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Former clients of Tatro seek arbitration OK

Rochester Business Journal
August 24, 2012

Former clients of financial adviser William Tatro IV are asking the U.S. Bankruptcy Court to let them pursue complaints against Tatro in an arbitration case with the Financial Industry Regulatory Authority Inc.

An Aug. 30 hearing is slated in Bankruptcy Court in Rochester on a motion filed by a group of ex-clients whose FINRA arbitrations against Tatro were slated to start this month. They want the court to lift the automatic stay imposed on legal proceedings against bankruptcy filers and let the arbitration proceed.

Formed in a 2007 merger of the New York Stock Exchange's and Nasdaq's enforcement arms, FINRA is a private-sector watchdog set up by the securities industry. Its arbitration panels can and do mete out hefty fines but usually let accused parties settle without admitting to wrongdoing.

Tatro's bankruptcy lawyer has filed papers opposing the lift-stay request.

After initially asking for the stay to be kept in effect, Tatro's San Diego-based former employer and co-defendant in the FINRA arbitration, First Allied Securities Inc., asked for the stay to be lifted a week later.

The San Diego firm's attorney, James Thoman of Hodgson Russ LLP in Buffalo, did not return a reporter's call.

Securities lawyer Robert Pearl of Robert Pearl P.A. represents the dozen or so former Tatro clients asking the Bankruptcy Court to let the arbitrations proceed. He also represents nearly 100 more former Tatro clients pressing yet-to-be-scheduled FINRA complaints. Pearl has asked the Bankruptcy Court to let those arbitrations be heard as well.

He will refrain from commenting on the Tatro bankruptcy until the court decides whether to stay the arbitrations or let them proceed, Pearl said last week.

Tatro filed a Chapter 7 petition on July 7, listing assets of $554,000 against debts of $2.1 million. Once creditors start filing claims, his debts could climb considerably higher.

Tatro's Wayne County residence and Taranwould, an adjacent 39-acre golf course, account for $544,000 of his stated assets. Despite liens of more than $800,000 against those properties, Tatro states in the Chapter 7 petition that he intends to hang on to both.

Tatro's bankruptcy filing of more than 600 pages lists some 1,000 unsecured creditors. Most appear to be the retired money manager's ex-clients. Tatro's filing lists the debts owed to most unsecured creditors as $1, an amount often used in legal papers as a placeholder for undetermined sums.

In a previous interview, Pearl estimated that the roughly 100 Tatro ex-clients he represents collectively lost at least $10 million in Tatro-guided investments and could be out as much as $100 million. Because of Tatro's apparent lacks of assets, Pearl said, he hopes to collect awards from First Allied in the FINRA proceedings.

"(Tatro's) bankruptcy should not strip (Tatro's) creditors of their rights to pursue First Allied," Pearl states in a Bankruptcy Court filing, asking the court to allow the current and all future groups of Tatro creditors with FINRA proceedings scheduled to proceed with the arbitrations.

Awards granted to Pearl's clients in FINRA proceedings could exhaust an insurance policy indemnifying First Allied and Tatro against client claims, First Allied attorney Thoman states in a court filing.

The allegations Pearl makes against Tatro in the FINRA complaint include fraud, breach of fiduciary duty and unauthorized trading of client funds.

Employing a one-size-fits-all formula that took no account of individual clients' circumstances, Tatro made frequent trades in risky products, churning clients' accounts to maximize his commissions, the filing alleges. While it yielded big commissions for Tatro and hefty profits for First Allied, the formula lost money for clients and tied up too much of their life savings in illiquid investments. As Tatro's employer, First Allied, which should have paid more attention to Tatro's alleged misconduct, is equally liable, Pearl alleges in the FINRA complaint.

Maureen Kilkenny, First Allied senior vice president of corporate communications, previously supplied the following statement, which she attributed to an unnamed First Allied senior official:

"Mr. Tatro has not been associated with First Allied since September 9, 2010, and we are aware of his bankruptcy filing. We're also aware of attorney Pearl's efforts, we expect to resolve the client disputes in the agreed-upon dispute resolution forum, and we won't comment beyond that on pending litigation."

Tatro's attorney, Jack Wieder, a Rochester bankruptcy lawyer with Damon & Morey LLP, declined comment.

In court papers, Wieder complains that Pearl is using the list of unsecured creditors submitted with Tatro's bankruptcy petition to prospect for new litigants to go after Tatro in FINRA arbitrations. He maintains that the automatic stay on FINRA arbitrations should stand.

"Rushing to liquidate claims against the debtor's estate serves no purpose at this time and may never serve any such purpose," Wieder states in the filing.

Listed as assets among items of personal property in Tatro's bankruptcy filing, meanwhile, are "potential claims and counterclaims against various and numerous arbitration claimants and/or their counsel (for) breach of arbitration rules and confidentiality, libel, slander and abuse of process."

The value of such claims, the filing states, is unknown.

wastor@rbj.net / 585-546-8303

8/24/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

service@rbj.net.


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