Investor Jake Mendel was baffled when a panel of three Financial Industry Regulatory Authority arbitrators awarded him only a fraction of the $4 million he lost at the hands of Memphis-based brokerage Morgan Keegan. And so was his lawyer, Richard Frankowski.
"When we got only seven cents on the dollar, I went nuts," Frankowski said in an interview. "And I personally started looking these arbitrators up."
What Frankowski found was troubling, but not unprecedented in the private court proceedings known as arbitration. Lead arbitrator John Allgood, who had disclosed that he was a non-partner "of counsel" to Atlanta-based law firm FordHarrison since 2001, had failed to mention that defendant Morgan Keegan did business with his firm. Morgan Keegan is now a unit of Raymond James Financial (RJF) .
"It's the most absurd thing I've ever seen in my life" that the arbitrator didn't disclose the relationship, said Frankowski.
For three years, Mendel has been fighting to have that 2013 award vacated, but on Oct. 31, the Supreme Court said it had declined to review a federal appeals court ruling rejecting his request. (An earlier district court ruling to vacate was overturned). The case is back in the hands of a federal district court judge in Alabama, who said today, Nov. 8, that he will hear oral arguments later this month as to how the case should proceed.
Allgood told me via email that he had not been aware of the relationship with Morgan Keegan when the case was ongoing. He declined to answer when I asked if he'd requested the law firm to run a conflicts check. But his apparent failure to do so led to years of additional litigation and questions about the integrity of the panel.