Fidelity Brokerage Services and its affiliate, National Financial Services, have been ordered to pay nearly $4 million to an options trader who claimed the firms improperly liquidated his account, resulting in substantial losses, following the market downturn amid the pandemic in March 2020.
A Financial Industry Regulatory Authority arbitration panel awarded Rotem Perelmuter of San Francisco, Calif., $3,976,048.00 in compensatory damages after nine days of testimony, according to the award document.
Fidelity did not respond to a request for comment by press time.
Perelmuter had sought $8.5 million in compensatory damages and other unspecified amounts of damages including punitive. The claim also requested maximum prejudgment interest and filing and attorney’s fees.
The three-member panel denied all requests for damages and attorneys’ fees. Each side was held liable for $13,500 in hearing sessions fees.
One of Perelmuter’s attorneys, Michael P. Bradley of Murphy, Pearson, Bradley & Feeney, P.C., in San Francisco, said it was a hard-fought case. “As you can imagine, Fidelity just doesn’t cave in,” he said.
Bradley said Perelmuter is “quite pleased” with the outcome. He explained that Perelmuter had a margin account with Fidelity together with a portfolio margin supplement granting him more leverage and lower exposure to margin calls than a standard or strategy-based margin account. “Those margin accounts basically say, and this is not just Fidelity but industrywide, that the bank can liquidate the accounts whenever it wants for whatever reason it wants with or without knowledge. So, it was a challenge but we’re grateful for the award,” he said.
Fidelity’s liquidation of Perelmuter’s options resulted in losses of about $2.33 million on March 13, 2020, Bradley said. He noted that the additional amounts awarded by the panel were not explained “and we don’t and can’t know how they were calculated since Fidelity objected to a request for a ‘reasoned award,’” he said, adding that his understanding from Fidelity’s counsel is that the firm intends to promptly pay the award.
Perelmuter claimed Fidelity and National Financial Services engaged in a series of fraud including intentional misrepresentation, negligent misrepresentation, concealment and false promise; breach of written contract (improper notice); breach of written contract (improper margin); breach of implied covenant of good faith and fair dealing; negligence; and violation of Business and Professions Code, Section 17200, also known as California's Unfair Competition Law.
Those “causes of action,” Perelmuter asserted, relate to various securities, including Alphabet Inc., Applied Materials, Bank of America Corp., Caterpillar Inc., Dropbox Inc., Facebook Inc., FitBit Inc., Goldman Sachs Group, Microsoft Corp., Morgan Stanley, Netflix, Peloton, Oracle, Pinterest Inc., Starbucks, Tesla Inc., Texas Instruments, 3M Company, Uber Technologies, and Yeti Holdings Inc.
Bradley said after the improper liquidation, Perelmuter transferred his portfolio margin account to Schwab. He had been with Fidelity for decades, Bradley noted.
Perelmuter founded Imagine Capital Management, a hedge fund in San Francisco in 2003, where according to his LinkedIn profile, he serves as portfolio manager. Bradley was unsure if Perelmuter was still active with the business.