united states district court eastern division pti ...1).pdf · was undisputed that yonata berman...
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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PTI SECURITIES & FUTURES,
L.P.,
Plaintiff,
v.
MARTIN BIRNBAUM, Power of
attorney for YONATA BERMAN,
David Andalman,
Defendants.
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Case No. 20 C
PLAINTIFF’S APPLICATION TO VACATE ARBITRATION AWARD ENTERED
BY FINANCIAL INDUSTRY REGULATORY AUTHORITY
Plaintiff PTI Securities & Futures, L.P. (“PTI”), by its attorneys Gregg
Rzepczynski & Associates, Ltd., and Michael J. Greco, Attorney at Law, for
its Application to Vacate Arbitration Award entered by Financial Industry
Regulatory Authority (“FINRA”) pursuant to Section 10 of the Federal Arbitration
Act, 9 USC Section 1 et seq. (“FAA”), Section 10, for vacatur of the Arbitration
Award entered February 27, 2020, in FINRA Dispute Resolution Case No.
18-00990, for a judgment and decree directing re-arbitration of the Statement of
Claim filed in that case, and for further appropriate relief in its favor against
Defendant, MARTIN BIRNBAUM, Power of attorney for YONATA BERMAN
(Martin Birnbaum with be referred to sometimes herein as “Birnbaum”; Yonata
Berman as “Berman”), states as follows:
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1. The case was filed on March 15, 2018, and proceeded to Arbitration
Hearing on July 8, 2019 through July 12, 2019, and resumed December 2, 2019
through December 6, 2019. Both parties rested their respective cases on December
6, 2019; there was no further presentation of evidence or oral argument thereafter.
The Panel ordered on December 6, 2019, or December 9, 2019, that Post-Hearing
Briefs be submitted by the parties on or before January 17, 2020.
2. PTI, as Respondent before FINRA, and co-Respondent David Andalman
timely filed the written submissions directed on January 16 and 17, 2020.
Birnbaum never filed any Post-Hearing Brief, flouting the Panel’s December 2019
directive.
3. The Award of Arbitrators was entered and delivered to Plaintiff PTI on
February 27, 2020. (A copy of the Award of Arbitrators is attached as Exhibit “1”
and made a part of this Motion to Vacate).
4. This Application to Vacate is filed within ninety (90) days after the Award
of Arbitrators was entered.
5. The Arbitration was conducted pursuant to the parties’ PTI Securities
Options Client Agreement and approval Form (“OCAA”).
Jurisdiction
6. This Court thus enjoys jurisdiction of this Application to Vacate pursuant
to Section 10 of the FAA, 9 USC Section 10 and this Court’s Federal Question
Jurisdiction, 28 USC Section 1331.
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Venue
7. This Court is the appropriate venue of this Application to Vacate as the
Arbitration Hearing took place, and all parties are domiciled within, the geographic
expanse of this Court.
Factual Predicate
8. The Claimant in this case is not the Investor, but her Attorney-In-Fact,
Martin Birnbaum (“Birnbaum”), under a Power Of Attorney executed in 2012 by the
Investor, Yonata Berman (“Berman”), prior to Berman opening the account at PTI.
Birnbaum is a retired Certified Public Accountant (“CPA”), and friend and income
tax return preparer for Berman for all of the years Berman had an investment
trading account at PTI, 2013 through 2017, inclusive.
9. Yonata Berman’s execution witness specifically avers in the Power Of
Attorney execution form that, as of August 13, 2012, she or he believed Yonata
Berman to be of “sound mind and memory.” (See Claimant’s Statement of Claim
initiating the FINRA Arbitration Case (herein “SOC”), Exhibit A, page 6). Yonata
Berman continued to manage her own investments and assets after execution of the
Power of Attorney. Birnbaum testified at Arbitration hearing that as recently as
2018, he had prepared checks drawn on bank accounts with respect to which
Birnbaum did not have check-signing authority, and presented them to Yonata
Berman for her to sign.
10. Yonata Berman has never been adjudicated incapacitated or disabled, and
has never been the subject of a Probate Court proceeding for appointment of a
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Guardian of her person or property. There has no indication or evidence presented
that Yonata Berman is unable to make her own investment decisions, or that she
lacks capacity to manage an investment account as a customer-investor. There is
no indication that Yonata Berman is aware of Birnbaum’s initiation of the FINRA
Arbitration proceeding, and no indication that Yonata Berman is aware that
Birnbaum engaged counsel to prosecute Arbitration claims against Plaintiff or
against investment advisor David Andalman. The Power of Attorney authorized
Birnbaum to pursue “claims and litigation” of Berman, and to “employ attorneys
and others and enter into contingency agreements and other contracts as necessary
in connection with litigation[.]” (Claimant’s SOC, Ex. A, p. 11, Section 3-4, para.
(j)). There is no indication whatsoever that Yonata Berman authorized, approved or
even knew of any aspect of the FINRA Arbitration proceeding, excepting possibly
from a deposition that was attempted to be conducted at her residence in December
2018. (The deposition could not proceed because Yonata Berman ignored or
rebuffed the efforts of the stenographic reporter or/and videographer to administer
to her the oral swearing-in, i.e., the oath to tell the truth in the deposition).
11. Birnbaum testified at Arbitration, and it was indicated in the initial PTI
account opening paperwork (OCAA) that Yonata Berman had known the
investment advisor David Andalman prior to 2013, and opened her trading account
at PTI at the suggestion of investment advisor David Andalman in about March
2013. There was no evidence introduced that suggested that Yonata Berman
sought out PTI to open the PTI account excepting because of David Andalman – it
was undisputed that Yonata Berman reposed substantial trust in David Andalman
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and wished to invest money with him in a discretionary account, as she has done
prior to 2013. Yonata Berman opened the trading account by transferring another
investment account from Wells Fargo to PTI. Yonata Berman was specifically
interested in trading options, and sought out David Andalman (“Andalman”) to
open this account.
