united states district court eastern division pti ...1).pdf · was undisputed that yonata berman...

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

PTI SECURITIES & FUTURES,

L.P.,

Plaintiff,

v.

MARTIN BIRNBAUM, Power of

attorney for YONATA BERMAN,

David Andalman,

Defendants.

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Case No. 20 C

PLAINTIFF’S APPLICATION TO VACATE ARBITRATION AWARD ENTERED

BY FINANCIAL INDUSTRY REGULATORY AUTHORITY

Plaintiff PTI Securities & Futures, L.P. (“PTI”), by its attorneys Gregg

Rzepczynski & Associates, Ltd., and Michael J. Greco, Attorney at Law, for

its Application to Vacate Arbitration Award entered by Financial Industry

Regulatory Authority (“FINRA”) pursuant to Section 10 of the Federal Arbitration

Act, 9 USC Section 1 et seq. (“FAA”), Section 10, for vacatur of the Arbitration

Award entered February 27, 2020, in FINRA Dispute Resolution Case No.

18-00990, for a judgment and decree directing re-arbitration of the Statement of

Claim filed in that case, and for further appropriate relief in its favor against

Defendant, MARTIN BIRNBAUM, Power of attorney for YONATA BERMAN

(Martin Birnbaum with be referred to sometimes herein as “Birnbaum”; Yonata

Berman as “Berman”), states as follows:

Case: 1:20-cv-02038 Document #: 1 Filed: 03/30/20 of 32 PageID #:1

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1. The case was filed on March 15, 2018, and proceeded to Arbitration

Hearing on July 8, 2019 through July 12, 2019, and resumed December 2, 2019

through December 6, 2019. Both parties rested their respective cases on December

6, 2019; there was no further presentation of evidence or oral argument thereafter.

The Panel ordered on December 6, 2019, or December 9, 2019, that Post-Hearing

Briefs be submitted by the parties on or before January 17, 2020.

2. PTI, as Respondent before FINRA, and co-Respondent David Andalman

timely filed the written submissions directed on January 16 and 17, 2020.

Birnbaum never filed any Post-Hearing Brief, flouting the Panel’s December 2019

directive.

3. The Award of Arbitrators was entered and delivered to Plaintiff PTI on

February 27, 2020. (A copy of the Award of Arbitrators is attached as Exhibit “1”

and made a part of this Motion to Vacate).

4. This Application to Vacate is filed within ninety (90) days after the Award

of Arbitrators was entered.

5. The Arbitration was conducted pursuant to the parties’ PTI Securities

Options Client Agreement and approval Form (“OCAA”).

Jurisdiction

6. This Court thus enjoys jurisdiction of this Application to Vacate pursuant

to Section 10 of the FAA, 9 USC Section 10 and this Court’s Federal Question

Jurisdiction, 28 USC Section 1331.


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Venue

7. This Court is the appropriate venue of this Application to Vacate as the

Arbitration Hearing took place, and all parties are domiciled within, the geographic

expanse of this Court.

Factual Predicate

8. The Claimant in this case is not the Investor, but her Attorney-In-Fact,

Martin Birnbaum (“Birnbaum”), under a Power Of Attorney executed in 2012 by the

Investor, Yonata Berman (“Berman”), prior to Berman opening the account at PTI.

Birnbaum is a retired Certified Public Accountant (“CPA”), and friend and income

tax return preparer for Berman for all of the years Berman had an investment

trading account at PTI, 2013 through 2017, inclusive.

9. Yonata Berman’s execution witness specifically avers in the Power Of

Attorney execution form that, as of August 13, 2012, she or he believed Yonata

Berman to be of “sound mind and memory.” (See Claimant’s Statement of Claim

initiating the FINRA Arbitration Case (herein “SOC”), Exhibit A, page 6). Yonata

Berman continued to manage her own investments and assets after execution of the

Power of Attorney. Birnbaum testified at Arbitration hearing that as recently as

2018, he had prepared checks drawn on bank accounts with respect to which

Birnbaum did not have check-signing authority, and presented them to Yonata

Berman for her to sign.

10. Yonata Berman has never been adjudicated incapacitated or disabled, and

has never been the subject of a Probate Court proceeding for appointment of a


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Guardian of her person or property. There has no indication or evidence presented

that Yonata Berman is unable to make her own investment decisions, or that she

lacks capacity to manage an investment account as a customer-investor. There is

no indication that Yonata Berman is aware of Birnbaum’s initiation of the FINRA

Arbitration proceeding, and no indication that Yonata Berman is aware that

Birnbaum engaged counsel to prosecute Arbitration claims against Plaintiff or

against investment advisor David Andalman. The Power of Attorney authorized

Birnbaum to pursue “claims and litigation” of Berman, and to “employ attorneys

and others and enter into contingency agreements and other contracts as necessary

in connection with litigation[.]” (Claimant’s SOC, Ex. A, p. 11, Section 3-4, para.

(j)). There is no indication whatsoever that Yonata Berman authorized, approved or

even knew of any aspect of the FINRA Arbitration proceeding, excepting possibly

from a deposition that was attempted to be conducted at her residence in December

2018. (The deposition could not proceed because Yonata Berman ignored or

rebuffed the efforts of the stenographic reporter or/and videographer to administer

to her the oral swearing-in, i.e., the oath to tell the truth in the deposition).

11. Birnbaum testified at Arbitration, and it was indicated in the initial PTI

account opening paperwork (OCAA) that Yonata Berman had known the

investment advisor David Andalman prior to 2013, and opened her trading account

at PTI at the suggestion of investment advisor David Andalman in about March

2013. There was no evidence introduced that suggested that Yonata Berman

sought out PTI to open the PTI account excepting because of David Andalman – it

was undisputed that Yonata Berman reposed substantial trust in David Andalman


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and wished to invest money with him in a discretionary account, as she has done

prior to 2013. Yonata Berman opened the trading account by transferring another

investment account from Wells Fargo to PTI. Yonata Berman was specifically

interested in trading options, and sought out David Andalman (“Andalman”) to

open this account.

