Stifel Nicolaus is preparing to ask a court to overturn an arbitration ruling that ordered it to pay over $14 million related to a structured note strategy managed by one of its brokers, Chuck Roberts, based in Florida.
Roberts, a 34-year veteran of the industry, leads the CR Wealth Management Group at Stifel and currently faces more than 15 other pending claims, according to BrokerCheck.
The $14.3 million arbitration award is the first structured-note claim to be resolved through the Finra arbitration forum, which is the regulatory body overseeing brokerages. Stifel, however, plans to contest the decision. "While we respect the Finra arbitration process, we strongly disagree with the panel's ruling and how the hearing was conducted," a Stifel spokesperson says.
“This award far exceeds the actual damages suffered by a highly sophisticated client and is unsupported by the facts of the case,” the spokesperson continues. “We will seek to have the award vacated.”
The complaint was initiated by Louis and Elizabeth Deluca, along with their company, UBS Inc. (unrelated to the Swiss investment bank). Their attorney, Jeffrey Erez, is also representing numerous other investors who were clients of Roberts. He dismisses Stifel’s plan to challenge the ruling as a “knee-jerk reaction” that disregards well-established case law. Erez emphasizes the difficulty of overturning arbitration awards, noting that the threshold is far higher than appealing a court verdict.
"We’re confident the award will stand," Erez asserts. "The Federal Arbitration Act sets very limited legal grounds for vacating an arbitration ruling, and simply disagreeing with the damages is not enough."
The Delucas accused Stifel of breach of fiduciary duty, negligence, negligent supervision, fraud, breach of contract, and violations of Florida securities law. They sought compensatory damages between $1 million and $5 million, along with punitive damages, interest, attorney fees, and costs associated with the proceedings. The Finra ruling doesn’t specify the exact losses the Delucas claimed to have suffered from the structured note strategy.
Their complaint, along with many of the others pending, alleges that Roberts misrepresented the risks and returns of the structured notes, which regulators have cautioned as being "very complex and involving significant risks."
Erez argues that the overall risk of the investment was mischaracterized. "Roberts told my clients it was low-risk, but in reality, it was high-risk," Erez says. Stifel denied these claims and sought to expunge the complaint from Roberts’ BrokerCheck record.
Roberts, who was not directly named as a respondent in the complaint, has not commented on the case. Erez, however, is representing investors in 14 additional claims against Roberts, and he is aware of two more pending cases, bringing the total to 17 actions, with the possibility of more in the future. “He had a large book of business, and a lot of people lost significant sums of money,” Erez notes.
Erez further shares that arbitration hearings in one of the other Roberts cases concluded recently, and another is set to begin shortly. The Delucas alleged that their losses totaled just over $4 million due to Roberts' strategy. Florida law permits damages up to four times an investor's losses, which could have resulted in a maximum award close to $16 million for the Delucas, according to Erez.
"In my view, the award is neither excessive nor inappropriate,” Erez states. “It’s well within Florida’s legal limits.”
The day following the arbitration panel’s decision, the Delucas and their company filed a petition in federal court in Miami to affirm the ruling. They argue that the court must uphold the arbitration decision unless it finds grounds to overturn, modify, or correct the award. "There are no valid grounds for vacating or altering the award," the Delucas contend in their filing.
