With $81K Arbitration Award, Investor Rights Clinic Gives Hope Back to Low-Income Investor


“Before I contacted the Investor Rights Clinic, I will admit I didn't have much hope,” said Kathy Piniewski who in mid-2008, on the verge of the worst financial crisis since the Great Depression, was facing a crisis of her own. The then 52-year-old woman had recently lost her husband of 28 years to cancer and was laid off from her job at a purchasing department a few months later.

Alone and with slim prospects for landing a new job in a deepening recession, Piniewski sought help from a financial adviser to help her make her modest savings last. She explained to the adviser that she and her late husband, a former warehouseman, were life-long “savers,” setting aside any extra money in their savings account. Not having prior investment experience, Piniewski’s instructions were simple: she hoped to supplement her unemployment income and protect her nest egg since she did not know if she could find another job. She also told him, “don’t put me into anything I can’t get out of.”

The adviser, who is part of a network of independent investment advisers associated with Royal Alliance, promised to “take care of her” and to manage her investments with her best interests in mind. Instead, he placed $50,000 of her savings into an investment not easily converted to cash called a non-traded real estate investment trust. The REIT paid the firm an 8.5% commission. In so doing, the adviser inaccurately reported Piniewski’s income, net worth, and other information on the compulsory documentation. Actually, Piniewski did not qualify to purchase the REIT. Specifically, the REIT required investors to have a liquid net worth of $250,000 or income of $70,000, and Piniewski had neither.

Piniewski was unable to sell her REIT shares for nearly six years and had lost over 30% of her original investment.

Late last year, Piniewski sought legal assistance with her claim against Royal Alliance for the conduct of its affiliated financial adviser. She contacted Miami Law’s Investor Rights Clinic, which represents low-income investors who, like Piniewski, have claims too small to find legal representation. Under the supervision of the Clinic’s attorneys, a team of second- and third-year law students reviewed Piniewski’s case and filed an arbitration claim on her behalf before the Financial Industry Regulatory Authority, which operates the largest securities arbitration forum in the U.S.

The students worked on all aspects of the arbitration case, and submitted a legal brief supported by affidavits and other documents showing that Piniewski never qualified for the REIT. They were also able to show, importantly, that there were nearly two hundred publicly traded REIT options that would have nearly doubled Piniewski’s investment.

“I asked multiple people for advice about my dilemma and was told by all of them my case was not worth it. After my first phone conversation with Teresa [the director], I knew better. She and the student legal team saw the big picture when no one else could. Everyone put me at ease, and they took the fear out of the unknown,” said Piniewski

On December 3, 2015, the FINRA arbitrator issued an award granting Piniewski $36,788.91 in compensatory damages, plus interest in the amount of $6,265.64, and punitive damages of $4,086.00 (representing the commissions and fees charged by Royal Alliance), and attorneys’ fees in the amount of $33,500, for a total award of $80,640.55.

Though the Clinic provided free legal representation to Piniewski, the Clinic submitted legal authority supporting an attorneys’ fee award where, as here, the Clinic has limited resources. If an award of attorneys’ fees is otherwise appropriate, a defendant should not be given a pass regardless if the claimant was given free representation.

Royal Alliance must pay the award within 30 days unless they move to vacate the award; the ruling is not subject to appeal.

“Working in the Investor Rights Clinic has been both an unforgettable and rewarding experience,” said Ali Levenson, JD ’15, who was on the student team. “I am honored to have worked closely with Teresa, Scott, and Bob and that as a team, we were able to achieve a favorable award for Mrs. Piniewski. This case is one of many examples of the incredible work taking place at the Investor Rights Clinic and I’m humbled to have been a part of it.”

Piniewski’s case is one of eight cases the Clinic has handled involving the sale of non-liquid REITs to inexperienced small retail investors. Non-traded REITs are illiquid investments because they are not listed on an exchange or publicly traded. Brokers push the investments because non-traded REITs pay lucrative commissions.

“I am thrilled that our client, Piniewski, will finally be able to recover her losses from this disastrous investment,” said the Clinic’s Director, Teresa J. Verges. “We hope that the award also sends a clear message to the industry that it should not peddle such risky, high-cost investments to unsophisticated investors.”

A recent study of 81 non-traded REITs offered to retail investors over the last 25 years found that investors are at least $45 billion worse off as a result of investing in those REITs, in part because they paid up to $15 billion collectively in up-front fees. In many cases, retail investors are left holding shares that will only sell for pennies on the dollar at auction houses.

“The clinic team’s hard work and diligence in presenting the case methodically and logically resulted in a monumental win in our favor,” said Piniewski. “Sometimes the right thing only happens when you have experts in your corner.”

Since its launch in January 2012, the Clinic has handled more than 266 inquiries from investors with potential claims; opened 59 matters; filed 15 arbitration cases and recovered over $740,000 for its clients. Clinic student interns have also conducted financial outreach events throughout South Florida, drafted comment letters on FINRA rule proposals, and drafted articles regarding the latest financial news impacting investors and securities arbitration, which are posted on the Clinic’s blog.