12. For his part, the evidence introduced at Arbitration Hearing indicated

that Andalman had been a registered person in FINRA and its predecessor, NASD

(National Association of Securities Dealers) for approximately twenty-eight years at

the time Yonata Berman opened the PTI account for Andalman to manage as her

investment advisor. Andalman’s FINRA registration records show no disciplinary

action, no lawsuits or claims, and no adverse events, excepting the 2018 Birnbaum

SOC and FINRA Case 18-00990 to which this Application is directed.

13. In the PTI Securities Options Client Agreement and approval Form

(“OCAA”) submitted by her to PTI, Yonata Berman asserted that she had a net

financial worth in excess of $3,000,000.00, and had twenty-five-plus (25+) years’

of Stocks and Bonds investment experience. Yonata Berman checked the multiple-

choice alternative Investment Objective in her Investor Profile declaring that she

was interested in “Speculation – Focus on generating maximum possible returns[,]”

and, for her Risk Tolerance: “I am willing to accept high risk, including high

volatility, and understand I could lose a substantial amount of my investment.”

14. Yonata Berman’s investments prior to opening the PTI account included

Private Equity / Private Placement Offerings, Real Estate Investment Trusts and

Real Estate Limited Partnerships, which are arguably illiquid, higher-risk


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investments suitable only for affluent, sophisticated investors. Yonata Berman

indicated to Andalman her interest in trading options as well as stocks. Berman

identified herself to Andalman as a sophisticated investor.

15. Yonata Berman did not sign the Submission Agreement initiating this

case, and did not testify at the Arbitration Hearing. All of the oral testimony of the

facts in this case introduced by Claimant came from Birnbaum, and from PTI officer

Daniel Haugh. As mentioned above, it is not known whether Berman is even aware

of the pendency of this case and Statement of Claim. It is not known whether

Berman would approve of prosecuting the case and SOC, or would disavow it.

Berman has never been adjudicated incapacitated or incompetent to manage her

financial affairs by any Court. Yonata Berman continues to write checks

and sign account documents, at least through 2018, well after the August 2017

transfer of the PTI account to Wells Fargo.

16. Birnbaum testified that he will sometimes prepare a check drawn on

Berman’s account, and request that Berman sign it, which she does. Birnbaum

secured authorization from Yonata Berman in October 2017, after transferring

Berman’s trading account from PTI to Wells Fargo in August 2017, to write checks

drawn on the Wells Fargo account containing Yonata Berman’s funds. Birnbaum

has used that check-writing authority to write checks of at least $48,000.00 to his

attorney, James Eccleston & Associates (“Eccleston”), and to write at least another

$16,000.00 in checks to other parties. According to Birnbaum, he had as of

December 4, 2019, paid about $100,000.00 in attorney’s fees to Eccleston, and

$20,000.00 to his putative expert Robert Graham, all from Yonata Berman’s funds.


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Birnbaum testified that his fee agreement with Eccleston is not contingent – that

means Eccleston must be paid hourly regardless of the outcome of the SOC, and

regardless of whether Eccleston’s efforts realize any recovery from Plaintiff or

Andalman at all.

17. Birnbaum testified that he was aware of Berman’s investment in the

David Andalman / PTI account at issue in this case at all times since the account

was opened in 2013. In preparing and filing Berman’s income tax returns,

Birnbaum receives the K-1 and 1099 forms issued to Yonata Berman in connection

with her investments and accounts. Birnbaum periodically questioned Yonata

Berman as to whether she should close or modify the activity of the PTI account, to

which Yonata Berman responded consistently that she likes and trusts David

Andalman, and that she wanted to keep the PTI account open and active under

Andalman’s management as it had been since inception.

18. Birnbaum was aware that Yonata Berman was receiving monthly account

statements from PTI as to the performance of the PTI account, although he did not

know whether Berman was reviewing the account statements. Those account

statements specifically instructed the investor, Berman (or Birnbaum, as fiduciary)

that she should object to any trades she wished to avoid within a specified time

period, and that failure timely to object constituted ratification of the trade.

Neither Yonata Berman nor Birnbaum ever once objected to any trades or

statements at all.

19. Birnbaum testified that he called Andalman twice by telephone during the

time period the PTI account was open, and engaged in brief conversations with


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Andalman. Birnbaum never sent to Andalman evidence of his Power-Of-Attorney

conferred by Berman, never requested an in-person interview with Andalman or

with anyone at PTI, and never demanded to see statements or trade confirmations.

20. Birnbaum never advised Andalman:

- that Yonata Berman wanted or needed to close the PTI account;

- that Yonata Berman suffered from any affliction which limited her

intellectual or mental capacity;

- that Yonata Berman needed to limit her trading activities;

- that Yonata Berman’s trading activities were excessive, overly aggressive,

or in any manner inconsistent with her wishes and her objectives for the

PTI account, either at the time of opening the account or at the time of the

conversation between Birnbaum and Andalman.

21. Birnbaum testified that he never advised Yonata Berman’s children about

the PTI account or about her assets and resources, because they are each

affluent in their own right, and are easily able to support themselves. None of

them need cash or financial assistance from Yonata Berman. Yonata Berman

has ample resources to support herself, according to Birnbaum, and is a wealthy

woman. Birnbaum agreed that Berman’s net assets are at least $3 Million, in

addition to the value of her residence.

22. Notably, Birnbaum’s testimony as to Yonata Berman’s wealth and

affluence contradicts the averments in his SOC, in which he alleged that the

$300,000.00 (initially $330,000.00) which she invested with Andalman in the


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PTI trading account was “earmarked for living and medical expenditures.”