12. For his part, the evidence introduced at Arbitration Hearing indicated
that Andalman had been a registered person in FINRA and its predecessor, NASD
(National Association of Securities Dealers) for approximately twenty-eight years at
the time Yonata Berman opened the PTI account for Andalman to manage as her
investment advisor. Andalman’s FINRA registration records show no disciplinary
action, no lawsuits or claims, and no adverse events, excepting the 2018 Birnbaum
SOC and FINRA Case 18-00990 to which this Application is directed.
13. In the PTI Securities Options Client Agreement and approval Form
(“OCAA”) submitted by her to PTI, Yonata Berman asserted that she had a net
financial worth in excess of $3,000,000.00, and had twenty-five-plus (25+) years’
of Stocks and Bonds investment experience. Yonata Berman checked the multiple-
choice alternative Investment Objective in her Investor Profile declaring that she
was interested in “Speculation – Focus on generating maximum possible returns[,]”
and, for her Risk Tolerance: “I am willing to accept high risk, including high
volatility, and understand I could lose a substantial amount of my investment.”
14. Yonata Berman’s investments prior to opening the PTI account included
Private Equity / Private Placement Offerings, Real Estate Investment Trusts and
Real Estate Limited Partnerships, which are arguably illiquid, higher-risk
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investments suitable only for affluent, sophisticated investors. Yonata Berman
indicated to Andalman her interest in trading options as well as stocks. Berman
identified herself to Andalman as a sophisticated investor.
15. Yonata Berman did not sign the Submission Agreement initiating this
case, and did not testify at the Arbitration Hearing. All of the oral testimony of the
facts in this case introduced by Claimant came from Birnbaum, and from PTI officer
Daniel Haugh. As mentioned above, it is not known whether Berman is even aware
of the pendency of this case and Statement of Claim. It is not known whether
Berman would approve of prosecuting the case and SOC, or would disavow it.
Berman has never been adjudicated incapacitated or incompetent to manage her
financial affairs by any Court. Yonata Berman continues to write checks
and sign account documents, at least through 2018, well after the August 2017
transfer of the PTI account to Wells Fargo.
16. Birnbaum testified that he will sometimes prepare a check drawn on
Berman’s account, and request that Berman sign it, which she does. Birnbaum
secured authorization from Yonata Berman in October 2017, after transferring
Berman’s trading account from PTI to Wells Fargo in August 2017, to write checks
drawn on the Wells Fargo account containing Yonata Berman’s funds. Birnbaum
has used that check-writing authority to write checks of at least $48,000.00 to his
attorney, James Eccleston & Associates (“Eccleston”), and to write at least another
$16,000.00 in checks to other parties. According to Birnbaum, he had as of
December 4, 2019, paid about $100,000.00 in attorney’s fees to Eccleston, and
$20,000.00 to his putative expert Robert Graham, all from Yonata Berman’s funds.
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Birnbaum testified that his fee agreement with Eccleston is not contingent – that
means Eccleston must be paid hourly regardless of the outcome of the SOC, and
regardless of whether Eccleston’s efforts realize any recovery from Plaintiff or
Andalman at all.
17. Birnbaum testified that he was aware of Berman’s investment in the
David Andalman / PTI account at issue in this case at all times since the account
was opened in 2013. In preparing and filing Berman’s income tax returns,
Birnbaum receives the K-1 and 1099 forms issued to Yonata Berman in connection
with her investments and accounts. Birnbaum periodically questioned Yonata
Berman as to whether she should close or modify the activity of the PTI account, to
which Yonata Berman responded consistently that she likes and trusts David
Andalman, and that she wanted to keep the PTI account open and active under
Andalman’s management as it had been since inception.
18. Birnbaum was aware that Yonata Berman was receiving monthly account
statements from PTI as to the performance of the PTI account, although he did not
know whether Berman was reviewing the account statements. Those account
statements specifically instructed the investor, Berman (or Birnbaum, as fiduciary)
that she should object to any trades she wished to avoid within a specified time
period, and that failure timely to object constituted ratification of the trade.
Neither Yonata Berman nor Birnbaum ever once objected to any trades or
statements at all.
19. Birnbaum testified that he called Andalman twice by telephone during the
time period the PTI account was open, and engaged in brief conversations with
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Andalman. Birnbaum never sent to Andalman evidence of his Power-Of-Attorney
conferred by Berman, never requested an in-person interview with Andalman or
with anyone at PTI, and never demanded to see statements or trade confirmations.
20. Birnbaum never advised Andalman:
- that Yonata Berman wanted or needed to close the PTI account;
- that Yonata Berman suffered from any affliction which limited her
intellectual or mental capacity;
- that Yonata Berman needed to limit her trading activities;
- that Yonata Berman’s trading activities were excessive, overly aggressive,
or in any manner inconsistent with her wishes and her objectives for the
PTI account, either at the time of opening the account or at the time of the
conversation between Birnbaum and Andalman.
21. Birnbaum testified that he never advised Yonata Berman’s children about
the PTI account or about her assets and resources, because they are each
affluent in their own right, and are easily able to support themselves. None of
them need cash or financial assistance from Yonata Berman. Yonata Berman
has ample resources to support herself, according to Birnbaum, and is a wealthy
woman. Birnbaum agreed that Berman’s net assets are at least $3 Million, in
addition to the value of her residence.
22. Notably, Birnbaum’s testimony as to Yonata Berman’s wealth and
affluence contradicts the averments in his SOC, in which he alleged that the
$300,000.00 (initially $330,000.00) which she invested with Andalman in the
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PTI trading account was “earmarked for living and medical expenditures.”
