CASE TRACK RECORD
ARBITRATOR DISCLOSURE REPORT
319 WINS - 37 LOSSES*
Since 1991, he has testified in 356 arbitrations (700+ retentions) and participated in 98 mediations as a Securities Industry Expert Witness. He has been qualified and testified as a securities industry expert witness before the Los Angeles, Fresno, Orange County & San Diego State Courts and L.A. Federal Court. He also was qualified and testified as an Insurance Industry Expert before the Nevada State Court. He has served as a FINRA/NASD Arbitrator and as been assigned to 11 arbitration panels, one as chairman. Seven cases were settled, while four went to award.
In August, 2013, a Las Vegas arbitration panel awarded $731,000 in compensatory damages and attorneys fees against a major insurance company broker dealer in a single purchase TIC case. Mr. Dinehart testified with respect to suitability, due diligence, standards of care, supervision and damages. Also in 2013, in another TIC arbitration where Mr. Dinehart testified on behalf of the Claimant as both the due diligence and suitability expert witness, the arbitration panel awarded $379,424 plus simple interest at the rate of 7.00% from the date of investment to the date of the hearing. In addition, the panel awarded $68,838 of costs to the Claimant. Finally, the panel charged the Respondents $300 as reimbursement for the non-refundable portion of the Claimants' initial claim filing fee.
In 2012, in a TIC arbitration where Mr. Dinehart testified as the due diligence expert witness, an Arbitration panel awarded $1,862,961 (the full original investment, plus interest, less all cash distributions received). Further 5 of 8 TIC purchases were rescinded and the panel awarded $200,000 in attorneys fees. Finally, the state securities division asked to review the ScoreCards used in my testimony as part of its investigation of the firm and the broker.
In 2011, in a TIC real estate case, where Mr. Dinehart testified as the expert witness, 3 FINRA arbitrators awarded the claimant $444,000 (53% of the original amount invested) in compensatory damages, $148,000 in attorneys fees and $13,600 as reimbursement for expert witness fees. Further, the claimant was allowed to keep the TIC real estate investment which respondent's claimed was recovering with great improvement.
Also in 2011, Mr. Dinehart represented a large investor in mediation at which the case settled for a mid-seven figure sum.
Later in 2011, an Anchorage, Alaska a FINRA Arbitration Panel awarded $350,000 or 88% of the claimant's investment, allowing him to keep the TIC investment. Interest of 3.5% was also awarded . Both awards were joint and several against the brokerage firm and the broker.
In 2010, Mr. Dinehart was an expert witness in a Denver, Colorado case concerning a TIC Real Estate transaction that was filed against an Independent Broker Dealer. Two Claimants were awarded $830,000 including interest and their attorney's fees.
Also in 2010, Mr. Dinehart was retained by a plaintiff in a L.A. Federal Court action before the Honorable S. James Otero, U.S. District Judge. The case was against a broker/investment advisor who sold the plaintiff a multimillion dollar investment position in the Bernard L. Madoff Split Strike Conversion Strategy. In November, 2010, Mr. Dinehart submitted his written report under FRCP Rule 26 (2) (B). Discovery and depositions proceeded and in September, 2010, Mr. Dinehart submitted his Written Declaration in Opposition to a Motion for Summary Judgment. It was accepted by the court, stating that "Mr. Dinehart had been retained by Plaintiff as an expert witness pursuant to the terms and conditions of the Federal Rules of Evidence 702 et. seq." Approximately 4 weeks before trial, the judge denied the defendant's Motion for Summary Judgment. This denial was based, in major part, on the judges review of Mr. Dinehart's declaration. Then, one week before trial, in January, 2011, and after the judge's denial of defendant's MSJ, in a pre-trial hearing, the court ruled, over defendant's objections that Mr. Dinehart would be allowed to testify as a securities expert witness at the trial. His expert testimony would have involved the facts surrounding claims of Intentional and Negligent Misrepresentation along with Breach of Fiduciary Duty against the defendant broker/investment advisor. Subsequent to the court's pre-trial rulings, and based largely on Mr. Dinehart's impending testimony, the case was settled. ( See Madoff Scheme Revisited, under Resources).