(Birnbaum SOC, para. 8).

23. Birnbaum testified that he decided in 2017, four years after the PTI

account was opened, that Yonata Berman’s accounts, including the PTI trading

account, should be consolidated. Birnbaum took one, single monthly statement of

the PTI trading account to a meeting with Wells Fargo, Bradley Cordes

(“Cordes”). In the course of that meeting, Birnbaum was advised that he may

have a claim against Andalman and PTI (on the basis of reviewing that single

month’s account statement). Birnbaum testified that, without further discussion

of potential claims, he was put in contact with lawyer James Eccleston by

Cordes. Without further analysis, discussion or recommendations, Birnbaum

engaged Eccleston to prosecute this SOC against Andalman and PTI. Despite

the explicit reference in Yonata Berman’s Power Of Attorney (“POA”)

authorizing Birnbaum to engage attorneys to prosecute her claims on a

contingent fee basis, Birnbaum agrees to engage Eccleston on an hourly fees

basis, with the fees and expenses (including fees for two purported “expert”

witnesses) to be paid from Yonata Berman’s resources. Birnbaum did not testify

as to whether he apprised Yonata Berman of the engagement of Eccleston and

the specific hourly fees billing terms.

24. Birnbaum testified that he had reviewed the SOC prepared by Eccleston,

and that it was accurate. He admitted that the statement in para. 8 of the SOC,

that Berman’s cash ($300,000.00) invested in the PTI account was “earmarked


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for living and medical expenditures” was false, and that Berman had ample

resources to provide for her living expenses and medical needs. (See SOC, para.

8). Birnbaum was aware that Berman had originally invested $330,000.00 in the

PTI account, and immediately withdrew $30,000.00, leaving $300,000.00 cash in

the PTI account. Birnbaum testified that Berman had wanted to use the

$30,000.00 cash withdrawn for “other purposes” not related to Berman’s living

expenses or medical needs.

25. Birnbaum testified that he did not have any basis for believing the

averment in para. 9 of the SOC that Berman had instructed Andalman, or

anyone at PTI, that she had a “low tolerance for risk because it was very likely

that she would need the money for her living and medical expenditures.” (SOC,

para. 9).

26. Neither Birnbaum nor Eccleston ever attempted at any time to amend the

SOC or correct the aforementioned false statements in the SOC paras. 8 and 9.

Admitted into evidence at the Arbitration Hearing were telephone call records

showing numerous telephone calls between Yonata Berman and Andalman

during the time period in which Berman maintained her PTI account.

27. Eccleston, Birnbaum’s attorney, testified briefly to authenticate the

attempted videographed deposition of Berman in 2018. The videographed

deposition shows Berman talking to persons in the room, and not responding

when the court reporter or videographer attempted to swear her in to begin the

deposition. The videographed deposition gives no indication that Berman is


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incapacitated mentally or intellectually, or that she is incompetent to manage

her financial affairs.

28. Birnbaum’s putative expert witness, Robert Graham, testified in

generalities that Yonata Berman’s options trading account was traded

excessively, and that it was “not suitable” for Yonata Berman. Graham

admitted that he himself was not an options trader, or an options trading

investment adviser. Graham’s proffered experience was as managing director of

major brokerage houses, wherein he was responsible for ensuring that the

required account establishment and maintenance documents had been received

and submitted. When asked whether he had reviewed the PTI account

suitability and Andalman’s trading activities and results in light of Berman’s

overall wealth, Graham admitted that he had not done so. Graham specifically

testified that evaluation of Berman’s wealth was not a task for which he was

engaged, suggesting that such evaluation or review was outside his mission or

marching orders.

29. When asked whether he had discussed Andalman’s trading and the PTI

trading account and the SOC with Yonata Berman herself, Robert Graham

testified that he had not done so. Graham had attempted to contact Berman

through Birnbaum’s attorney Stephany McLaughlin (“McLaughlin” - Eccleston’s

associate), in response to which McLaughlin discouraged Graham, and

represented to him in effect that it would not be a productive conversation.

There is no indication that Graham pressed the issue with McLaughlin, or


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otherwise insisted that he be allowed to speak with Berman. Needless to say,

there is no evidence as to whether and to what extent McLaughlin herself

actually communicated with Yonata Berman.

30. The documents introduced into evidence include Yonata Berman’s TD

Ameritrade account statements, Wells Fargo account statements, and Mesirow

Financial account statements. These account statements show that Yonata

Berman made relatively aggressive investments selections, including substantial

investments in penny stocks, over-the-counter stocks and Real Estate

Investment Trusts (“REITs”).

31. Wells Fargo account representative Cordes testified at the instance of

Respondents. Cordes appeared under subpoena, accompanied and advised by

able counsel. Cordes had only minimal recollection of his initial meeting with

Birnbaum and Yonata Berman in August 2017. Cordes stated that he did not

recall discussing litigation against either Andalman or PTI, nor did he recall

referring Birnbaum to Eccleston. Cordes testified unequivocally, however, that

he recalled Yonata Berman from the meeting, and that he did not observe

anything about Berman that indicated diminished mental capacity or

intellectual ability.

32. Birnbaum’s attorneys conducted at hearing in July 2019 a lengthy

symposium on FINRA Suitability rules and standards through PTI Officer

Daniel Haugh (“Haugh”), in the course of which they discovered that Haugh

regularly supervised Andalman’s handling of the Berman account at PTI,


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reviewed the trading confirmations and account statements, and reviewed

conversations between Andalman and Berman (Haugh’s work area was

immediately adjacent to Andalman’s). Haugh observed consistently that Yonata

Berman was an active, engaged Investor; based upon Berman’s wealth and

consistently articulated investment objectives, Haugh saw no Suitability issue

whatsoever affecting Berman.

