FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
PUERTO RICO Hon. Bruce J. McGiverin, Magistrate Judge
Vilaŕo Nelms, with whom Vilaŕo Law Offices was on
brief, for appellant.
Vélez-Santiago and Néstor M.
Méndez-Gómez, with whom José A.
Alvarado-Vázquez and Pietrantoni Mendez & Alvarez
LLC were on brief, for appellees.
Howard, Chief Judge, Thompson and Kayatta, Circuit Judges.
THOMPSON, CIRCUIT JUDGE.
("Álvarez"), a building contractor from
Carolina, Puerto Rico, claims that his securities broker, in
collusion with the investment firm and affiliated bank,
pilfered over $400, 000 from his investment account, and then
covered up the theft. His claims are brought under the
Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. §§ 1962, 1964. The
case reaches us on appeal after the district court dismissed
all of Álvarez's claims against all defendants, on
their Fed.R.Civ.P. 12 motion.
story begins way back in 1989 when Hurricane Hugo ravaged the
island of Puerto Rico. Responding to the destruction, the Federal
Emergency Management Agency hired Álvarez to help in
the rebuilding effort. Within a year, he had earned over $1
million, which he used to purchase a certificate of deposit
from appellee Banco Popular of Puerto Rico, Inc. ("Banco
Popular"). Several years later, thinking ahead to his
retirement,  Álvarez approached appellee
Alexander Garcia, a securities broker at Banco Popular's
affiliate Popular Securities, Inc. ("Popular
Securities"). Álvarez had two investment
objectives: he wanted to get a modest monthly income stream;
and he wanted to retire in ten years' time, when he
turned 65, and begin to draw down on the balance. Sadly
things did not go as Álvarez planned -- a third of his
money disappeared without a trace, allegedly embezzled by his
Álvarez discovered that a chunk of his money was
gone, he began a series of inquiries, of which more will be
detailed hereafter. Today, with the investigations complete
and the benefit of hindsight, a devious and deceitful scheme
seems to have emerged. Given that this is a motion to
dismiss, unless otherwise noted, we present the facts as set
forth in Álvarez's verified complaint.
1998, on December 17, Álvarez met with Garcia at
Popular Securities and opened two investment accounts, with
an initial investment of $875, 000. Álvarez discussed
his retirement plans with Garcia, instructing Garcia to
select conservative securities which would safeguard his nest
egg and allow for a modest monthly income stream. On February
11, 1999, Álvarez met with Garcia again and deposited
an additional $125, 000, bringing his total investment to $1
second meeting, Garcia instructed Álvarez to close his
bank account at the Rio Piedras branch of Banco Popular, and
to open a new account at the Barbosa branch. Suspecting
nothing nefarious, Álvarez complied. Over the next
several months, between April 1999 and January 2000, Garcia
made four fraudulent transfers from Álvarez's
investment accounts to the closed bank account at the Rio
Piedras branch, without Álvarez's knowledge or
consent. These four transfers totaled $419,
eighth-grade education, no investment background, and no
English language skills, Álvarez had trouble making
heads or tails of his monthly brokerage account statements;
however, he was concerned in the first year after investing
when he noticed that the total value had gone down. When
questioned about the reason for the dip, Garcia reassured
him, explaining that market fluctuations would cause some ups
and downs in the total value, but that the full $1 million
would be there when Álvarez retired in 2009.
Álvarez trusted Garcia and believed his explanation.
And, in spite of the account statement
irregularities, Álvarez was in fact
receiving a monthly income, as he had requested.
early 2009, when Álvarez was ready to retire, he met
with Garcia and learned that there was only $600, 000 in his
investment accounts. Confronted once again about the fund
balance, Garcia shifted his explanation for the shortfall,
telling Álvarez that his initial investment had always
been only $600, 000. Concerned,
Álvarez requested an internal investigation. On
January 28, 2009, Popular Securities backed up Garcia's
story that Álvarez's initial investment was only
$600, 000. Alarmed by this explanation, Álvarez
requested a second investigation. This one took two years to
wrap up; concluding, on February 11, 2011, as before, that
Álvarez had only invested $600, 000. After that,
Álvarez wrote a letter of complaint to Banco
Popular's CEO but received no response.
next sought arbitration, pursuant to the agreement he'd
signed when he opened his accounts with Popular Securities.
