An arbitration claim by Lucy and John Mattinen against White Pacific Securites Inc. (WPS), the firm that employed a broker who misappropriated their money, has gone to arbitration after a federal court in San Francisco declined to enjoin the claim in an order issued March 19.
The claim includes counts for breach of fiduciary duty, misrepresentation and conversion against Krittibas Ray, the broker, and failure to supervise against WPS.
Investors placed money with Ray to ostensibly invest in hedge funds that he operated. Instead, he misappropriated the money and used it to pay his divorce lawyer, to pay for child care and rent, and even to pay for lawn care services. The firm claims it had no knowledge of Ray’s scheme, and that the Mattinens were not actually the firm’s customers.
According to the court order, the Mattinens said they invested $200,000 in the Ray Pacific Global Opportunity Fund in early 2010.
The first statement they received, in July 2010, said they had invested only $50,000, and that they had already lost 41.5 percent of that amount, the order said.
The Mattinens then asked that their funds be returned, but they received another statement that said they had invested $100,000 and lost $38,000.
Their funds were never returned, the order said, so the couple filed an arbitration claim with the Financial Industry Regulatory Authority (FINRA) against Ray and WPS.
Though the firm denied knowledge, the court order said that because Ray was associated with WPS, the Mattinens are entitled to arbitration per FINRA rules no matter the eventual factual determinations.
According to a report at Forbes.com, however, the Mattinen’s may be out of luck because there is no one left to pay should they receive an award.
Ray Took $3.3 million from Various Investors
WPS went out of business in February and Ray pleaded guilty in the same federal court to two counts of wire fraud in December 2011.
The criminal complaint said Ray took $3.3 million from various investors between February 2008 and December 2011 as part of a scheme to defraud. The investors lost more than $2.5 million as a result of Ray’s conduct.
The maximum statutory penalty for each count of wire fraud is 20 years in prison, a fine of $250,000 and restitution.
The Forbes.com report also said Ray made false statements to induce his victims to invest in the hedge funds he operated. Ray said that by placing the funds in banks in India he could guarantee returns of 7 percent to 8.5 percent.
In reality, Ray was using the investors’ money for personal expenses and to pay other, earlier investors in a classic Ponzi scheme.
Some of the details were included in a Letter of Acceptance, Waiver and Consent (AWC) Ray submitted in September 2011 to settle a disciplinary action brought against him by FINRA concerning $675,000 in fraudulent promissory notes he sold as part of his scheme.
According to the AWC, Ray did not invest any of the proceeds of the promissory notes with Indian banks. Instead, he used the money to pay $80,000 to his divorce attorney, as well as to pay child care, lawn care services and rent on two residences. As a result of the AWC, Ray was permanently barred from association with FINRA member firms.
The Mattinens filed their arbitration claim against Ray and WPS in March 2011.
The claim alleges that Ray was associated with WPS, that he breached his fiduciary duties to made material misrepresentations to the Mattinens as well as converted their funds to his personal use, according to the court order.
Regarding WPS, the claim asserts that the firm failed to supervise Ray, who was its agent, the order said.
According to the Mattinens, WPS dealt with Ray and other brokers at WPS with the understanding that they were registered associated persons and employees of WPS, the court order said.
Moreover, when Ray communicated with the duped investors about the Ray Pacific Global Opportunity Fund he listed his WPS address, the order said. He also used a WPS telephone number and WPS email address and when Lucy Mattinen met with Ray, it was at the WPS office in San Francisco.
Though WPS claimed that Ray was acting independently when he ran his fraudulent hedge fund scheme, the Mattinens’ allegations were more than enough to make it to arbitration, the order said.
While Ray’s independence may affect WPS’s ultimate liability, the order said, it has no bearing on whether arbitration is required. FINRA rules provide no exemption from the obligation to arbitrate based on assertions that the firm had no knowledge of the broker’s activities.
Guiliano Law Firm
If you have been the victim of securities fraud you should consult with an attorney. The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Firm, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.