The Fascinating Case of Louis and Donna Pitch v. Mark “Hollywood” Hotton and Oppenheimer and Co.
Posted by Larry Doyle on April 25, 2014 7:27 AM |
In a case that strikes at the core of so much that is wrong on Wall Street and the financial regulatory system (SEC and FINRA), Susan Antilla once again distinguishes herself by bringing real light to a regulatory arbitration system that much prefers to operate in darkness.
The following case might appear to be fodder for an episode of CSI but is all too real for a Long Island couple who were little more than prey for an unscrupulous broker who went largely unchecked both by his employer and the regulator charged with protecting the public from the likes of this scum.
Let’s navigate as Antilla writes Case Closed in Securities Dispute, Until New Evidence Is Uncovered:
A Long Island couple who lost $5 million at the hands of Mark C. Hotton, the former stockbroker notorious for defrauding Broadway producers, is arguing that his employer, Oppenheimer & Company, withheld critical evidence during an arbitration hearing and should be held liable.
Securities lawyers say that disputes over the production of evidence take place regularly and that the failure to turn over documents is an all-too-common problem in arbitrations. Rarer is a smoking-gun document that surfaces after the fact, as appears to be the case with Oppenheimer and Mr. Hotton.
Mr. Hotton made headlines in 2012 for defrauding the producers of the Broadway play “Rebecca” by collecting fees and commissions for lining up financing with an investor who did not exist. He pleaded guilty to money laundering and two counts of fraud last July and is being held in the Metropolitan Detention Center in Brooklyn, awaiting sentencing on May 9.
Separate from the “Rebecca” fraud, Mr. Hotton, who was known as “Hollywood” at his Oppenheimer branch, where he worked for a little more than three years, is accused of stealing millions of dollars from his brokerage clients. Despite a regulatory record of six- and seven-figure investor complaints against him, Mr. Hotton attracted no media attention until after he was accused of bilking about $60,000 from the “Rebecca” producers.
Two of his clients, Louis and Donna Pitch, filed a claim with the Financial Industry Regulatory Authority against Mr. Hotton and Oppenheimer in December 2009. Two days before the hearing was to begin in February 2011, Mr. Hotton filed for bankruptcy, leaving Oppenheimer as the sole respondent.
The arbitrators ruled early last year that the Pitches were entitled to recover only half of their losses. In the course of 69 hearings over 22 months involving the couple, Oppenheimer argued that it properly supervised Mr. Hotton, who worked at the firm from November 2005 to January 2009. The firm said in a post-hearing brief in December 2012 that there was no evidence that it had been negligent in hiring, investigating or retaining Mr. Hotton and that it properly supervised him in his dealings with the Pitches. Any claims about Mr. Hotton’s transgressions “came to Oppenheimer’s attention after he left,” the firm told Bloomberg News in October 2012.
That turned out to be false.
Five months after the arbitrators’ decision, the Pitches’ lawyer, Timothy J. Dennin of Northport, N.Y., opened a computer disk that was sent to him during the discovery phase of a separate case against Oppenheimer and found a letter from the Securities and Exchange Commission that discussed Mr. Hotton’s improper trading.
On Dec. 14, 2007, the S.E.C.’s Office of Compliance Inspections and Examinations had written to Oppenheimer’s chief compliance officer, Allen Holeman, to inform the firm that it had not properly supervised Mr. Hotton. He had traded improperly in 11 of his clients’ accounts, the agency said.
That evidence would have “completely demolished” the firm’s defense that it had not been aware of problems with Mr. Hotton, the Pitches said later. But the letter was not produced in 2010, after the Pitches requested “all documents, regulatory correspondence, and/or communications with the S.E.C.” concerning Mr. Hotton for the previous five years.
What does it say about the regulators, both the SEC and FINRA, when a firm such as Oppenheimer so brazenly defies a mandate to provide all documentation requested during a discovery phase?
Can you say “kangaroo court?”
Is Oppenheimer’s blatant disregard to provide the requested documentation in this case a one off? Anything but.
Securities lawyers say that disputes over discovery are a regular occurrence. The failure to produce documents “has always been a pervasive problem in Finra arbitrations,” said Jason Doss, president of the Public Investors Arbitration Bar Association, an association of lawyers who represent investors.
This case is far from over. What will FINRA do? Will it continue to allow the kangaroos to run wild through its arbitration process or might it actually try to do the right thing and hold Oppenheimer accountable?
An Oppenheimer lawyer, William E. Mahoney Jr., argued in a letter to Finra on Feb. 7 that it would be “clearly inappropriate” for Finra to take a fresh look at the Pitches’ case and asked the authority to decline their request for monetary sanctions, punitive damages and legal fees. But on March 24, Finra wrote to Mr. Mahoney to inform him that his request had been denied. On April 18, Oppenheimer filed a complaint in New York State Supreme Court, asking that the Pitches’ December 2013 request be dismissed.
Mr. Dennin said that he learned during a discussion with a Finra official this month that it had opened a preliminary inquiry into the Pitches’ complaint. A Finra spokeswoman, Michelle Ong, said that she could not comment on the existence of any inquiry but added that “we are aware of the allegations in this matter and are currently reviewing them.”
Sense on Cents will be watching closely. Will FINRA at long last start to do the right thing?
Do you think a mandatory more rigorous background check on the likes of “Hollywood” Hotton would have prevented this scum from operating in the first place?
Major props once again to Susan Antilla for bringing light into this dark corner of the Wall Street-Washington intersection. How many other individuals like “Hollywood” will continue to prey on investors? When penalties on outfits like Oppenheimer do not fit the crimes, little surprise that predatory practices and individuals continue to thrive.
The ball is in your court, Mr. Ketchum (FINRA CEO). Will you side with the American public in the personage of Louis and Donna Pitch or once again let the kangaroos run wild?
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