33. Birnbaum’s attorneys attempted to steer the Suitability discussion away

from Yonata Berman’s sizable wealth, an “inconvenient” fact for which

Birnbaum and his attorneys were demonstrably unprepared to respond. No

expert witness suggested that Suitability could be analyzed properly without

considering Berman’s wealth.

34. Ann Grady (“Grady”), an options trading compliance officer with decades

of experience, testified as an expert witness on behalf of PTI. Grady explained

that a purported “Suitability” analysis under FINRA Rule 2111 and any other

rule or regulation must include consideration of the investor’s wealth, and that

Yonata Berman’s wealth was so substantial during the time period from 2012

through 2017 that her investment traded by Andalman in the PTI account could

not be deemed unsuitable if it were managed consistently with her articulated

investment objectives. Grady testified that the risks posed by maintaining that

investment were consistent with maintaining a balanced wealth and investment

portfolio.

35. Grady also testified that Birnbaum’s purported “expert” witnesses, who


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were not familiar with options trading, had miscalculated Berman’s turnover

ratio of her PTI account in finding that it exceeded 10%, because Birnbaum’s

experts miscalculated the turnover ratio by including in the purchase cost of

stocks bought and sold by an options exercise and assignment. These exercises

and assignments were automatically effected by the Options Clearing

Corporation, did not involve any action by Andalman or PTI, and were the

normal closing of an options spread that was “in the money” at expiration.

36. Grady had calculated the correct turnover ratio of the PTI account as

4.5%, which is less than half of the purported turnover ratio asserted by

Birnbaum’s “experts.’’

37. Grady also testified that the correspondences sent by Andalman to

Yonata Berman were not “communications” under the PTI Uniform Standard

Procedures (“USP”), and thus were not required to be approved by PTI. It is not

known whether Yonata Berman actually read, much less relied upon, these

correspondences.

38. No trade or series of trades deviated from Yonata Berman’s investment

objective and resulted in diminution of the PTI account value. Birnbaum claims

that the loss of value of the PTI account was the sum of approximately

$100,000.00 to $140,000.00. Birnbaum does not demonstrate that the margin

interest accrued was incompatible with Berman’s objectives, or was concealed

from, or otherwise not authorized by, Yonata Berman.


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39. The Arbitrators’ Award of February 27, 2020 awarded damages to

Birnbaum of $42,500.00 on his claim against Investment Advisor David

Andalman, who had procured the Yonata Berman trading account, secured from

her discretion in making trades on her behalf, and originated from Yonata

Berman’s pre-2013 relationship with David Andalman, and from her desire to

invest money with him to trade options. The Award provided an Award of

damages of $21,500.00 to David Andalman against Birnbaum, on Andalman’s

Statement of Counterclaim. Finally, the Award assessed damages in favor of

Birnbaum and against PTI Securities & Futures, L.P., the Broker-Dealer and

Plaintiff in this Application to Vacate action, in the sum of $127,500.00, three

times as much as the Award against David Andalman, even though David

Andalman exclusively traded the Yonata Berman account, exclusively

communicated with Yonata Berman, and originated the relationship between

Yonata Berman and PTI upon Yonata Berman’s solicitation to David Andalman

to open the options trading account, whereupon David Andalman had opened

and brought the account to PTI.

40. There was no explanation for the Award within the decision. There

was no evidence introduced to justify any Award rendering PTI more responsible

than David Andalman, the Investment Advisor with twenty-eight years’

experience and an unblemished record attending his FINRA registration and the

party who was directly, immediately responsible for the trading activity in

Yonata Berman’s trading account.


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I. The Award was procured by corruption, fraud, or undue means(FAA

Section 10(a)(1)).

A. Claimant Failed to Prove that the Conduct or Representations of

Respondents Proximately Caused Loss to Investor Yonata Berman.

41. Elemental to any civil claim for damages is that the acts or omissions

of Respondent proximately caused damages to the Claimant.

"It is a fundamental principle applicable alike to breaches of contract and to

torts, that in order to found a right of action there must be a wrongful act done

and a loss resulting from that wrongful act; the wrongful act must be the act of

the defendant, and the injury suffered by the plaintiff must be the natural and

not merely a remote consequence of the defendant's act." (Town of Thornton v.

Winterhoff, 406 Ill. 113, 119, 92 N.E.2d 163 (1950).) …

‘[I]t is a well settled principle in regard to false representations, that fraud

without damage is neither sufficient to support an action at law, nor a ground

for relief in equity. Fraud and injury must concur to furnish a ground for

judicial action. In an action for fraudulent representations, the plaintiff must

not only show, that the representations were made, and that they were false

and fraudulent, but he must also show affirmatively that he has been injured

thereby. [Citations.]’ Jones v. Foster, 175 Ill. 459, 469, 51 N.E. 862 (1898).

As has been more recently noted by our appellate court in an action for an

intentional tort, fraud: ‘damages * * * must be a proximate, and not remote, consequence of the fraud.’ (Brown v. Broadway Perryville Lumber Co. (1987),

156 Ill.App.3d 16, 25, 108 Ill. Dec. 593, 508 N.E.2d 1170; see also W. Prosser,

Torts § 110, at 732 (4th ed. 1971) ("the damage upon which a deceit action rests

must have been `proximately caused' by the misrepresentation").) It has also

been noted by our appellate court that proximate cause must be shown in actions for intentional misrepresentations, even where fiduciaries are involved.

