Stock Broker Arbitration Plaintiff Granted Small Victory

March 7, 2011, 8:00AM. By Gordon Gibb

Baltimore, MDA stock broker arbitration case backfired somewhat for a former employee of RBC Capital Markets (RBC) after an arbitration panel under the auspices of the Financial Industry Regulatory authority (FINRA) overturned a $37.7 million claim and left the plaintiff with a liability to pay what will probably amount to about $2 million.

The Baltimore Business Journal of February 28 summarized the case of Gil Kuta, who at one time was a star producer with RBC and the former Ferris Baker Watts until he was dismissed by RBC in September 2009. Kuta's $37.7 million claim alleging fraud, breach of contract and defamation was filed the same month in which he was fired.

Kuta had worked at Ferris Baker Watts for 14 years prior to the acquisition of the firm by RBC in a transaction worth $230 million in June 2008. At the time of his dismissal, Kuta was serving as a vice president of RBC Wealth Management.

While the FINRA stockbroker arbitration panel dismissed much of Kuta's claim, there remained a partial victory for the plaintiff; a change to the wording on an official form that summarized the reason for the plaintiff's dismissal. Originally, a Form U5 (which is a form available to the stockbroker industry for hiring new recruits and forms an important aspect of a stockbroker's record) stated that Kuta was let go for "the use of discretion in a client account without written authorization."

FINRA ordered that wording be changed to reflect the plaintiff's dismissal due to his "failure to properly mark a trade ticket as solicited, and accepting trading instructions from a third party prior to obtaining written authority, in violation of firm policy."

In spite of ordering a change to wording in Kuta's official U5, the FINRA panel dismissed Kuta's monetary claim against RBC, and instead ordered the plaintiff to repay a promissory note worth $1.8 million to RBC, together with attorney's fees. The particular nature of the promissory note was not disclosed in the stockbroker arbitration ruling.

An arbitration case can be brought for a host of reasons; an allegation of stockbroker fraud or stock fraud that benefits the stock broker and causes an investor to incur unnecessary losses are but some examples. In this case, the stockbroker was the one who had the complaint against his former employer.

It was reported in the stock broker arbitration story that the wording contained in the plaintiff's U5 form was a key part of Kuta's complaint. Thus, the plaintiff won in a key moral and ethical area of his claim—but lost out in the monetary aspect.