Finra arbitrators order Fidelity to pay options trader nearly $4 million

Finra arbitrators ordered Fidelity Brokerage Services to pay an options trader nearly $4 million for mishandling transactions in a margin account that caused him to suffer losses.

Rotem Perelmuter’s account at Fidelity granted him more leverage and lower exposure to margin calls than a standard or strategy-based margin account, said his lawyer, Michael Bradley.

In a claim filed in March 2021, Perelmuter accused Fidelity of unloading several securities — including Alphabet Inc., Bank of America Corp., Facebook Inc., Goldman Sachs Group, Microsoft Corp., Morgan Stanley, Netflix, Peloton, Oracle, Starbucks, Tesla Inc. and Uber Technologies, among others— in a way that violated his options contract. He also alleged intentional and negligent misrepresentation and breach of good faith and fair dealing.

His funds were custodied at National Financial Services, a subsidiary of Fidelity, which also was named in his arbitration claim.

“He contended that Fidelity and NFS were liable for failing to honor its portfolio margin representations and for improperly liquidating his account following the sharp market downturn in March 2020 as a result of the Covid pandemic,” Bradley, a partner at  Murphy, Pearson, Bradley & Feeney, wrote in an email statement.

A three-person Financial Industry Regulatory Authority Inc. arbitration panel held Fidelity and NFS jointly and severally liable and ordered them to pay $3,976,048 in compensatory damages, according to the May 12 award.

Perelmuter, who is a portfolio manager at Imagine Capital, according to his LinkedIn bio, initially asked for $8.5 million in damages as well as interest, attorneys’ fees and punitive damages. The arbitrators denied all damages other than those they awarded.

A spokesperson for Fidelity declined to comment.

The firm not only lost the arbitration case but also some business.

“Following the improper liquidation, Mr. Perelmuter, who had been a client with Fidelity for decades, transferred his portfolio margin account to Schwab,” Bradley said.