(Birnbaum SOC, para. 8).
23. Birnbaum testified that he decided in 2017, four years after the PTI
account was opened, that Yonata Berman’s accounts, including the PTI trading
account, should be consolidated. Birnbaum took one, single monthly statement of
the PTI trading account to a meeting with Wells Fargo, Bradley Cordes
(“Cordes”). In the course of that meeting, Birnbaum was advised that he may
have a claim against Andalman and PTI (on the basis of reviewing that single
month’s account statement). Birnbaum testified that, without further discussion
of potential claims, he was put in contact with lawyer James Eccleston by
Cordes. Without further analysis, discussion or recommendations, Birnbaum
engaged Eccleston to prosecute this SOC against Andalman and PTI. Despite
the explicit reference in Yonata Berman’s Power Of Attorney (“POA”)
authorizing Birnbaum to engage attorneys to prosecute her claims on a
contingent fee basis, Birnbaum agrees to engage Eccleston on an hourly fees
basis, with the fees and expenses (including fees for two purported “expert”
witnesses) to be paid from Yonata Berman’s resources. Birnbaum did not testify
as to whether he apprised Yonata Berman of the engagement of Eccleston and
the specific hourly fees billing terms.
24. Birnbaum testified that he had reviewed the SOC prepared by Eccleston,
and that it was accurate. He admitted that the statement in para. 8 of the SOC,
that Berman’s cash ($300,000.00) invested in the PTI account was “earmarked
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for living and medical expenditures” was false, and that Berman had ample
resources to provide for her living expenses and medical needs. (See SOC, para.
8). Birnbaum was aware that Berman had originally invested $330,000.00 in the
PTI account, and immediately withdrew $30,000.00, leaving $300,000.00 cash in
the PTI account. Birnbaum testified that Berman had wanted to use the
$30,000.00 cash withdrawn for “other purposes” not related to Berman’s living
expenses or medical needs.
25. Birnbaum testified that he did not have any basis for believing the
averment in para. 9 of the SOC that Berman had instructed Andalman, or
anyone at PTI, that she had a “low tolerance for risk because it was very likely
that she would need the money for her living and medical expenditures.” (SOC,
para. 9).
26. Neither Birnbaum nor Eccleston ever attempted at any time to amend the
SOC or correct the aforementioned false statements in the SOC paras. 8 and 9.
Admitted into evidence at the Arbitration Hearing were telephone call records
showing numerous telephone calls between Yonata Berman and Andalman
during the time period in which Berman maintained her PTI account.
27. Eccleston, Birnbaum’s attorney, testified briefly to authenticate the
attempted videographed deposition of Berman in 2018. The videographed
deposition shows Berman talking to persons in the room, and not responding
when the court reporter or videographer attempted to swear her in to begin the
deposition. The videographed deposition gives no indication that Berman is
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incapacitated mentally or intellectually, or that she is incompetent to manage
her financial affairs.
28. Birnbaum’s putative expert witness, Robert Graham, testified in
generalities that Yonata Berman’s options trading account was traded
excessively, and that it was “not suitable” for Yonata Berman. Graham
admitted that he himself was not an options trader, or an options trading
investment adviser. Graham’s proffered experience was as managing director of
major brokerage houses, wherein he was responsible for ensuring that the
required account establishment and maintenance documents had been received
and submitted. When asked whether he had reviewed the PTI account
suitability and Andalman’s trading activities and results in light of Berman’s
overall wealth, Graham admitted that he had not done so. Graham specifically
testified that evaluation of Berman’s wealth was not a task for which he was
engaged, suggesting that such evaluation or review was outside his mission or
marching orders.
29. When asked whether he had discussed Andalman’s trading and the PTI
trading account and the SOC with Yonata Berman herself, Robert Graham
testified that he had not done so. Graham had attempted to contact Berman
through Birnbaum’s attorney Stephany McLaughlin (“McLaughlin” - Eccleston’s
associate), in response to which McLaughlin discouraged Graham, and
represented to him in effect that it would not be a productive conversation.
There is no indication that Graham pressed the issue with McLaughlin, or
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otherwise insisted that he be allowed to speak with Berman. Needless to say,
there is no evidence as to whether and to what extent McLaughlin herself
actually communicated with Yonata Berman.
30. The documents introduced into evidence include Yonata Berman’s TD
Ameritrade account statements, Wells Fargo account statements, and Mesirow
Financial account statements. These account statements show that Yonata
Berman made relatively aggressive investments selections, including substantial
investments in penny stocks, over-the-counter stocks and Real Estate
Investment Trusts (“REITs”).
31. Wells Fargo account representative Cordes testified at the instance of
Respondents. Cordes appeared under subpoena, accompanied and advised by
able counsel. Cordes had only minimal recollection of his initial meeting with
Birnbaum and Yonata Berman in August 2017. Cordes stated that he did not
recall discussing litigation against either Andalman or PTI, nor did he recall
referring Birnbaum to Eccleston. Cordes testified unequivocally, however, that
he recalled Yonata Berman from the meeting, and that he did not observe
anything about Berman that indicated diminished mental capacity or
intellectual ability.
32. Birnbaum’s attorneys conducted at hearing in July 2019 a lengthy
symposium on FINRA Suitability rules and standards through PTI Officer
Daniel Haugh (“Haugh”), in the course of which they discovered that Haugh
regularly supervised Andalman’s handling of the Berman account at PTI,
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reviewed the trading confirmations and account statements, and reviewed
conversations between Andalman and Berman (Haugh’s work area was
immediately adjacent to Andalman’s). Haugh observed consistently that Yonata
Berman was an active, engaged Investor; based upon Berman’s wealth and
consistently articulated investment objectives, Haugh saw no Suitability issue
whatsoever affecting Berman.