In 2010, two major cases settled where Mr. Dinehart was a designated expert. In the first, he represented a major CA based company with a liquid assets of approx. $400 million seeking damages from the fraudulent sale of auction rate securities of over $50 million. The FINRA matter was against a major national wire-house firm. The second case, a class action, was settled in litigation against a major real estate mortgage investment company and occurred after Mr. Dineharts' 3 day deposition, as the securities expert in the case. The matter was brought by over 120 investors (80 families) who were seeking damages of up to $10 million. The case settled amicably at the time of trial.
In 2009, 3 arbitration awards were issued by panels, where he participated as an expert witness representing claimants, in cases against two of the nations largest stock brokerage firms in the amounts of $2,500,000, $3,000,000 and $1,300,000, respectively. However, he represents claimants 65% of the time, with respondents 35%, and rising.
THE FOLLOWING CASE NUMBERS REFLECT POSITIVE NASD/FINRA AWARDS; (available on FINRA award database at www.finra.org)
97-01394 09-03602 (Respondent's zero award)
The following information was prepared by FINRA/NASD for inclusion in the Neutral Arbitrator List Selection System for assignments as an Industry Arbitrator on its Securities Arbitration Panels. * Past performance is no guarantee of future results.
Let me also provide a bit of additional background. I have been both an NASD representative & registered principal since 1972. For 16 years, until 1988, my career moved forward normally and without incident. I had successfully acted as Branch Manager for two securities firms and acting branch manager for another. During the period Jan. 1987- Jan. 1990, I was National Sales Director for Boardwalk Capital Corporation. I held the title of Vice-President, Marketing Compliance, and reported directly to the owner and sole stockholder of Boardwalk, Mr. D.J. Welch. I was a salaried employee and held no stock ownership in the broker-dealer or any of its related entities. In mid -1988, the NASDR expressed concern that Mr. Welch was not securities licensed with the NASD and required him to take the Series 7 examination in order to manage the broker-dealer. In August, he asked me to temporarily step in as acting President and assume responsibility for broker-dealer operations while he studied for and passed the registered representative examination. The NASDR accepted my new role and the company was able to secure the licenses & livelihoods of its 200 registered representatives. In early 1989, at Mr. Welch's request, I also studied for and obtained the Financial Principals license (Series 27). I was succeeded by Paul Krsek as President in August, 1989. At that time I became President of Boardwalk Asset Management, the firms Registered Investment Advisor. He, along with new management, was brought in by Mr. Welch after purportedly providing new infusions of capital in exchange for stock ownership, to expand broker dealer operations. The new management team provided me with copies of written notification to the NASDR evidencing the new titles along with my removal from its records as Boardwalk Capital's President. The NASDR never received notice of my removal or the replacement names.
During 1988 & 1989, Mr. Welch failed to pass the Series 7 examination on two separate occasions. During this time, he was responsible for the management of the holding company while I bore responsibility for the broker-dealer operations. Since as acting president, I was required to sign the firm's focus reports, I became concerned over my potential exposure as to the firm's financial condition. Since we had a bookkeeper/Registered Financial Principal who prepared the reports, I was signing off on a second hand basis at the end of the reporting month. In mid-1989, when my suspicions became aroused due to Mr. Welch's two failed securities examinations, along with sudden, new and unproven management, I enlisted the firms outside legal counsel to initiate auditing procedures over Boardwalk's net capital position. In early 1990, they came back to me with shocking news. The firm was drastically undercapitalized and substantially below required net capital minimums (Boardwalk was a fully disclosed broker-dealer with only $10,000 of minimum required net capital). When no satisfactory answers were forthcoming from the bookkeeper, Mr. Welch or the new management team , I personally called the NASDR and closed the firm's doors on January 20, 1990. The firm immediately ceased doing business and all licenses were transferred. Further, I filed a Form BDW (Broker- Dealer Withdrawn) with the NASDR.
