An irreverent Wall Street Blogby Bill Singerhttp://www.brokeandbroker.com/index.php?a=blog&id=365FINRA Arbitration Sanctions Frivolous Motion and Awards Punitive DamagesWritten: April 9, 2010In the Matter of the Arbitration Between Trini L.Thomas, Sr. (Claimant) and Betty Thomas (Claimant) vs. Wofal Oju Offem (Respondent), Todd A. Havemeister (Respondent), Ronald Eiger (Respondent), Donald A. Wojnowski, Jr. (Respondent), Eduardo Manual Cabrera (Respondent), Jesup & Lamont Securities Corp. (Respondent), and Empire Financial Group, Inc. (Respondent) (FINRA Arb. 09-02695, March 22, 2010), Claimants alleged that Respondents solicited their purchase for an initial public offering of a company known as “Tissue Connect,” but that their investment was diverted into 15% Convertible Promissory Notes issued by CSMG Technologies, Inc. [Note: These Promissory Notes are alternately referred to as Convertible Bridge Note due June 30, 2007, issued by Consortium Service Management Group, Inc., issued in connection with an IPO of "Live Tissue Connect."]. In furtherance of their claims, Claimants alleged: Misrepresentation; Violation of Florida Statute §517 (Securities Transactions); Breach of Fiduciary Duty; and, Failure to Supervise. Claimants sought in excess of $100,000 in compensatory damages, plus interest, attorneys’ fees, rescission, punitive damages, costs. Respondents generally denied the allegations and asserted various affirmative defenses. A Moving ExperienceClaimants filed a Motion for Sanction asserting, among other things that
- Respondents failed to comply with a Discovery Order issued by the Arbitrator;
- Claimants attempted to reach an amicable resolution by sending a letter to Respondents;
- Respondents’ failure to produce documents has prejudiced Claimants in preparing for the evidentiary hearing; and
- Respondents failure to comply with the related discovery Order was a flagrant disregard for the arbitration process.
The VerdictAt the conclusion of the Hearing, the Arbitrator ruled that Respondents Offem, Havemeister, Eiger,Wojnowski, Cabrera, JLSC, and Empire are liable on all of the claims asserted by Claimants, as follows
- as to misrepresentation, Respondents are in violation of Florida Statute §517.301 (Fraudulent transactions; falsification or concealment of facts);
- as to violation of Florida Statute §517, Respondents sold unregistered securities in violation of §517.07 (Registration of securities);
- as to breach of fiduciary duty, Respondents violated FINRA Rule 2310 (Suitability), and breached their fiduciary duty by not using due diligence and by selling to Claimants unsuitable securities; and,
- as to failure to supervise, Respondents breached FINRA Rule 3010 (Supervision) by the failure to properly supervise.
Intentional Misconduct and Gross NegligenceBased on clear and convincing evidence, the Arbitrator found that Respondents Offem, Havemeister, Eiger, Wojnowski, Cabrera, JLSC, and Empire were guilty of intentional misconduct, gross negligence, and failure to supervise. They misrepresented to Claimants that they were depositing funds in escrow, to be released when the IPO for Tissue Connect came on the market, at which time Claimants would be able to buy shares at half price. Claimants were guaranteed that they would double their money in six months to a year. The Arbitrator found that instead of complying with the above representations, Claimants' investment was converted to a loan to Tissue Connect, for which Claimants were given a convertible note (which was described by the Arbitrator as a "very risky."). Further, the Arbitrator found that Claimants were not told that a sales commission was being paid immediately, were not shown the auditor's report that showed the company to be in financial risk, and were not told that the securities were unregistered. Moreover, the Claimants were told falsely that the product had been approved by the FDA. TO READ BILL SINGER'S FULL ANALYSIS OF THIS CASE, VISIThttp://www.brokeandbroker.com/index.php?a=blog&id=365