33. Birnbaum’s attorneys attempted to steer the Suitability discussion away
from Yonata Berman’s sizable wealth, an “inconvenient” fact for which
Birnbaum and his attorneys were demonstrably unprepared to respond. No
expert witness suggested that Suitability could be analyzed properly without
considering Berman’s wealth.
34. Ann Grady (“Grady”), an options trading compliance officer with decades
of experience, testified as an expert witness on behalf of PTI. Grady explained
that a purported “Suitability” analysis under FINRA Rule 2111 and any other
rule or regulation must include consideration of the investor’s wealth, and that
Yonata Berman’s wealth was so substantial during the time period from 2012
through 2017 that her investment traded by Andalman in the PTI account could
not be deemed unsuitable if it were managed consistently with her articulated
investment objectives. Grady testified that the risks posed by maintaining that
investment were consistent with maintaining a balanced wealth and investment
portfolio.
35. Grady also testified that Birnbaum’s purported “expert” witnesses, who
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were not familiar with options trading, had miscalculated Berman’s turnover
ratio of her PTI account in finding that it exceeded 10%, because Birnbaum’s
experts miscalculated the turnover ratio by including in the purchase cost of
stocks bought and sold by an options exercise and assignment. These exercises
and assignments were automatically effected by the Options Clearing
Corporation, did not involve any action by Andalman or PTI, and were the
normal closing of an options spread that was “in the money” at expiration.
36. Grady had calculated the correct turnover ratio of the PTI account as
4.5%, which is less than half of the purported turnover ratio asserted by
Birnbaum’s “experts.’’
37. Grady also testified that the correspondences sent by Andalman to
Yonata Berman were not “communications” under the PTI Uniform Standard
Procedures (“USP”), and thus were not required to be approved by PTI. It is not
known whether Yonata Berman actually read, much less relied upon, these
correspondences.
38. No trade or series of trades deviated from Yonata Berman’s investment
objective and resulted in diminution of the PTI account value. Birnbaum claims
that the loss of value of the PTI account was the sum of approximately
$100,000.00 to $140,000.00. Birnbaum does not demonstrate that the margin
interest accrued was incompatible with Berman’s objectives, or was concealed
from, or otherwise not authorized by, Yonata Berman.
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39. The Arbitrators’ Award of February 27, 2020 awarded damages to
Birnbaum of $42,500.00 on his claim against Investment Advisor David
Andalman, who had procured the Yonata Berman trading account, secured from
her discretion in making trades on her behalf, and originated from Yonata
Berman’s pre-2013 relationship with David Andalman, and from her desire to
invest money with him to trade options. The Award provided an Award of
damages of $21,500.00 to David Andalman against Birnbaum, on Andalman’s
Statement of Counterclaim. Finally, the Award assessed damages in favor of
Birnbaum and against PTI Securities & Futures, L.P., the Broker-Dealer and
Plaintiff in this Application to Vacate action, in the sum of $127,500.00, three
times as much as the Award against David Andalman, even though David
Andalman exclusively traded the Yonata Berman account, exclusively
communicated with Yonata Berman, and originated the relationship between
Yonata Berman and PTI upon Yonata Berman’s solicitation to David Andalman
to open the options trading account, whereupon David Andalman had opened
and brought the account to PTI.
40. There was no explanation for the Award within the decision. There
was no evidence introduced to justify any Award rendering PTI more responsible
than David Andalman, the Investment Advisor with twenty-eight years’
experience and an unblemished record attending his FINRA registration and the
party who was directly, immediately responsible for the trading activity in
Yonata Berman’s trading account.
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I. The Award was procured by corruption, fraud, or undue means(FAA
Section 10(a)(1)).
A. Claimant Failed to Prove that the Conduct or Representations of
Respondents Proximately Caused Loss to Investor Yonata Berman.
41. Elemental to any civil claim for damages is that the acts or omissions
of Respondent proximately caused damages to the Claimant.
"It is a fundamental principle applicable alike to breaches of contract and to
torts, that in order to found a right of action there must be a wrongful act done
and a loss resulting from that wrongful act; the wrongful act must be the act of
the defendant, and the injury suffered by the plaintiff must be the natural and
not merely a remote consequence of the defendant's act." (Town of Thornton v.
Winterhoff, 406 Ill. 113, 119, 92 N.E.2d 163 (1950).) …
‘[I]t is a well settled principle in regard to false representations, that fraud
without damage is neither sufficient to support an action at law, nor a ground
for relief in equity. Fraud and injury must concur to furnish a ground for
judicial action. In an action for fraudulent representations, the plaintiff must
not only show, that the representations were made, and that they were false
and fraudulent, but he must also show affirmatively that he has been injured
thereby. [Citations.]’ Jones v. Foster, 175 Ill. 459, 469, 51 N.E. 862 (1898).
As has been more recently noted by our appellate court in an action for an
intentional tort, fraud: ‘damages * * * must be a proximate, and not remote, consequence of the fraud.’ (Brown v. Broadway Perryville Lumber Co. (1987),
156 Ill.App.3d 16, 25, 108 Ill. Dec. 593, 508 N.E.2d 1170; see also W. Prosser,
Torts § 110, at 732 (4th ed. 1971) ("the damage upon which a deceit action rests
must have been `proximately caused' by the misrepresentation").) It has also
been noted by our appellate court that proximate cause must be shown in actions for intentional misrepresentations, even where fiduciaries are involved.