We don't have a copy of the arbitration agreement, but
the district court quoted an excerpt, which it, in turn,
lifted from the judgment of the Puerto Rico commonwealth
court. No party has objected to the content of the text or
the district court's reliance on it. It states:
All controversies that may arise between the undersigned
[Álvarez] and you, as introducing or clearing broker,
your agents, or employees, concerning any transaction or the
construction, performance, or breach of this or any other
agreement between us, whether such transaction or agreement
was entered in prior, on, or subsequent to the date hereof,
shall be determined by arbitration . . . .
on January 19, 2012, Álvarez, through counsel, filed a
claim for arbitration with the Financial Industry Regulatory
Authority ("FINRA"). The claim covered the conduct
of Garcia and Popular Securities only, because claims against
Banco Popular "are not allowed to be filed at"
FINRA, according to Álvarez; and, at any rate, the
parties appear to concur that the arbitration agreement does
not cover Banco Popular. Instead, the nineteen-page claim
focuses almost exclusively on Garcia's unsuitable
investment decisions in choosing vehicles that were too risky
for Álvarez, given his age and investment goals. For
example, the claim states [verbatim]:
Respondents made an express guaranteed to Claimant of
preservation of capital and monthly income return through out
the life of the investment. Respondents knew or should have
known that by investing Claimant retirement funds in the
above mentioned were unsuitable recommendations, this in
light of Claimant's age, life stage, risk tolerance and
investment objectives which were conservative, preservation
of capital and to receive monthly income.
claim also alleges that Popular Securities failed to
sufficiently supervise Garcia's work. In one paragraph,
Álvarez references the prior internal investigation
"that erroneously concluded that the initial amount
invested was $600, 000, rather than $1, 075, 000, as of today
there are $475, 000 that still unaccounted for." [sic]
the course of the arbitration proceeding, FINRA requested
that Álvarez produce bank statements to demonstrate
the amount of his initial investment. He was unable to locate
these records. The record is silent as to what documents, if
any, FINRA requested from Popular Securities. Popular
Securities' initial response to Álvarez's
claim attributed his losses to "the impact of the
financial crises at the world level in the securities
markets." However, during the proceedings, Popular
Securities took the opportunity to switch its cover-story yet
again. Moving on from its and Garcia's fabrications
concerning the fluctuating vagaries of the stock market and
its subsequent assertions that Álvarez only deposited
$600, 000, at the arbitration hearing, Popular Securities
came up with a new version: producing three transfer
documents, ostensibly showing that Álvarez had
actually authorized three out of four of Garcia's
transfers to the (closed) Rio Piedras bank account. There was
no paperwork for the final transfer of $49, 632.43, which
took place on January 19, 2000; nor were there any bank
statements, cancelled checks, microfilm, computer records, or
other internal bank or brokerage firm documents reflecting
any of the transfers.
being shown these putative transfer notices, Álvarez
hired a qualified forensic document examiner to peruse the
authorizations. The examiner submitted his completed report
to FINRA on February 20, 2013, and testified before the panel
on March 12, 2013. He concluded that the authorizations were
prepared by Garcia in his own handwriting, and that
Álvarez's signatures at the bottom were actually
forgeries. These conclusions were not contested or
contradicted by Garcia or Popular Securities; in fact, Garcia
even admitted the handwriting was his.
these revelations, FINRA issued its award on April 1, 2013,
dismissing Álvarez's claims with prejudice for
failing to make out a prima facie case. In its
ruling, FINRA provided no explanation for its decision. At
the same time, the panel ordered Popular Securities to pay
all the arbitration fees ($16, 750), and disallowed its
request for $70, 000 in attorneys' fees.
Álvarez's filing fee of $1, 425.00 was refunded to
him. In addition, FINRA denied Popular Securities'
request to expunge the complaint from Garcia's record.
Álvarez explains in his complaint, "[d]ue to the
inconsistent and contradictory 'Award' issued by
FINRA," he determined to pursue his claims with the
Court of First Instance of the Commonwealth of Puerto Rico,
filing a complaint on May 15, 2013, which sought to vacate
the FINRA award. On May 8, 2014, on Popular Securities'
motion to dismiss, the court, in deference to FINRA,
confirmed the award. In accordance with Puerto Rico law
concerning arbitration awards,  the court performed an extremely
limited review. Álvarez then appealed the decision to
the Commonwealth's Appeals Court on August 11, 2014.
Again, FINRA's award was confirmed. The appeal was denied
again, on Álvarez's motion for reconsideration, on
December 8, 2014. Certiorari was denied by the
Supreme Court of Puerto Rico, which also issued denials of
two further reconsideration motions. Álvarez received
his final rejection from the Commonwealth courts on October
23, 2015, concluding this fruitless avenue of litigation.