See Key v. Jewel Cos. (1988), 176 Ill.App.3d 91, 98, 125 Ill. Dec. 652, 530 N.E.2d

1061 (suit alleging intentional breaches of fiduciary duty and violation of the

Consumer Fraud Act); Vermeil v. Jefferson Trust & Savings Bank (1988), 176

Ill.App.3d 556, 563, 126 Ill. Dec. 603, 532 N.E.2d 288; Martin v. Allstate Insurance Co. (1981), 92 Ill.App.3d 829, 835, 48 Ill. Dec. 316, 416 N.E.2d 347

(suit against insurance agent for breaching his duty to plaintiff and fraud).

Martin v. Heinold Commodities, 163 Ill. 2d 33, 643 N.E.2d 734, 746-7, 205 Ill.

Dec. 443 (1994)(Emphasis added).


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42. Birnbaum’s Negligence Count of the SOC fails for Birnbaum’s

omission to demonstrate that the conduct, acts or omissions of Andalman, or of

PTI) were the proximate cause of the diminution in value of the Yonata Berman

account, rather than adverse market action affecting the trades placed on the

account. Id. As to purported Failure to Supervise, PTI can only be found liable

at most to the extent of David Andalman’s Negligence. Nothing in Andalman’s

unblemished, lengthy tenure as a securities trader and investment advisor, and

nothing in the evidence offered at the Arbitration Hearing, would justify

imputing a duty to PTI to exercise heightened supervision or vigilance, where

David Andalman himself had the prior and ongoing relationship with Yonata

Berman.

43. Birnbaum’s evidence offered to prove the Fraud and Breach of

Fiduciary claims is woefully deficient. The Illinois Supreme Court has stated:

“[I]n order to establish a claim for common law fraud in Illinois, a plaintiff

must allege and prove: (1) a false statement of material fact; (2) the party

making the statement knew or believed it to be untrue; (3) the party to whom

the statement was made had a right to rely on the statement; (4) the party to

whom the statement was made did rely on the statement; (5) the statement

was made for the purpose of inducing the other party to act; and (6) the reliance

by the person to whom the statement was made led to that person's injury.”

Martin v. Heinold Commodities, 163 Ill. 2d 33, 643 N.E.2d 734, 205 Ill. Dec. 443

(1994), quoting Siegel v. Levy Organization Development Co., 153 Ill.2d 534,

542-43, 180 Ill.Dec. 300, 607 N.E.2d 194 (1992).

44. Birnbaum has failed to prove that (1) a false statement was made by

Andalman to Berman, and that (2) Berman relied on the false statement,

justifiably or to her detriment. Needless to say, Birnbaum has failed to


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demonstrate that justifiable reliance by Yonata Berman on any false statement

or misrepresentation made to her by Andalman was the proximate cause of

injury to Yonata Berman, and specifically of the diminution in value of the PTI

account. Absent testimony from Yonata Berman, it is not known whether she

relied upon any statements of Andalman at all. All that is known is that she

received monthly statements of the account activity, and never objected to the

trades or the results.

45. Notably, there is truly no basis whatsoever for imputing direct liability

for Fraud or for Breach of Fiduciary Duty to PTI. Nothing in the evidence

would justify a determination that PTI knowingly or recklessly facilitated

David Andalman engaging in excessive trading or intentional, tortious conduct.

Any liability for those claims can at most be derivative of David Andalman’s

direct liability for Fraud or for Breach of Fiduciary Duty.

46. Yonata Berman’s acquiescence in Andalman’s trading activity is

punctuated by Birnbaum’s own testimony: Birnbaum periodically discussed the

PTI account with Yonata Berman, and Ms. Berman consistently declared that

she liked Andalman, and wished to keep the account with him. Significantly,

Birnbaum testified that he himself contacted Andalman, on at least two

occasions, and introduced himself as the Attorney-In-Fact of Yonata Berman

under the 2012 Power of Attorney. Yet Birnbaum never produced a copy of the

Power of Attorney, never to Andalman, and never to PTI. Moreover, Birnbaum

never expressed any objection, either for himself or on Yonata Berman’s behalf,

to the trading activities, to the trading strategy, to the account performance or


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to the handling of the PTI account by Andalman or by PTI.

47. The Illinois Supreme Court in Martin v. Heinold Commodities

additionally stated:

“[L]oss causation ensures that defendants, even where an intentional tort is

committed, do not become insurers of plaintiffs who make unwise investments.

Without such a requirement, the law ‘would become an insurance plan for the cost of every security purchased in reliance upon a material misstatement or omission.’(Huddleston, 640 F.2d at 549.) This policy is especially strong here where plaintiffs voluntarily undertook known market risks and lost. In this

regard, loss causation respects the individual investor's market decision.”

Martin v. Heinold Commodities, 163 Ill 2d 33, 643 N.E.2d 734, 205 Ill. Dec. 443

(1994)(Emphasis added).

48. Birnbaum sought plainly to foist upon Andalman and PTI the

consequences of trades and trading activity which Yonata Berman requested and

approved, and which Birnbaum himself ratified. This is fundamentally at odds

with the law respecting individual investors’ rights to make market decisions,

and to engage in speculative trading in the financial markets.

49. The FINRA Arbitrators’ Award flouts that principle, and derogates from

the securities trading model which enable investors, including Yonata Berman,

to trade speculatively in financial markets. Because the Arbitrators’ Award

rewards Birnbaum’s attempts to reverse out of investments made by Yonata

Berman with David Andalman, where Birnbaum took no steps to stop or reverse

the trades, or to alert David Andalman (or PTI) that the trades were

inappropriate or unsuitable. As such the Award violates the law, on numerous

levels. The Arbitration Award is indisputably the product of fraud, corruption or

undue means, requiring vacatur of the Arbitration Award under 9 USC Section


20

10(a)(1).

B. The Illinois Securities Act of 1953 claim fails because Birnbaum failed

to prove that Yonata Berman was deceived or misled by Andalman, or by PTI.