See Key v. Jewel Cos. (1988), 176 Ill.App.3d 91, 98, 125 Ill. Dec. 652, 530 N.E.2d
1061 (suit alleging intentional breaches of fiduciary duty and violation of the
Consumer Fraud Act); Vermeil v. Jefferson Trust & Savings Bank (1988), 176
Ill.App.3d 556, 563, 126 Ill. Dec. 603, 532 N.E.2d 288; Martin v. Allstate Insurance Co. (1981), 92 Ill.App.3d 829, 835, 48 Ill. Dec. 316, 416 N.E.2d 347
(suit against insurance agent for breaching his duty to plaintiff and fraud).
Martin v. Heinold Commodities, 163 Ill. 2d 33, 643 N.E.2d 734, 746-7, 205 Ill.
Dec. 443 (1994)(Emphasis added).
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42. Birnbaum’s Negligence Count of the SOC fails for Birnbaum’s
omission to demonstrate that the conduct, acts or omissions of Andalman, or of
PTI) were the proximate cause of the diminution in value of the Yonata Berman
account, rather than adverse market action affecting the trades placed on the
account. Id. As to purported Failure to Supervise, PTI can only be found liable
at most to the extent of David Andalman’s Negligence. Nothing in Andalman’s
unblemished, lengthy tenure as a securities trader and investment advisor, and
nothing in the evidence offered at the Arbitration Hearing, would justify
imputing a duty to PTI to exercise heightened supervision or vigilance, where
David Andalman himself had the prior and ongoing relationship with Yonata
Berman.
43. Birnbaum’s evidence offered to prove the Fraud and Breach of
Fiduciary claims is woefully deficient. The Illinois Supreme Court has stated:
“[I]n order to establish a claim for common law fraud in Illinois, a plaintiff
must allege and prove: (1) a false statement of material fact; (2) the party
making the statement knew or believed it to be untrue; (3) the party to whom
the statement was made had a right to rely on the statement; (4) the party to
whom the statement was made did rely on the statement; (5) the statement
was made for the purpose of inducing the other party to act; and (6) the reliance
by the person to whom the statement was made led to that person's injury.”
Martin v. Heinold Commodities, 163 Ill. 2d 33, 643 N.E.2d 734, 205 Ill. Dec. 443
(1994), quoting Siegel v. Levy Organization Development Co., 153 Ill.2d 534,
542-43, 180 Ill.Dec. 300, 607 N.E.2d 194 (1992).
44. Birnbaum has failed to prove that (1) a false statement was made by
Andalman to Berman, and that (2) Berman relied on the false statement,
justifiably or to her detriment. Needless to say, Birnbaum has failed to
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demonstrate that justifiable reliance by Yonata Berman on any false statement
or misrepresentation made to her by Andalman was the proximate cause of
injury to Yonata Berman, and specifically of the diminution in value of the PTI
account. Absent testimony from Yonata Berman, it is not known whether she
relied upon any statements of Andalman at all. All that is known is that she
received monthly statements of the account activity, and never objected to the
trades or the results.
45. Notably, there is truly no basis whatsoever for imputing direct liability
for Fraud or for Breach of Fiduciary Duty to PTI. Nothing in the evidence
would justify a determination that PTI knowingly or recklessly facilitated
David Andalman engaging in excessive trading or intentional, tortious conduct.
Any liability for those claims can at most be derivative of David Andalman’s
direct liability for Fraud or for Breach of Fiduciary Duty.
46. Yonata Berman’s acquiescence in Andalman’s trading activity is
punctuated by Birnbaum’s own testimony: Birnbaum periodically discussed the
PTI account with Yonata Berman, and Ms. Berman consistently declared that
she liked Andalman, and wished to keep the account with him. Significantly,
Birnbaum testified that he himself contacted Andalman, on at least two
occasions, and introduced himself as the Attorney-In-Fact of Yonata Berman
under the 2012 Power of Attorney. Yet Birnbaum never produced a copy of the
Power of Attorney, never to Andalman, and never to PTI. Moreover, Birnbaum
never expressed any objection, either for himself or on Yonata Berman’s behalf,
to the trading activities, to the trading strategy, to the account performance or
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to the handling of the PTI account by Andalman or by PTI.
47. The Illinois Supreme Court in Martin v. Heinold Commodities
additionally stated:
“[L]oss causation ensures that defendants, even where an intentional tort is
committed, do not become insurers of plaintiffs who make unwise investments.
Without such a requirement, the law ‘would become an insurance plan for the cost of every security purchased in reliance upon a material misstatement or omission.’(Huddleston, 640 F.2d at 549.) This policy is especially strong here where plaintiffs voluntarily undertook known market risks and lost. In this
regard, loss causation respects the individual investor's market decision.”
Martin v. Heinold Commodities, 163 Ill 2d 33, 643 N.E.2d 734, 205 Ill. Dec. 443
(1994)(Emphasis added).
48. Birnbaum sought plainly to foist upon Andalman and PTI the
consequences of trades and trading activity which Yonata Berman requested and
approved, and which Birnbaum himself ratified. This is fundamentally at odds
with the law respecting individual investors’ rights to make market decisions,
and to engage in speculative trading in the financial markets.
49. The FINRA Arbitrators’ Award flouts that principle, and derogates from
the securities trading model which enable investors, including Yonata Berman,
to trade speculatively in financial markets. Because the Arbitrators’ Award
rewards Birnbaum’s attempts to reverse out of investments made by Yonata
Berman with David Andalman, where Birnbaum took no steps to stop or reverse
the trades, or to alert David Andalman (or PTI) that the trades were
inappropriate or unsuitable. As such the Award violates the law, on numerous
levels. The Arbitration Award is indisputably the product of fraud, corruption or
undue means, requiring vacatur of the Arbitration Award under 9 USC Section
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10(a)(1).
B. The Illinois Securities Act of 1953 claim fails because Birnbaum failed
to prove that Yonata Berman was deceived or misled by Andalman, or by PTI.
