April 7, 2015 Comments (0) Publications

Public Investors Arbitration Bar Association Journal: Brokerage Firm Counterclaims: Firms’ attempts to turn liabilities into assets

(Last Updated On: July 20, 2015)

This article addresses what appears to be a growing problem and our experience in defending against it. Specifically, broker-dealers’ attempts to apply indemnification clauses in private placement subscription agreements—intended to apply solely to the sponsor of the investment—to themselves. Firms are using the indemnification clauses in order to file counterclaims for attorney’s fees and to intimidate clients who have sought redress in FINRA arbitration for losses in alternative investments sold by brokerage firms.

Successful arguments against such tactics include:

  • The indemnification clause does not apply to the broker-dealer because the broker-dealer is neither a party to the subscription agreement nor identified in the indemnification clause;
  • The counterclaim is invalid as a matter of law;
  • The indemnification clause does not apply to causes of action brought against the broker-dealer;
  • As a matter of public policy, broker-dealers may not indemnify themselves against accountability for their own frauds and misrepresentations; and
  • Industry regulators find the tactics unacceptable.

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