The NASDR informed me that they would not accept this filing officially, until they performed net capital audits for 1988 and 1989. After completing its audits and reconciling bank statements for every business day during the months for the last quarters of 1988 and 1989, The NASDR filed two separate complaints against Boardwalk, Welch et al, including myself, resulting in the claims that now are disclosed:
1. This was a books and records violation for the firm being out of net capital compliance during the last quarter of 1988, on NON REPORTING DATES. This distinction means that the firm was within net capital compliance on the month-end reporting dates, when I signed the focus reports, but short on dates within the months. This is considered to be a violation since firms are required to be in net capital compliance every business day of each month. By auditing the bank statements, the NASDR observed several days of noncompliance on non month-end reporting dates. I was fined $6,000 and paid the fine. It is important to note that no customer was hurt or damaged in any way as a result of this "technical" violation.
2. The second complaint was a continuation of the first one, but charged separately months after the first one and long after my closing the firm. During the last quarter of 1989, the firm was shown again to be out of net capital compliance on days during the months, on non-reporting dates. A new and different arbitration panel was convened. The NASDR considered this to be a second offense and once again classified it as a "technical" violation. I was fined $7,500 (second offense) plus underwent a license suspension (11-18-91 to 2-16-92) of my registered principal's license (Series 24 as opposed to my Series 7 license) for a period of 60 days. I paid the fine and no customer was hurt or damaged, whatsoever. I appealed both claims having the first one reduced and was praised for the timely closing of the firm when the shortage of net capital was clearly determined and first became known to me. Further, I was required to re-qualify for the Financial Principals license should I desire to retain that license. I chose not to assume that liability ever again.
3. The third complaint also occurred while at Boardwalk and was a supervisory action that had originally been thoroughly examined and dismissed, without sanction, by the L.A. District #2 office of the NASDR. It was subsequently re-opened by the Dallas NASDR office. A registered principal of Boardwalk sold a $30,000 preferred stock position to a Dallas, Texas based corporation. The sale occurred in Texas with my never having spoken with or having met the client. My total involvement included signing off on the business as Acting Branch Manager, when it was mailed into Boardwalk from Texas. The registered principal, it was found, filled out the paperwork, misrepresenting certain client information and forging the signature on the subscription agreement. The award against me of $5,000 was for lack of supervision in not detecting the fraud against the customer. At the end of the hearing, the registered principal had declared bankruptcy and failed to attend the last day of the arbitration. The panel fined him $40,000 for the forgery and misrepresentation.
These points should clarify the only complaints that were received and sustained in the securities business after a spotless record of 20 years, prior to Boardwalk. Further, no other claims are pending or have been charged by the NASDR/FINRA over the past 10+ years.
In the 26 years that I have served as a securities expert, my record of case wins and losses stands at 319 - 37
These complaints have always been thoroughly disclosed to each panel at the beginning of my testimony. Every panel has permitted my testimony as a Securities Industry Expert, with the exception of one in which my testimony would have been cumulative. I feel my role as an expert witness has been strengthened by a greater understanding of the responsibilities of both a registered representative and supervisor. Every two years, I am required by the NASD to undergo special continuing education in supervision as a reminder to avoid any such tenuous relationships that could create the atmosphere for such incidents.
Finally, on 2-19-99, Ms. Peggy Duzant, NASDR Arbitrator Relations Supervisor, informed me that my application had been approved to become an NASDR Arbitrator. She indicated that the National Arbitration and Mediation Committee had reviewed my complaints and CRD and confirmed my approval as an arbitrator since the temporary disqualification period had passed.
On June 1st 1999 I received my certificate as Member, NASD Regulation, Inc. Board of Arbitrators # A30388. My Arbitrator Disclosure which provides written notice of these complaints is also provided to the panel, in addition to my CV, prior to any testimony. In July, 2002, as part of an ongoing process, my status as an NASDR/FINRA Arbitrator was reconfirmed. Through September, 2013, I have been assigned to 11 arbitration panels, one as chairman, 7 of those cases settled while 4 went to award.
In September 1999, I completed the panel members training for NASDR (100% grade on the test) and on 11-2-99, I took and passed the chairperson's training. I have been qualified as a Securities Industry Expert Witness and have testified before the Federal Court in Los Angeles along with State Courts in Los Angeles, Fresno, Orange County and San Diego. I have also testified and been qualified as an insurance industry expert in Nevada State Court. My deposition has been taken a total of 18 times, with 14 of those cases resulting in settlements immediately following my testimony.
Mason A. Dinehart III, RFC