50. Birnbaum urges a relaxed standard of proof for his claim under the
Illinois Securities Act of 1953, asserting that Andalman engaged in “ongoing
unsuitable management and churning of the account, ongoing failure to disclose
that the … investment strategy carried a higher risk than Ms. Berman was
willing to bear, and failure to disclose the significant margin interest cost to
Ms. Berman … constituted a fraud in violation of the Illinois Securities Act …”
(SOC, pages 6-7, para. 19).
51. With no testimony from Yonata Berman, it is impossible to determine
that Andalman’s investment strategy was inappropriate, or that Yonata Berman
was somehow unaware of the margin interest that would be incurred in the
account.
52. Even more groundless is the allegation that David Andalman’s
“investment strategy carried a higher risk than Ms. Berman was willing to
bear,” a truly preposterous assertion given the representations Yonata Berman
made as to her risk tolerance in the OCAA, and the absence in the evidence of
other indicia of Yonata Berman’s low risk tolerance (apart from Ms. Berman’s
substantial wealth, which counterindicates a low risk tolerance, and which
Birnbaum’s attorney Eccleston seemed to be unaware of).
53. Birnbaum has not identified any series of transactions that can be
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characterized fairly as “churning” – in fact Birnbaum never objected to the
trading activities and margin interest or commissions occurred at all until after
the PTI account was consolidated and moved to Wells Fargo.
54. The Arbitrators’ Award was not based on any evidence of unsuitable
investing or of a purported investment strategy by David Andalman with a
higher risk tolerance than Yonata Berman was willing to bear. Taken together
with Birnbaum’s complete inertia as to the investments of Yonata Berman as to
David Andalman’s trades and investment strategies, the totality of the evidence
fails to provide a lawful, cognizable basis for finding a violation of the Illinois
Securities Act of 1953. There was a complete lack of evidence establishing fraud,
deceit or misrepresentation, or any indication that David Andalman’s trades or
investment strategies were inappropriate or unsuitable. As such the Award
violates the law as to the Illinois Securities Act of 1953 claim, on numerous
levels. The Arbitration Award is indisputably the product of fraud, corruption or
undue means, requiring vacatur of the Arbitration Award under 9 USC Section
10(a)(1).
C. Birnbaum has provided no evidence that Yonata Berman was exploited,
deceived or intimidated, or that David Andalman or PTI used such tactics to take
control of Yonata Berman’s investment cash or interests in property, and thus
cannot recover under the Illinois Elder Abuse and Neglect Act.
55. As with the other counts of the SOC, Birnbaum recites the
rule, in this case the Illinois Elder Abuse and Neglect Act (“Elder Abuse Act”),
and offers no well-pleaded averments of facts or evidence at Arbitration Hearing
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to substantiate the claim. (Paras. 20 and 21 of the SOC cover this ineffectively
pleaded claim). None of the conduct admitted into evidence at Arbitration
Hearing or intimated by Birnbaum or any other witness suggests that Yonata
Berman was in any way deceived by David Andalman, that Andalman
“unnecessarily charged excessive commissions and margin interest,” or that
Andalman or PTI took control of Berman’s resources by “deception and
intimidation.” (See SOC, page 7, paras. 20-21).
56. The absence of testimony from Yonata Berman, and of any indication
from Birnbaum or any other witness, that Yonata Berman was deceived or
intimidated in some form is fatal to the Elder Abuse Act claim. This claim by
itself, by any responsible treatment of the evidence, required an Arbitration
Award in favor of Plaintiff PTI and David Andalman, Respondents to the FINRA
Arbitration.
57. There was a complete lack of evidence establishing any elements of the
Elder Abuse Act claim, and of any indication that David Andalman’s trades or
investment strategies, and PTI’s acts or omissions, amounted to deception or
intimidation. To the extent that it may have been based upon the Elder Abuse
Act claim, the Arbitration Award is indisputably the product of fraud, corruption
or undue means, requiring vacatur of the Arbitration Award under 9 USC Section
10(a)(1).
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D. Claimant’s Breach of Fiduciary Duty Claim fails for lack of evidence of
any essential facts from which a dereliction of Respondents’ duties can be
inferred.
58. Claimant fails to establish any of the allegations of his Breach of
Fiduciary Duty claim. Without testimony from Yonata Berman, the Panel has no
evidence of her “deteriorating health,” or of a disparity in sophistication between
Yonata Berman and David Andalman. (SOC, pages 7-8, paras. 22-23). Even if
the Panel found a Fiduciary Duty owed by Andalman or PTI and Breach thereof,
there would be no way to show that such breach proximately caused loss of value
of the PTI account. (SOC, p. 8, ph. 24).
59. The breach of fiduciary duty revealed by the evidence in this case is
Birnbaum’s omission to convince Yonata Berman that somehow the PTI account
was not being invested appropriately, or that David Andalman’s investment
strategy and trading activities were unsuitable for her. Additionally, Birnbaum
abstained from even mentioning these issues allegedly affecting the PTI account
to David Andalman, or to anyone at PTI, for the entire period in which the PTI
account was open.
60. Even more problematic is Birnbaum’s unilateral engagement of
Eccleston’s law firm to prosecute this claim, charging fees on an hourly basis and
incurring some $250,000.00 in attorney’s fees and expenses, including some
$20,000.00 in purported expert witness fees to Robert Graham and Birnbaum’s
other so-called expert witness. These fees are presumably to be paid from Yonata
Berman’s funds, which will punish her financially beyond the effects of any
purported shortcomings of Andalman’s or PTI’s handling of the PTI account.
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61. Birnbaum is obligated under the Power of Attorney to “act in good faith
for the best interest of the principal [Yonata Berman], using due care, competence
and diligence.” (SOC, Ex. A, page 8 “Notice to Agent” para. (2)). No fiduciary
acting in good faith would engage a lawyer on a non-contingent basis to pursue a
claim for $140,000.00, where the attorney’s fees payable by the principal or
claimant would equal or exceed that sum. Yet the attorney’s fees and expert
witness fees payable by Birnbaum (with Yonata Berman’s resources)
substantially exceeded the $140,000.00 sum.
