It's not just investors who can get stiffed by brokers who lose arbitration cases. It's possible their firms could get the short end of the stick, too.
A Finra arbitration panel awarded $780,424 in compensatory damages to Alliance Affiliated Equities Corp. in a case against former broker L. Karl Kittlaus. Alliance filed a claim against Mr. Kittlaus for failing to compensate the firm for Finra arbitrations and lawsuits it "defended and resolved" involving Mr. Kittlaus' clients, according to the
March 26 arbitration award.
Alliance alleged that Mr. Kittlaus' employment agreement included an indemnity provision related to broker conduct. Mr. Kittlaus, who is no longer registered with the
Financial Industry Regulatory Authority Inc., worked for Alliance from 2006-08.
Over the course of his 44-year career, Mr. Kittlaus worked for 19 firms, according to
his BrokerCheck profile. He was most recently employed by Wall Street Strategies Inc. from 2012-16. He has eight regulatory disclosures on his record, including four customer disputes.
The question now is whether Alliance will collect its arbitration award from Mr. Kittlaus.
The case offers a twist on the issue of unpaid arbitration awards, which are usually the bane of investors. Finra has been grappling with the problem for years. In February, the regulator released a study showing that more than
a quarter of arbitration awards go unpaid.
Usually, though, it is clients who are left out in the cold. This time, it could be a firm.
"I don't see this sort of thing very often," said Hugh Berkson, a principal at McCarthy, Lebit, Crystal & Liffman Co. and co-author of a recent
Public Investors Arbitration Bar Association report on unpaid arbitration. "But the fact that [Mr. Kittlaus] was suspended by Finra and has not been affiliated with the firm for 12 years makes it less surprising that they would pursue him."
An Alliance spokesman was not immediately available for comment. Mr. Kittlaus could not be reached for comment.
Mr. Berkson sees some benefit from the table-turning on unpaid arbitration awards.
"If they don't collect money they think they're due from a broker they feel acted wrongfully, maybe they can understand how customers feel when brokers don't make them whole either," he said.
