After losing arbitration, brokers file bankruptcy

A month after losing a $2.6 million Financial Industry Regulator Authority arbitration claim, two of the brokers named in the matter have declared bankruptcy, meaning the client who sued them - and won - likely won’t see money any time soon, if ever.

Ron Yehuda Itin is the president and owner of a small broker-dealer E1 Asset Management Inc., based in Jersey City, N.J., and the broker named in the arbitration was Shaun Grimaldi.

On April 3, Eagle 1 Asset Management, Yehuda Itin and Grimaldi were on the losing end of an arbitration decision made by a three person panel, working under the aegis of Finra Dispute Resolution. The client Alban Wilson, had sued the firm and the brokers for a variety of reasons, including securities fraud, negligence and failure to supervise.

Wilson asked for $4 million in damages. The three Finra panelists instead awarded Wilson $1.6 million in compensatory damages; interest of $578,000; and legal fees of $420,000.

“I really do view these issues at broker-dealers as tip of the iceberg,” said Michael Bixby, a plaintiff’s attorney. “It’s business as usual for many firms, and we just see the smallest part of it in these arbitration claims. But the harm that’s done is astronomically bigger than what’s visible.” 

According to their BrokerCheck profiles, Yehuda Itin and Grimaldi filed on Friday for Chapter 7 bankruptcy in federal court in Newark, N.J.

A message left on Tuesday for Eagle 1 Asset Management was not returned. Jonathan Uretsky, an attorney for Eagle 1 Asset Management, Yehuda Itin and Grimaldi, also did not return a call Tuesday to comment.

When brokers file for bankruptcy, they are no longer personally liable in lawsuits, such as Finra arbitration awards. Critics of the Finra arbitration system have long said this is a way for brokers with a history of work issues to get around paying cash to customers who beat them in arbitration.

Eagle 1 Asset Management's recent history fits the profile of a small firm, posting a $78,000 loss in 2022 on revenues of just $691,000, according to its most recent audited financial statement with the Securities and Exchange Commission. Such firms often have trouble paying arbitration claims, causing critics of the Finra arbitration system to criticize it for allowing firms to operate without capital or insurance to pay legal claims.

For years, brokers have been walking away from paying harmed clients who sued them and won their claims. It’s part of the unrecognized costs of doing business with small, fragile and undercapitalized brokerage firms, many of which sell and deal in expensive, volatile alternative investments.

"Another schlocky broker-dealer gets hit with an arbitration award and the owner and everyone else declare bankruptcy after years of churning and burning client accounts," said Scott Silver, a plaintiff's attorney who is also representing an Eagle 1 Asset Management client whose account he claims was allegedly churned at the firm, generating outlandish commissions.

Both Yehuda Itin and Grimaldi had a history of what Finra deems "disclosure events," on their BrokerCheck profiles, which could range from personal financial issues like bankruptcies to IRS liens. Yehuda Itin, had 16 disclosure items in 31 years, an exceptionally high rate, the other, Shaun Grimaldi, had six such disclosures in 21 years.