50. Birnbaum urges a relaxed standard of proof for his claim under the

Illinois Securities Act of 1953, asserting that Andalman engaged in “ongoing

unsuitable management and churning of the account, ongoing failure to disclose

that the … investment strategy carried a higher risk than Ms. Berman was

willing to bear, and failure to disclose the significant margin interest cost to

Ms. Berman … constituted a fraud in violation of the Illinois Securities Act …”

(SOC, pages 6-7, para. 19).

51. With no testimony from Yonata Berman, it is impossible to determine

that Andalman’s investment strategy was inappropriate, or that Yonata Berman

was somehow unaware of the margin interest that would be incurred in the

account.

52. Even more groundless is the allegation that David Andalman’s

“investment strategy carried a higher risk than Ms. Berman was willing to

bear,” a truly preposterous assertion given the representations Yonata Berman

made as to her risk tolerance in the OCAA, and the absence in the evidence of

other indicia of Yonata Berman’s low risk tolerance (apart from Ms. Berman’s

substantial wealth, which counterindicates a low risk tolerance, and which

Birnbaum’s attorney Eccleston seemed to be unaware of).

53. Birnbaum has not identified any series of transactions that can be


21

characterized fairly as “churning” – in fact Birnbaum never objected to the

trading activities and margin interest or commissions occurred at all until after

the PTI account was consolidated and moved to Wells Fargo.

54. The Arbitrators’ Award was not based on any evidence of unsuitable

investing or of a purported investment strategy by David Andalman with a

higher risk tolerance than Yonata Berman was willing to bear. Taken together

with Birnbaum’s complete inertia as to the investments of Yonata Berman as to

David Andalman’s trades and investment strategies, the totality of the evidence

fails to provide a lawful, cognizable basis for finding a violation of the Illinois

Securities Act of 1953. There was a complete lack of evidence establishing fraud,

deceit or misrepresentation, or any indication that David Andalman’s trades or

investment strategies were inappropriate or unsuitable. As such the Award

violates the law as to the Illinois Securities Act of 1953 claim, on numerous

levels. The Arbitration Award is indisputably the product of fraud, corruption or

undue means, requiring vacatur of the Arbitration Award under 9 USC Section

10(a)(1).

C. Birnbaum has provided no evidence that Yonata Berman was exploited,

deceived or intimidated, or that David Andalman or PTI used such tactics to take

control of Yonata Berman’s investment cash or interests in property, and thus

cannot recover under the Illinois Elder Abuse and Neglect Act.

55. As with the other counts of the SOC, Birnbaum recites the

rule, in this case the Illinois Elder Abuse and Neglect Act (“Elder Abuse Act”),

and offers no well-pleaded averments of facts or evidence at Arbitration Hearing


22

to substantiate the claim. (Paras. 20 and 21 of the SOC cover this ineffectively

pleaded claim). None of the conduct admitted into evidence at Arbitration

Hearing or intimated by Birnbaum or any other witness suggests that Yonata

Berman was in any way deceived by David Andalman, that Andalman

“unnecessarily charged excessive commissions and margin interest,” or that

Andalman or PTI took control of Berman’s resources by “deception and

intimidation.” (See SOC, page 7, paras. 20-21).

56. The absence of testimony from Yonata Berman, and of any indication

from Birnbaum or any other witness, that Yonata Berman was deceived or

intimidated in some form is fatal to the Elder Abuse Act claim. This claim by

itself, by any responsible treatment of the evidence, required an Arbitration

Award in favor of Plaintiff PTI and David Andalman, Respondents to the FINRA

Arbitration.

57. There was a complete lack of evidence establishing any elements of the

Elder Abuse Act claim, and of any indication that David Andalman’s trades or

investment strategies, and PTI’s acts or omissions, amounted to deception or

intimidation. To the extent that it may have been based upon the Elder Abuse

Act claim, the Arbitration Award is indisputably the product of fraud, corruption

or undue means, requiring vacatur of the Arbitration Award under 9 USC Section

10(a)(1).


23

D. Claimant’s Breach of Fiduciary Duty Claim fails for lack of evidence of

any essential facts from which a dereliction of Respondents’ duties can be

inferred.

58. Claimant fails to establish any of the allegations of his Breach of

Fiduciary Duty claim. Without testimony from Yonata Berman, the Panel has no

evidence of her “deteriorating health,” or of a disparity in sophistication between

Yonata Berman and David Andalman. (SOC, pages 7-8, paras. 22-23). Even if

the Panel found a Fiduciary Duty owed by Andalman or PTI and Breach thereof,

there would be no way to show that such breach proximately caused loss of value

of the PTI account. (SOC, p. 8, ph. 24).

59. The breach of fiduciary duty revealed by the evidence in this case is

Birnbaum’s omission to convince Yonata Berman that somehow the PTI account

was not being invested appropriately, or that David Andalman’s investment

strategy and trading activities were unsuitable for her. Additionally, Birnbaum

abstained from even mentioning these issues allegedly affecting the PTI account

to David Andalman, or to anyone at PTI, for the entire period in which the PTI

account was open.

60. Even more problematic is Birnbaum’s unilateral engagement of

Eccleston’s law firm to prosecute this claim, charging fees on an hourly basis and

incurring some $250,000.00 in attorney’s fees and expenses, including some

$20,000.00 in purported expert witness fees to Robert Graham and Birnbaum’s

other so-called expert witness. These fees are presumably to be paid from Yonata

Berman’s funds, which will punish her financially beyond the effects of any

purported shortcomings of Andalman’s or PTI’s handling of the PTI account.


