Case Study

Read: Financial Fraud Case Pits Arbitration Versus Class Action

• The total length for all four answers should be greater than 800 words but no more than 1200 words

Financial Fraud Case Pits Arbitration Versus Class Action

Mr Groetsch has an issue with his stockbroker from Securities America. Despite Mr Groetsch's diagnosis of Mzheimer's disease and his family's formal request for Securities America to not do any business with him, Securities America broker Ron Carazo sold Groetsch a Medical Capital Holdings bond worth $500,000. Groetsch's health issues aside, the sale was made despite internal memos at Securities America questioning the legitimacy of Medical Capital. These concerns were disseminated to brokers across the company. yet Securities America continued to sell these bonds for years. Medical Capital was eventually exposed as a fraud, and now Groetsch is trying to recoup his losses. Does this seem straightforward? It's not.

Groetsch is pursuing an arbitration claim, which is often the preferred route for investors. Arbitration can be shortening cheaper, less complex, and profitable. But Groetsch's con filet is compounded by the that that numerous other defrauded clients are seeking remedies via litigation in the form of class action lawsuits. For example, authorities Montana and Massachusetts have brought separate class action suits against Securities Amerces, claiming that the firm described the investments as conservative, even though an internal committee raised red flags about the risks. This scenario pits arbitration versus litigation. Many people may not see a problem here-all claims will eventually be settled and the plaintiffs paid. Although logical, this may not happen. A judge has put the brakes on Groetsch's arbitration due to concerns that the awards he may be granted will deplete the funds available for pending class action lawsuit More specifically, the fear is that enough funds will not be left to pay the many, many plaintiffs in the class action suits. The class action attorneys argue that they may be able to collect 10 cents on the dolor of funds lost by the defrauded investors they represent.

What Should the Judge Do?

1. Let the arbitration proceed. Mr Groetsch has his right to be compensated for his losses. If nothing is left for the others, then that is unfortunate but irrelevant. Explain your reasoning.

2. Delay the arbitration and wait for the outcome of the class action suits. Once settled, then allow the arbitration to proceed to its end. Explain your reasoning.

3. Suggest to, although you cannot force, Mr Groetsch t drop his arbitration and fold him into one of the class action suits (if possible). Explain your reasoning.

4. Create and explain other alternatives.