62. Birnbaum has utterly failed to establish any facts in support of a
claim. The evidence indicates that Birnbaum initiated this claim, more
probably than not, to forestall scrutiny of his own dereliction of his fiduciary
duties to Yonata Berman.
63. There was a complete lack of evidence establishing any elements of
Birnbaum’s Breach of Fiduciary Duty claim, and of any indication that David
Andalman’s trades or investment strategies, and PTI’s acts or omissions, support
such a claim. To the extent that the Award may have been based upon the Breach
of Fiduciary Duty claim, the Arbitration Award is indisputably the product of
fraud, corruption or undue means, requiring vacatur of the Arbitration Award
under 9 USC Section 10(a)(1).
.
E. Birnbaum’s claims and the excessive Award against Plaintiff PTI fail for
lack of competent evidence to support them.
64. Birnbaum’s claims for Respondeat Superior and Negligent Supervision
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fail as to PTI, as Birnbaum never established liability or culpable conduct of
David Andalman. The claims against PTI were entirely derivative of the claims
against David Andalman, the investment advisor who initiated the relationship
with Yonata Berman and introduced her to PTI, and who abidingly
communicated with Yonata Berman and managed trading of her account.
65. Nothing in the evidence suggested that David Andalman required
excessive supervision, or that his trading expertise was somehow deficient so as
to prompt inquiry by PTI as to whether Andalman required training or intensive
supervision.
66. The Panel’s Award against PTI in a sum greater than the Award against
Andalman demonstrates positively a fundamental misunderstanding and
misapprehension by the Panel of derivative liability, under both Respondeat
Superior and Negligent Supervision claims.
67. Under Respondeat Superior, liability of the agent is imposed on the
principal on the theory that the agent employs or has engaged the principal to
effectuate the principal’s business or objectives. Leaving aside the imperfect
comparison between that scenario and that of an investment advisor and a
broker-dealer, there is no doubt that the derivate liability – the principal’s - can
at best be equal to but cannot exceed that of the errant or tortious agent, who is
directly responsible for the conduct resulting in damages, regardless of who his
principal is.
68. Similarly, under the Negligent Supervision theory the damages
attributable to the supervisor’s negligence in supervising the activities of the
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tortfeasor are prefixed necessarily on the damages caused by the tortfeasor’s
activities or conduct. The agent thus “supervised” is Investment Advisor David
Andalman, who has had extensive experience and a lengthy career in securities
trading, and had no disciplinary events or issues on his FINRA record. There
simply was no basis for finding the purported acts or omissions of Plaintiff PTI
more grievous or culpable in causing the damages claimed by Birnbaum than the
acts and omissions of David Andalman, who was accused of excessive trading
causing loss.
69. There was a complete lack of evidence establishing any basis for
assessing damages against Plaintiff PTI for derivative liability, whether under
Respondeat Superior or under Negligent Supervision. The Award against
Plaintiff PTI is completely erroneous and improper as a matter of law and
fairness. Thus Arbitration Award against Plaintiff PTI is indisputably the
product of fraud, corruption or undue means.
70. Additionally, the threefold differential by which the Award against
Plaintiff PTI, allegedly the “negligent supervisor,” exceeds the $42,500.00 Award
against the putative tortfeasor supervisee David Andalman, completely lacks any
legal or logical basis in the evidence. There was a complete lack of evidence
establishing any basis for a differential award wherein Plaintiff PTI is found 75%
responsible for the purported losses even though Investment Advisor David
Andalman originated the trading relationship with Yonata Berman and was the
sole investment advisor who traded Ms. Berman’s account. The only reason why
the Panel may have struck upon that lopsided allocation of putative liability is
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because Birnbaum’s lawyer requested a differential apportionment of liability,
3/1 against Plaintiff PTI, in Closing Argument. (Recall Birnbaum did not comply
with the Panel’s Order to submit a Post-Hearing Brief). Presumably, Birnbaum
deemed Plaintiff PTI’s ability to pay an Award to be stronger than David
Andalman’s – there was no justification in the evidence for a differential
apportionment against Plaintiff PTI. For David Andalman to be assessed a
comparatively tepid $42,500.00, one-third of the amount assessed against the
putatively Negligent Supervisor, Plaintiff PTI, demonstrates the Arbitration
Panel’s corruption, incompetence and mishandling of the Arbitration, and thus
demonstrates corruption, fraud or under means.
71. For these reasons, the Award assessing damages against Plaintiff PTI
for derivative liability, whether under Respondeat Superior or under Negligent
Supervision, is completely erroneous and wildly excessive. It is improper as a
matter of law and fairness. Thus Arbitration Award against Plaintiff PTI is
indisputably the product of fraud, corruption or undue means, requiring vacatur
of the Arbitration Award under 9 USC Section 10(a)(1).
F. Birnbaum’s remaining claims against Plaintiff PTI similarly fail for lack
of competent evidence to support them.
72. Birnbaum’s summary claims of Breach of Contract and Unjust
Enrichment fail as neither is supported by any evidence at all. (SOC, p. 11, paras.
33-34). No evidence was introduced at Arbitration Hearing to substantiate either
claim.
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73. The Award assessing damages against Plaintiff PTI (or Andalman), to
the extent based upon Birnbaum’s claims of Breach of Contract and Unjust
Enrichment, is completely erroneous and unjustified, and is improper as a
matter of law and fairness. Thus Arbitration Award against Plaintiff PTI is
indisputably the product of fraud, corruption or undue means, requiring vacatur
of the Arbitration Award under 9 USC Section 10(a)(1).
