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Sathianathan v. Smith Barney

February 27, 2006

RAGHAVAN SATHIANATHAN, PLAINTIFF,
v.
SMITH BARNEY, INC., MORGAN STANLEY, INC., BRESSLER, AMERY & ROSS LAW FIRM, EDWARD TURAN, JEFFREY FRIEDMAN, THOMAS MIERSWA, BRIAN AMERY, HUGO HILGENDORFF IV, GEORGE SULLIVAN, DAVID RESTAINO, JAMES YELLEN, STEPHEN DIMODICA, MORGAN STANLEY EMPLOYEE 'A,' SAMUEL "SKIP" KEESAL, ROBERT ERICSON AND MICHELE FRON, DEFENDANTS.



The opinion of the court was delivered by: Frank Maas, United States Magistrate Judge.

REPORT AND RECOMMENDATION TO THE HONORABLE DEBORAH A. BATTS

I. Introduction

In this action, pro se plaintiff Raghavan Sathianathan ("Sathianathan") alleges that his former employers, Smith Barney, Inc. ("Smith Barney") and Morgan Stanley, Inc. ("Morgan Stanley"), conspired with two outside law firms, Keesal, Young & Logan ("KYL"), and Bressler, Amery & Ross ("the Bressler firm"), and others, to deprive him of his rights on the basis of his race, in violation of 42 U.S.C. §§ 1981, 1985, and 1986, and to violate the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961, et seq. Sathianathan also has brought state law claims alleging legal malpractice, failure to supervise, and breach of the implied covenant of good faith and fair dealing.

The case arises out of Sathianathan's employment as a stockbroker at Smith Barney, where he handled two customer accounts that sustained significant losses. After Sathianathan left Smith Barney and joined Morgan Stanley, to which the customers eventually transferred their accounts, one of the customers filed a claim with the Pacific Stock Exchange ("Pacific Exchange") and sought arbitration. The two brokerage houses agreed to share the costs of retaining counsel to defend against that claim on behalf of Sathianathan. Eventually, both firms settled with the claimant. Sathianathan, however, declined to settle and brought his own cross-claim against Smith Barney which was dismissed. In a separate enforcement proceeding, the National Association of Securities Dealers ("NASD") concluded that Sathianathan's actions with respect to the two customer accounts were improper and barred him from further work in the securities industry.

Sathianathan alleges that if he had been assigned independent counsel, rather than a law firm beholden to his former employers, he would have been able to settle the customer complaints and avoid debarment by entering into a pact to lay the blame for the losses on Smith Barney, where it belonged. In a leviathan first amended complaint ("FAC") consisting of more than 1650 paragraphs spread over nearly 560 pages, Sathianathan lays out his theory that he was frustrated in his ability to do so by a cabal consisting of his former employers and their law firms.*fn1

The FAC, which names sixteen defendants ("Defendants"), is but the tip of the iceberg. To date, Sathianathan has filed at least eight actions or proceedings addressing matters occurring during the course of his employment as a stockbroker and subsequent debarment. Some sense of the zeal with which he has pursued these suits can be garnered from the docket in this action alone, in which nearly one hundred items have been docketed in connection with the parties' pre-answer motion practice.

At present, six motions are pending before the Court. By orders dated January 27 and March 18, 2005, Your Honor referred these motions to me for a report and recommendation. (See Docket Nos. 30, 52). After reviewing the record at considerable length, I recommend that the Defendants' motions to dismiss be granted, that Sathianathan's motion to amend the FAC be denied, that the Defendants' motions for vexatious litigant determination be granted in part, that Sathianathan's motion to add parties be denied, and that the Defendants' motion to strike the FAC be denied as moot.

II. Facts

The following factual recitation, unless otherwise noted, is based on the allegations of the FAC, the documents annexed thereto, and the documents and proceedings referenced therein.

A. Parties

Sathianathan is a New Jersey resident who began working at Smith Barney in August 1998. (See FAC ¶ A). Sathianathan worked at Smith Barney until February 16, 2001, when he voluntarily resigned to join Morgan Stanley as a First Vice President. (Id. & ¶ 213).

Defendant Citigroup Global Markets, Inc. [f/k/a Salomon Smith Barney, Inc., d/b/a "Smith Barney"] is a Delaware corporation headquartered in New York. (Id. ¶ B(1)). Smith Barney is a trademark of Citigroup Global Markets, Inc., which is a subsidiary of Citigroup. (Id.).

Defendant Edward Turan ("Turan") is Deputy General Counsel of the Smith Barney Legal Department in New York. (Id. ¶ B(2)). Defendant Jeffrey Friedman ("Friedman") is Associate General Counsel of the Smith Barney Legal Department and reports to Turan. (Id. ¶ B(3)). Defendant Thomas Mierswa ("Mierswa") is a lawyer in the Private Client Group of the Smith Barney Legal Department. (Id. ¶ B(4)). (Smith Barney, Turan, Friedman, and Mierswa are hereinafter referred to collectively as the "Smith Barney Defendants.")

