Albany, N.Y.-based self-clearing broker/dealer C.L. King & Associates won a rare victory this week in a Financial Industry Regulatory Authority arbitration. The claimant in the case was a holding company of multimillionaire businessman Carl Cummings, which sought $40 million in damages against C.L. King yet walked away with nothing. It was a two-to-one decision in favor of C.L. King.
This is the latest in a string of FINRA arbitration cases stemming from the implosion of NSB Advisors, a registered investment advisor owned by William Nicklin that filed for bankruptcy in 2015. The entity suing, Utility Service Holding Company, a holding company for Cummings’ investments, blamed C.L. King, the custodial brokerage for NSB, for allowing the RIA to put him into complicated investment strategies that imploded. That included an alleged over-concentration in APCO Oil and Gas, short options exposure and margin debits. The suit also alleges unlawful securities transactions made by Candace King Weir, CEO of C.L. King.
“Generally in arbitration, arbitrators issue fairness, not justice; you go before a judge, with a gown and a gavel behind a bench, they issue justice,” said Richard Roth, attorney at The Roth Law Firm in New York that represented C.L. King. “So the fact that they got zeroed out, I think it is pretty rare.”
The arbitration claim alleged breach of contract, violation of FINRA and NASD rules, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty. All claims were denied. Claims against Weir were dismissed.
“Her limited involvement on issues related to respondent CLK’s relationship with Claimant had no impact on the issues related to this case,” the award said. “Moreover, the Panel found that she took no independent action outside of her role as CEO that would leave her liable individually.”
The arbitration went on for 109 hearing sessions over the last year, racking up nearly $137,000 in hearing fees, split between the two parties.
“While certainly I don’t agree that it should’ve taken that long, for some reason the lawyers for the claimants desired to go through a tremendous amount of detail, which, quite frankly, I thought was not necessary,” Roth said.
“We were disappointed in this decision,” said J. Michael Bishop, a partner at Smiley Bishop & Porter, which represented Cummings. “It’s unusual to see split decisions in FINRA cases, where you have an arbitrator dissenting. It was a hard-fought case.”
C.L. King came out victorious in a similar arbitration case against the firm last year, when estates linked to Lynn Gorguze, the wife of California Congressman Scott Peters, sought $68 million in damages in the fallout of NSB.
