Three years after First Standard Financial Company went out of business, its clients are still struggling to get some degree of restitution for their losses.
Nearly a dozen of the former clients seeking millions of dollars in restitution won a $2.9 million award in FINRA arbitration, but it’s not clear whether they’ll be able to collect it. In a Feb. 2
State regulators
The case reflects
“It's a question whether or not this firm would have fallen under this rule as a high-risk firm,” said Christine Lazaro, the director of St. John’s University School of Law’s Securities Arbitration Clinic. “It does seem that the problem itself has remained fairly steady, especially looking at percentages. … That means there's a significant number of investors who are going fully through the process and not being able to recover anything.”
The scope of the issue
Indeed, with 201 unpaid awards amounting to between $91 million in uncollected damages and costs between 2016 and 2020, an average of 23% of the total ordered payouts each year in that span failed to reach claimants,
As for this case, Lazaro said she would expect it to go unpaid, although there may be a glimmer of hope based on the fact that Leahy and First Standard’s late owner, Carmine Berardi, tried unsuccessfully to get a different arbitration case against the company vacated in federal court last year.
Leahy, who worked for two other firms that FINRA has expelled from the industry over his 17-year career, has been barred since January 2020, his
“He might have assets that can be collected on, and he might have interest in remaining a broker or coming back as a broker,” Lazaro said. “He didn't just walk away from the other award.”
Attorneys who represented Leahy in that case and the proceedings in New Jersey didn’t respond to requests for comment. Representatives for the state Division of Consumer Affairs, which includes the securities regulator, declined to comment on the status of the restitution and steps the clients may take to secure it.
“While the bureau is not, at this time, able to disclose detail beyond that found in the publicly available consent order, the bureau continues to make all efforts to ensure that the terms of the order are met and restitution is distributed to affected consumers,” Public Information Officer Gema de las Heras said in an email.
The attorney who represented the 11 clients in the latest arbitration case didn’t respond to requests for comment. They filed the case against First Standard, Leahy, Berardi and 10 other former reps in March 2020, accusing them of negligence, negligent misrepresentations, omissions, breaches of fiduciary duty and contract, qualitative and quantitative unsuitability, and other claims. The respondents denied the allegations, with Berardi claiming his own cause of action from a “frivolous assertion of liability,” among other accusations, according to the award document.
In the award, the panel granted all but roughly $140,000 of the requested compensatory damages plus interest of 1.5% annually from Dec. 10 until “the award is paid in full.” In addition, the arbitrators ordered Leahy to pay $25,000 in expert witness fees, $6,050 in hearing session expenses and even the filing fee of $600 paid by the clients. They didn’t assess attorney fees against him, though.
First Standard’s brief but troubled history
While the award document didn’t share many details about the clients’ cases, investigators in New Jersey
First Standard’s clearing firm, Dallas-based wealth manager and investment bank Hilltop Securities, had brought client complaints of misconduct to First Standard’s attention after receiving alerts from customers, according to the restitution order.
Representatives for Hilltop declined to comment on the cases or the firm’s relationship with First Standard. Hilltop provided “clearing, holding and account execution services for the firm’s customers” from January 2016 until First Standard terminated its registration with FINRA in November 2019, according to the defunct firm’s detailed
In about a three-year period, First Standard clients sold at least 43% of the securities in their accounts within 30 days of their purchase, 67% within 90 days and 94% by one year, according to investigators. At least 76 of First Standard’s 130 reps had disclosures on their BrokerCheck records, and the bureau alleged that the “fraudulent and systemic trading scheme unjustly enriched First Standard and its agents” to the tune of $28.7 million in commissions and sales charges, the enforcement documents show. The state has revoked the licenses of at least five other reps,
“These agents, like many others on First Standard’s roster, took advantage of unsophisticated and novice investors, some of whom trusted them with their life savings and retirement,” Securities Bureau Chief Christopher Gerold said in a statement. “With every new action, we demonstrate that we will not only target rogue firms, but also those individuals who are responsible for the actions of those rogue firms.”
The 11 clients may now seek confirmation of the award in court and pursue the collection of the restitution, despite the potential challenges. Berardi died in November, so the panel dismissed any claims against his estate and said the clients will have to file another case in arbitration or court, the award document states. Berardi had filed for bankruptcy protection on behalf of First Standard in March, according to the court documents from the other arbitration case.
