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Wald v. 1 Financial Marketplace Securities

October 5, 2009

LARRY WALD, PLAINTIFF,
v.
1 FINANCIAL MARKETPLACE SECURITIES, LLC, AND KEVIN M. ROSS, DEFENDANTS.



The opinion of the court was delivered by: Yohn, J.

Memorandum

Plaintiff, Larry Wald, brings the instant dispute against 1 Financial Marketplace Securities, LLC ("1 Financial Securities"), and its Chief Executive Officer, Kevin M. Ross. Defendants move to compel arbitration and to stay the proceedings in this court pending the completion of the arbitration. For the reasons discussed below, I will grant defendants' motion.

I. Factual And Procedural Background

Wald raises a variety of claims related to the loss of his investment in a hedge fund named Securion I, L.P. ("Securion"), a fund that Ross, Wald's investment advisor, recommended to him. In support of their motion, defendants cite an arbitration clause in a Client Account Record Form and Customer Agreement that Wald signed, requiring that the Financial Industry Regulatory Authority ("FINRA") arbitrate all disputes between Wald and 1 Financial Securities "arising out of or relating to" 1 Financial Securities' "business" or "this agreement." (Defendants' Memorandum of Law in Support of Motion ("Defs.' Mem.") Ex. A.) Wald and defendants disagree about whether this arbitration clause applies to the instant dispute.

Wald describes his business relationship with defendants as long-standing. According to his complaint, he and Ross first established their business relationship in 1990. (Compl. ¶¶ 13-14.) Wald states that, since then, he has relied on the advice of Ross for investment of his pension and Individual Retirement Account ("IRA"). (Id. at ¶ 14.) Wald states that (1) Ross was the Chief Compliance Officer and Chief Executive Officer of 1 Financial Securities, (2) Ross was a registered representative of 1 Financial Securities, (3) Ross controlled 1 Financial Securities, and (4) 1 Financial Securities acted through Ross as its agent. (Id. at ¶¶ 6-8, 43, 45, 47, 49, 51, 54-56, and 61-63.) Wald states that 1 Financial Securities was a broker-dealer registered with the United States Securities and Exchange Commission and the Pennsylvania Securities Commission "to conduct the following business: mutual fund retailer; and broker or dealer selling variable life insurance or annuities." (Id. at ¶¶ 3-4.)

Wald describes his business relationship with defendants as encompassing a broad range of activities. Wald states that defendants are his "financial and investment advisors" and "registered representatives." (Id. at ¶¶ 67, 70, and 93.) He states that 1 Financial Securities and Ross "entered into a contract with Plaintiff Wald to provide investment services that were in Plaintiff Wald's best interests." (Id. at ¶ 98.) Wald does not provide additional details about the formation of this contract or its terms or whether it differs from the Client Account Record Form and Customer Agreement.

Defendants attached the Client Account Record Form and Customer Agreement as an exhibit to their motion. (Defs.' Mem. Ex. A.) Wald signed the Client Account Record Form on May 22, 2002, in the block requiring his signature.*fn1 (Id.; Plaintiff's Answer to Defendants' Motion ("Pl.'s Ans.") ¶ 22.) Through the Client Account Record Form, Wald registered an IRA account with 1 Financial Securities. (Defs.' Mem. Ex. A.) He also acknowledged that he had read, understood, and agreed to the terms set forth in the Customer Agreement on the reverse side of the Client Account Record Form. (Id.) The Client Account Record Form specifically reflects Wald's understanding that the Customer Agreement contains an arbitration clause:

This Agreement contains a pre-dispute arbitration clause in paragraph 9 on the reverse side of this page. I/we acknowledge receiving a copy of this Agreement. (Id.) (Emphasis in original.) The arbitration clause in the Customer Agreement states as follows:

Any controversy arising out of or relating to your business or this agreement shall be subject to arbitration. This agreement and its enforcement shall be governed by the laws of the State of Pennsylvania. Arbitration shall be conducted under the provisions of the Code of Arbitration Procedures of the National Association of Securities Dealers.*fn2 Arbitration must be commenced by service upon the other party of a written demand for arbitration or a written notice of an intention to arbitrate. (Id.) (Emphasis in original.)*fn3 The Customer Agreement also requires that Wald not "place any order to purchase securities unless I have received and read a copy of the prospectus, private placement memorandum (PPM) or offering circular (OC) for the security being purchased (except for brokerage account transactions for which no prospectus, PPM or OC is required), and I understand that any investments that I make will be on and subject to the terms and conditions set forth in the prospectus, PPM or OC." (Id.)*fn4

The controversy in this lawsuit arises out of Wald's investment in Securion. Wald alleges that Ross established Securion in early 2007. (Id. at ¶ 15.) Wald claims that Ross is the Chief Executive Officer of the general partner of Securion -- 1 Financial Marketplace, LLC ("1 Financial Markeptlace") -- and that Ross controls 1 Financial Marketplace, as he does defendant 1 Financial Securities.*fn5 (Pl.'s Ans. ¶¶ 7-9; Compl. ¶ 6, 8.) Wald alleges that from early 2007 through February 2008, Ross solicited him to invest a total of $350,000 in Securion. (Compl. ¶ 19.)*fn6 Wald claims that Ross informed him in mid-December 2008 that the entire $350,000 investment in Securion had been lost. (Id. at ¶ 20.) Defendants claim that New York investment advisor Bernard Madoff misappropriated the majority of Securion's assets. (Defs.' Mem. 3.)

Wald claims that he is an unsophisticated investor who has never invested in a hedge fund and who invested in Securion only in reliance upon the repeated assurances of Ross that Securion was a suitable, safe investment for him. (Compl. ¶¶ 18, 24, 26, 28, 30, 32, 34, and 36.)*fn7

Wald claims that Ross's assurances were misstatements "made negligently or knowingly with the intent to deceive Plaintiff Wald." (Id. at ¶¶ 27, 29, 31, 33, 35, and 37.) He claims that 1 Financial Securities, "acting through Defendant Ross," knew or should have known that Wald was not a sufficiently sophisticated investor for Securion to be an appropriate investment for him. (Id. at ¶¶ 43, 45, 47, 49, and 51.)

Wald filed the current action against defendants on March 13, 2009. Wald's complaint contains eight counts:

(1) Count I alleges that Ross, and 1 Financial Securities "acting by and through Defendant Ross," violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities Exchange Commission, 17 C.F.R. § 240.10b-5. (Compl. ¶¶ 53-59.)

(2) Count II alleges that Ross, and 1 Financial Securities "acting by and through Defendant Ross," violated the Pennsylvania Securities Law, 70 Pa.C.S. §§ 1-301(c), 501(a)(ii), and 503. (Id. at ¶¶ 60-65.)

(3) Count III alleges that defendants, as Wald's "financial and investment advisors," breached their fiduciary duties of good faith and loyalty by inducing Wald to ...


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