24

61. Birnbaum is obligated under the Power of Attorney to “act in good faith

for the best interest of the principal [Yonata Berman], using due care, competence

and diligence.” (SOC, Ex. A, page 8 “Notice to Agent” para. (2)). No fiduciary

acting in good faith would engage a lawyer on a non-contingent basis to pursue a

claim for $140,000.00, where the attorney’s fees payable by the principal or

claimant would equal or exceed that sum. Yet the attorney’s fees and expert

witness fees payable by Birnbaum (with Yonata Berman’s resources)

substantially exceeded the $140,000.00 sum.

62. Birnbaum has utterly failed to establish any facts in support of a

claim. The evidence indicates that Birnbaum initiated this claim, more

probably than not, to forestall scrutiny of his own dereliction of his fiduciary

duties to Yonata Berman.

63. There was a complete lack of evidence establishing any elements of

Birnbaum’s Breach of Fiduciary Duty claim, and of any indication that David

Andalman’s trades or investment strategies, and PTI’s acts or omissions, support

such a claim. To the extent that the Award may have been based upon the Breach

of Fiduciary Duty claim, the Arbitration Award is indisputably the product of

fraud, corruption or undue means, requiring vacatur of the Arbitration Award

under 9 USC Section 10(a)(1).

.

E. Birnbaum’s claims and the excessive Award against Plaintiff PTI fail for

lack of competent evidence to support them.

64. Birnbaum’s claims for Respondeat Superior and Negligent Supervision


25

fail as to PTI, as Birnbaum never established liability or culpable conduct of

David Andalman. The claims against PTI were entirely derivative of the claims

against David Andalman, the investment advisor who initiated the relationship

with Yonata Berman and introduced her to PTI, and who abidingly

communicated with Yonata Berman and managed trading of her account.

65. Nothing in the evidence suggested that David Andalman required

excessive supervision, or that his trading expertise was somehow deficient so as

to prompt inquiry by PTI as to whether Andalman required training or intensive

supervision.

66. The Panel’s Award against PTI in a sum greater than the Award against

Andalman demonstrates positively a fundamental misunderstanding and

misapprehension by the Panel of derivative liability, under both Respondeat

Superior and Negligent Supervision claims.

67. Under Respondeat Superior, liability of the agent is imposed on the

principal on the theory that the agent employs or has engaged the principal to

effectuate the principal’s business or objectives. Leaving aside the imperfect

comparison between that scenario and that of an investment advisor and a

broker-dealer, there is no doubt that the derivate liability – the principal’s - can

at best be equal to but cannot exceed that of the errant or tortious agent, who is

directly responsible for the conduct resulting in damages, regardless of who his

principal is.

68. Similarly, under the Negligent Supervision theory the damages

attributable to the supervisor’s negligence in supervising the activities of the


26

tortfeasor are prefixed necessarily on the damages caused by the tortfeasor’s

activities or conduct. The agent thus “supervised” is Investment Advisor David

Andalman, who has had extensive experience and a lengthy career in securities

trading, and had no disciplinary events or issues on his FINRA record. There

simply was no basis for finding the purported acts or omissions of Plaintiff PTI

more grievous or culpable in causing the damages claimed by Birnbaum than the

acts and omissions of David Andalman, who was accused of excessive trading

causing loss.

69. There was a complete lack of evidence establishing any basis for

assessing damages against Plaintiff PTI for derivative liability, whether under

Respondeat Superior or under Negligent Supervision. The Award against

Plaintiff PTI is completely erroneous and improper as a matter of law and

fairness. Thus Arbitration Award against Plaintiff PTI is indisputably the

product of fraud, corruption or undue means.

70. Additionally, the threefold differential by which the Award against

Plaintiff PTI, allegedly the “negligent supervisor,” exceeds the $42,500.00 Award

against the putative tortfeasor supervisee David Andalman, completely lacks any

legal or logical basis in the evidence. There was a complete lack of evidence

establishing any basis for a differential award wherein Plaintiff PTI is found 75%

responsible for the purported losses even though Investment Advisor David

Andalman originated the trading relationship with Yonata Berman and was the

sole investment advisor who traded Ms. Berman’s account. The only reason why

the Panel may have struck upon that lopsided allocation of putative liability is


27

because Birnbaum’s lawyer requested a differential apportionment of liability,

3/1 against Plaintiff PTI, in Closing Argument. (Recall Birnbaum did not comply

with the Panel’s Order to submit a Post-Hearing Brief). Presumably, Birnbaum

deemed Plaintiff PTI’s ability to pay an Award to be stronger than David

Andalman’s – there was no justification in the evidence for a differential

apportionment against Plaintiff PTI. For David Andalman to be assessed a

comparatively tepid $42,500.00, one-third of the amount assessed against the

putatively Negligent Supervisor, Plaintiff PTI, demonstrates the Arbitration

Panel’s corruption, incompetence and mishandling of the Arbitration, and thus

demonstrates corruption, fraud or under means.

71. For these reasons, the Award assessing damages against Plaintiff PTI

for derivative liability, whether under Respondeat Superior or under Negligent

Supervision, is completely erroneous and wildly excessive. It is improper as a

matter of law and fairness. Thus Arbitration Award against Plaintiff PTI is

indisputably the product of fraud, corruption or undue means, requiring vacatur

of the Arbitration Award under 9 USC Section 10(a)(1).

F. Birnbaum’s remaining claims against Plaintiff PTI similarly fail for lack

of competent evidence to support them.

72. Birnbaum’s summary claims of Breach of Contract and Unjust

Enrichment fail as neither is supported by any evidence at all. (SOC, p. 11, paras.

33-34). No evidence was introduced at Arbitration Hearing to substantiate either

claim.