II. Evident Partiality or Corruption in the Arbitrators. (FAA Section 10(a)(2)).
74 – 146. Plaintiff PTI repeats the averments of Paragraphs 1-73 inclusive
as though fully set forth.
147. The Panel awarded to David Andalman damages against
Birnbaum on the Andalman Counterclaim. Generally speaking, a finding in
favor of the agent discharges liability of the principal. The finding in favor of
Andalman against Birnbaum on the Statement of Counterclaim should have
resulted in a finding in favor of PTI against Birnbaum on the Statement of Claim.
148. That the Panel would assess against co-Respondent David
Andalman, the person accused by Birnbaum of engaging in “Excessive Trading,”
an amount of purported damages which is only one-third of the amount assessed
against Plaintiff PTI, at the suggestion of Birnbaum’s lawyer and without any
basis in the evidence, demonstrates evident partiality against Plaintiff PTI, and
in favor of Birnbaum.
149. For these reasons, the Award against Plaintiff PTI was the
product of evident partiality and corruption of the Arbitrators, requiring vacatur
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of the Arbitration Award under 9 USC Section 10(a)(2).
III. Misbehavior By Which The Rights Of Any Party Have Been Prejudiced.
(FAA Section 10(a)(3)).
150 – 222. Plaintiff PTI repeats the averments of Paragraphs 1-73 inclusive
as though fully set forth.
223. Birnbaum failed to prove any evidence of wrongdoing or culpable
conduct against Plaintiff PTI in the Arbitration Hearing, and failed to justify his
own dissipation of Yonata Berman’s assets, in concert with Eccleston.
224. It is evident that the Arbitrators ignored the evidence and
assessed an excessive and unjustified amount of damages against Plaintiff PTI,
while imposing only a fraction thereof in damages against Andalman. Moreover,
the Panel awarded Andalman damages on his Statement of Counterclaim against
Birnbaum. It is evident that the Panel sought to drain Plaintiff PTI’s assets for
the benefit of Birnbaum, and to spare Andalman the consequences of his
“excessive trading” as urged by Birnbaum.
225. For these reasons, the Award against Plaintiff PTI was the
product of misbehavior by which the rights of Plaintiff PTI have been prejudiced,
requiring vacatur of the Arbitration Award under 9 USC Section 10(a)(3).
IV. The Arbitrators Exceeded Their Powers, or So Imperfectly Executed Them
That a Mutual, Final, and Definite Award Upon The Subject Matter
Submitted Was Not Made. (FAA Section 10(a)(4)).
226 – 301. Plaintiff PTI repeats the averments of Paragraphs 1-73
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inclusive, and 223 through 225 inclusive, as though fully set forth.
302. The contortions of the awards in favor of Birnbaum and against
Birnbaum, and in favor of Andalman but also against Andalman, and the
oversized Award against the Broker-Dealer Plaintiff PTI, speak to the
Arbitrators’ efforts to prejudice and damage Plaintiff PTI while sparing
Birnbaum the consequences of his negligence and sparing David Andalman the
consequences of his alleged “excessive trading.”
303. The Arbitrators clearly exceeded their powers, and so dismally
failed to exercise them properly, that a definite award on the subject matter of
Birnbaum’s Statement of Claim, and on Plaintiff PTI’s defense, was not made.
304. For these reasons, the Award against Plaintiff PTI was
irremediably tainted by the Arbitrators exceeding their powers, and by the
Arbitrators executing their powers so imperfectly that a mutual, final and
definite award on the subject matter of Birnbaum’s Statement of Claim, and
Plaintiff PTI’s defenses thereto, was not made. Vacatur of the Arbitration Award
is thus required under 9 USC Section 10(a)(4).
--
WHEREFORE, Plaintiff, PTI SECURITIES & FUTURES, L.P, respectfully
requests that this Court enter a judgment and decree (1) vacating the Arbitration
Award entered February 27, 2020, by the Financial Industry Regulatory Authority,
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FINRA Dispute Resolution, in Case No. 18-00990 of FINRA, (2) directing re-
arbitration of the Statement of Claim filed in that case by a completely different
Panel of Public Arbitrators, and (3) granting further appropriate relief in its favor
against Defendant, MARTIN BIRNBAUM, Power of attorney for YONATA
BERMAN, as the Court deems just and equitable.
In the alternative, Plaintiff, PTI SECURITIES & FUTURES, L.P,
respectfully requests that this Court enter a judgment and decree (1) vacating the
Arbitration Award entered February 27, 2020, by the Financial Industry Regulatory
Authority, FINRA Dispute Resolution, in Case No. 18-00990 of FINRA, and (2)
entering or directing entry of judgment outright on the merits of the claims and
issues comprising the Statement of Claim filed in that case in its favor of Plaintiff
and against Defendant, MARTIN BIRNBAUM, Power of attorney for YONATA
BERMAN, with court costs and reasonable litigation expenses and attorney’s fees
awarded to Plaintiff and taxed against Defendant, MARTIN BIRNBAUM, Power of
attorney for YONATA BERMAN.
PTI SECURITIES & FUTURES, L.P,
.,
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By:___/S/_ Michael J. Greco _________
Michael J. Greco
One of the Attorneys for Plaintiff
Gregg M. Rzepczynski
Gregg M. Rzepczynski & Associates, Ltd.
175 West Jackson #240
Chicago, Illinois 60604
TEL. (312)939-8028
FAX (312) 922-1794
Email: [email protected]
Atty. No: 27036
Michael J. Greco Attorney at Law
175 W. Jackson Blvd., Suite #240
Chicago, Illinois 60604
(312) 222-0599
Fax (312) 922-1794
Email: [email protected]
Atty. 6201254
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