founded in 1891, and has a long history of educating young lawyers that work in the heart of New York City’s legal, government, and financial networks. An independent law school in Tribeca, New York City, New York Law School embraces the motto “We are New York’s Law School” through providing various methods for achieving a vibrant legal education. New York Law School was one of the first schools to offer a Juris Doctorate evening program, as well as built a 235,000 square foot campus in the heart of lower Manhattan near the state and Federal courts to offer opportunities to students in all walks and stages of life. Students are able to interact and work with mentor attorneys, securities arbitration attorneys experienced in the field. Experiential learning is a critical aspect of New York Law School and its teaching method, encouraging students to foster and perfect their legal analysis and skills early on.

Malecki Law Investigating Investor Losses in Oil and Energy Investments

March 18, 2020 | Malecki Law Team

In March 2020 Oil prices had their worst day since 1991, plunging to multi-year lows. Tensions between Russia and Saudi Arabia and OPEC’s failure to strike a deal were escalated by the global economic slowdown spurred by COVID-19 resulting in oil’s worst day since 1991. With oil’s and the energy markets substantial price plunge the investment fraud attorneys at Malecki Law announce the firm’s investigation into potential securities law claims against broker-dealers relating to the improper concentration or oil and gas in portfolios, as well as the sale of energy related structured notes, Exchange Traded Funds (ETFs), and Master Limited Partnerships (MLPs). Malecki Law has successfully prosecuted a number of these cases, including obtaining awards of attorneys’ fees and costs for investors.

Malecki Law is interested in hearing from investors who were recommended concentrated positions in oil and gas, as well as those recommended futures in Oil and Gas, MLPs or energy sector ETFs. Investors have lost millions in these products as the energy markets dropped. As prices have continued to slide, losses have compounded. The energy market plunge is terrible for those whose financial advisors recommended that investors stay in and “ride it out.”

Unfortunately, many energy sector investments are risky investments that can be inappropriate for typical “mom and pop” investors, as well as those heading to or in retirement. Unfortunately, there are some financial advisors and brokers that sell them to their clients anyway, without fully disclosing the potentially devastating risks.

Malecki Law Wins Appeal to Allow an International Investor at a Domestic and Foreign Brokerage Firm to Arbitrate at FINRA

February 18, 2020 | Malecki Law Team

Today, Malecki Law, won a court appeal to allow an international investor to proceed in his securities lawsuit against Lek Securities Corporation and its principals (Samuel Lek and Charles Lek), allowing the case to go forward and be decided by a panel of arbitrators in the dispute resolution forum provided by the Financial Industry Authority (FINRA). Today’s court order, which was issued by New York’s Appellate Division, First Department, reversed the July 19, 2019 order of the lower court (Supreme Court, New York County), which improperly granted Lek Securities a permanent stay (i.e., a halt) from arbitrating the dispute in FINRA. The outcome of today’s decision is important because it adds color to the legal definition of who is a “customer” and, thus, who is eligible to bring their claims in FINRA arbitration.

Lek Securities is a U.S. brokerage firm regulated by the enforcement arm of FINRA – the largest independent regulatory body for securities trading and securities firms operating in the United States. Within the fine print of their new account forms, all investors who open retail brokerage accounts with U.S. brokerage firms waive their rights to court and are, instead, required to arbitrate any disputes in FINRA. However, FINRA provides a cost-effective arbitration forum that allows retail customers of brokerage securities firms to recover their lost investments much faster, and for far less money, than they would typically be able to in court. This is due in part to arbitrations generally not being subject to appeal and arbitration having far less onerous discovery requirements, including not allowing depositions, generally speaking. Arbitration in FINRA is also advantageous to investors because firms that lose in arbitration are incentivized to pay awards to customers within 30 days or otherwise have their brokerage licenses revoked. While the firm is still operational, and while this case was waiting for the appeal to be decided, the owner of Lek Securities, Samuel Lek, who is also named in the instant lawsuit, was barred from the securities industry by FINRA and the Securities and Exchange Commission (SEC) in December of 2019.

In reversing the lower court’s decision, today’s order by the First Department holds that there was a customer relationship established between the investor and Lek Securities under the FINRA rules and in accordance with the law established in Global Mkts. Inc. v. Abbar, 761 F.3d 268 (2d. Cir. 2014) – a seminal case in which Malecki Law’s founder, Jenice Malecki, was instrumental in shaping and arguing before the Second Circuit. The law in Abbar requires that to be a customer (and to therefore be eligible to arbitrate against a firm in FINRA), the investor must have either had an account or purchased a good or service from the firm. In its court papers, Lek Securities claimed that the international investor had an account with the firm’s UK operations (LekUK), which is not subject to regulatory oversight in the United States, and that LekUK, in carrying out brokerage services for the investor, transferred the investor’s assets to the subject U.S. affiliate, and that any payment received by the Lek entity in the United States was incidental, and not received directly from the investor, but paid internally by LekUK.