28

73. The Award assessing damages against Plaintiff PTI (or Andalman), to

the extent based upon Birnbaum’s claims of Breach of Contract and Unjust

Enrichment, is completely erroneous and unjustified, and is improper as a

matter of law and fairness. Thus Arbitration Award against Plaintiff PTI is

indisputably the product of fraud, corruption or undue means, requiring vacatur


II. Evident Partiality or Corruption in the Arbitrators. (FAA Section 10(a)(2)).

74 – 146. Plaintiff PTI repeats the averments of Paragraphs 1-73 inclusive

as though fully set forth.

147. The Panel awarded to David Andalman damages against

Birnbaum on the Andalman Counterclaim. Generally speaking, a finding in

favor of the agent discharges liability of the principal. The finding in favor of

Andalman against Birnbaum on the Statement of Counterclaim should have

resulted in a finding in favor of PTI against Birnbaum on the Statement of Claim.

148. That the Panel would assess against co-Respondent David

Andalman, the person accused by Birnbaum of engaging in “Excessive Trading,”

an amount of purported damages which is only one-third of the amount assessed

against Plaintiff PTI, at the suggestion of Birnbaum’s lawyer and without any

basis in the evidence, demonstrates evident partiality against Plaintiff PTI, and

in favor of Birnbaum.

149. For these reasons, the Award against Plaintiff PTI was the

product of evident partiality and corruption of the Arbitrators, requiring vacatur


29


III. Misbehavior By Which The Rights Of Any Party Have Been Prejudiced.

(FAA Section 10(a)(3)).

150 – 222. Plaintiff PTI repeats the averments of Paragraphs 1-73 inclusive

as though fully set forth.

223. Birnbaum failed to prove any evidence of wrongdoing or culpable

conduct against Plaintiff PTI in the Arbitration Hearing, and failed to justify his

own dissipation of Yonata Berman’s assets, in concert with Eccleston.

224. It is evident that the Arbitrators ignored the evidence and

assessed an excessive and unjustified amount of damages against Plaintiff PTI,

while imposing only a fraction thereof in damages against Andalman. Moreover,

the Panel awarded Andalman damages on his Statement of Counterclaim against

Birnbaum. It is evident that the Panel sought to drain Plaintiff PTI’s assets for

the benefit of Birnbaum, and to spare Andalman the consequences of his

“excessive trading” as urged by Birnbaum.

225. For these reasons, the Award against Plaintiff PTI was the

product of misbehavior by which the rights of Plaintiff PTI have been prejudiced,

requiring vacatur of the Arbitration Award under 9 USC Section 10(a)(3).

IV. The Arbitrators Exceeded Their Powers, or So Imperfectly Executed Them

That a Mutual, Final, and Definite Award Upon The Subject Matter

Submitted Was Not Made. (FAA Section 10(a)(4)).

226 – 301. Plaintiff PTI repeats the averments of Paragraphs 1-73


30

inclusive, and 223 through 225 inclusive, as though fully set forth.

302. The contortions of the awards in favor of Birnbaum and against

Birnbaum, and in favor of Andalman but also against Andalman, and the

oversized Award against the Broker-Dealer Plaintiff PTI, speak to the

Arbitrators’ efforts to prejudice and damage Plaintiff PTI while sparing

Birnbaum the consequences of his negligence and sparing David Andalman the

consequences of his alleged “excessive trading.”

303. The Arbitrators clearly exceeded their powers, and so dismally

failed to exercise them properly, that a definite award on the subject matter of

Birnbaum’s Statement of Claim, and on Plaintiff PTI’s defense, was not made.

304. For these reasons, the Award against Plaintiff PTI was

irremediably tainted by the Arbitrators exceeding their powers, and by the

Arbitrators executing their powers so imperfectly that a mutual, final and

definite award on the subject matter of Birnbaum’s Statement of Claim, and

Plaintiff PTI’s defenses thereto, was not made. Vacatur of the Arbitration Award

is thus required under 9 USC Section 10(a)(4).

--

WHEREFORE, Plaintiff, PTI SECURITIES & FUTURES, L.P, respectfully

requests that this Court enter a judgment and decree (1) vacating the Arbitration

Award entered February 27, 2020, by the Financial Industry Regulatory Authority,


31

FINRA Dispute Resolution, in Case No. 18-00990 of FINRA, (2) directing re-

arbitration of the Statement of Claim filed in that case by a completely different

Panel of Public Arbitrators, and (3) granting further appropriate relief in its favor

against Defendant, MARTIN BIRNBAUM, Power of attorney for YONATA

BERMAN, as the Court deems just and equitable.

In the alternative, Plaintiff, PTI SECURITIES & FUTURES, L.P,

respectfully requests that this Court enter a judgment and decree (1) vacating the

Arbitration Award entered February 27, 2020, by the Financial Industry Regulatory

Authority, FINRA Dispute Resolution, in Case No. 18-00990 of FINRA, and (2)

entering or directing entry of judgment outright on the merits of the claims and

issues comprising the Statement of Claim filed in that case in its favor of Plaintiff

and against Defendant, MARTIN BIRNBAUM, Power of attorney for YONATA

BERMAN, with court costs and reasonable litigation expenses and attorney’s fees

awarded to Plaintiff and taxed against Defendant, MARTIN BIRNBAUM, Power of

attorney for YONATA BERMAN.

PTI SECURITIES & FUTURES, L.P,

.,


32

By:___/S/_ Michael J. Greco _________

Michael J. Greco

One of the Attorneys for Plaintiff

Gregg M. Rzepczynski

Gregg M. Rzepczynski & Associates, Ltd.

175 West Jackson #240

Chicago, Illinois 60604

TEL. (312)939-8028

FAX (312) 922-1794

Email: [email protected]

Atty. No: 27036

Michael J. Greco Attorney at Law

175 W. Jackson Blvd., Suite #240

Chicago, Illinois 60604

(312) 222-0599

Fax (312) 922-1794

Email: [email protected]

Atty. 6201254


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