Finra arbitrators ordered J.P. Morgan Securities Inc. and two former brokers to pay a retailing matriarch $19 million for unauthorized trading of complex products in her account — transactions that were executed by her grandsons.
A three-person Financial Industry Regulatory Authority Inc. arbitration panel in Boca Raton, Florida found the firm and former brokers Evan A. Schottenstein and Avi Elliot Schottenstein liable for constructive fraud and abuse of fiduciary duty, as well as, fraudulent misrepresentations and omissions in trading done on behalf of Beverley Schottenstein, who is Evan and Avi’s grandmother, according to the Feb. 5 award.
In addition, the arbitrators found J.P. Morgan and the grandsons liable for elder abuse under Florida law. The evidentiary hearing in the case was conducted remotely via Zoom.
Beverley Schottenstein alleged her grandsons without her consent bought and sold in her account multiple auto-callable structured notes and various other securities for which J.P. Morgan was a market maker, including Apple stock, as well as initial public offerings and follow-on offerings, according to the arbitration award.
The Schottenstein family owns Schottenstein Stores Corp., a holding company that is a partial owner of DSW, American Signature Furniture, American Eagle Outfitters and 50 shopping centers and five factories.
Evan Schottenstein convinced his grandmother to invest her money through him in 2006, when he worked at Citigroup Global Markets Inc. While he was at Morgan Stanley (2009-14) and J.P. Morgan (2014-19), he allegedly amassed more than $150 million in auto-callable structured notes, said Ms. Schottenstein’s lawyer, Scott Ilgenfritz, a partner at Johnson Pope Bokor Ruppel & Burns.
While at J.P. Morgan, Evan Schottenstein also allegedly bought new issue offerings in debt and preferred securities without his grandmother’s knowledge. Altogether he made more than 360 unauthorized trades, Ilgenfritz said.
J.P. Morgan fired Evan Schottenstein in 2019 over “concerns relating to trading activity for the account of a family member and the accuracy of the records regarding the same,” his BrokerCheck record states.
The Finra arbitrators ordered J.P. Morgan to pay $4.7 million in compensatory damages and $4.3 million to rescind an investment in the Coatue Private Equity Fund and return capital calls paid to Coatue. J.P. Morgan also had to $172,630 in costs.
The arbitrators ordered Evan Schottenstein to pay $9 million in compensatory damages and $172,630 in costs, while Avi Schottenstein was ordered to pay $602,251 in compensatory damages. J.P. Morgan and Evan Schottenstein also must pay half of Ms. Schottenstein’s attorneys’ fees.
Beverley Schottenstein is pleased with the arbitration outcome. “She feels like the panel has rendered a just award,” Ilgenfritz said.
A spokesperson for J.P. Morgan was not immediately available for comment. A lawyer for Evan Schottenstein was not immediately available for comment.
Finra has postponed all in-person arbitration hearings through April 30, 2021. The Public Investors Arbitration Bar Association has raised concerns about the conducting remote hearings, which are available when both arbitration parties agree to the procedure.
Ilgenfritz said each side hired a technology consultant for the hearing in the Schottenstein case. “There were a couple hiccups, but for the most part, the hearing went smoothly,” Ilgenfritz said.
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