The Bressler firm is a New Jersey law firm of approximately forty-five lawyers with offices in New York City. (Id. ¶ B(5)). Defendant Brian Amery ("Amery"), a partner in the Bressler firm who works in both its New York and New Jersey offices, handles all of Merrill Lynch's customer arbitrations involving research issues in his capacity as Merrill Lynch's National Trial Counsel. (Id. ¶ B(6)). Amery is also an arbitrator for the NASD. (Id.). Defendant Hugo Hilgendorff IV is a lawyer at the Bressler firm. (Id. ¶ B(7)). (Amery, Hilgendorff, and the Bressler firm are hereinafter referred to collectively as the "Bressler Defendants.")

Defendant Morgan Stanley is an investment firm incorporated in Delaware and headquartered in New York. (Id. ¶ B(8)). Defendants George Sullivan ("Sullivan") and David Restaino ("Restaino") are the co-heads of the Morgan Stanley Litigation Unit located in New York and, as such, are responsible for the defense of proceedings against Morgan Stanley nationwide. (Id. ¶¶ B(9), B(10)). Defendant James Yellen ("Yellen") is a lawyer in the Morgan Stanley Litigation Unit. (Id. ¶ B(11)).

Defendant Stephen DiModica ("DiModica") was the branch manager of the Morgan Stanley branch office at the World Trade Center until "9/11," after which he and his staff relocated to other Morgan Stanley offices. (Id. ¶ B(12)). After a long career at Morgan Stanley, DiModica joined Smith Barney as a branch manager in 2003. (Id.). Defendant Morgan Stanley Employee A is the Morgan Stanley employee who prepared a Form U-4 amendment regarding Sathianathan which was filed with the NASD on December 14, 2001. (Id. ¶ B(13)). (Morgan Stanley, Sullivan, Restaino, Yellen, DiModica, and Morgan Stanley Employee A are hereinafter referred to collectively as the "Morgan Stanley Defendants.")

Defendant Keesal, Young & Logan ("KYL") is a California law firm of approximately sixty lawyers, with a lengthy history of representing Wall Street investment firms, such as Smith Barney and Prudential Securities. (Id. ¶¶ B(14), B(15)).

Defendant Samuel Keesal, a/k/a "Skip Keesal" ("Keesal"), is a founding partner of KYL. (Id. ¶ B(15)). Defendant Robert Ericson ("Ericson") was a partner at KYL until 2003, when he moved to the Los Angeles office of Bingham McCutchen. (Id. ¶ B(16)). Defendant Michele Fron is a KYL partner. (Id. ¶ B(17)). (KYL, Keesal, Ericson, and Fron are hereinafter referred to collectively as the "KYL Defendants;" the Smith Barney Defendants, KYL Defendants, and DiModica are hereinafter referred to collectively as the "Moving Defendants.")

B. Venkatramani Claim

While Sathianathan was at Smith Barney, he became licensed by the NASD as a stockbroker in January 1999. (See id. at 212 & ¶ A). From May 2000 until he left Smith Barney, Sathianathan was the stockbroker assigned to the account of Anjan Venkatramani ("Venkatramani"). (See id. ¶¶ 211-13). When Sathianathan left Smith Barney to work for Morgan Stanley, his former manager retaliated against him for changing firms by causing Smith Barney to take one hundred days to effect the transfer of Venkatramani's account there. This was ten times longer than the ten days permitted by the applicable regulations. (See id. ¶¶ 213-14). Because Smith Barney failed to follow up with Venkatramani throughout the extended period during which the transfer was being effected, Venkatramani's account lost eighty percent of its value. (See id. ¶ 214). This, "in effect," caused Venkatramani to file a customer complaint against Sathianathan. (Id.).

In October 2001, Venkatramani sent a complaint letter about Sathianathan to both Morgan Stanley and Smith Barney. (See id. ¶ 234). After receiving this complaint, Smith Barney sent the NASD a U-5 "Uniform Termination Notice" ("U-5 Form") which quoted some of the text of Venkatramani's letter. (See id. ¶¶ 311, 313, 315 & Ex. Set Five, Large Tab 3, Small Tab 4). Subsequently, in February 2002, Venkatramani filed a formal statement of claim (the "Venkatramani Claim") with the Pacific Exchange against Smith Barney, Sathianathan, Morgan Stanley, and Sathianathan's former Smith Barney branch manager, Steven Torrico ("Torrico"), pursuant to which he sought to recover $10 million for the alleged mismanagement of his account. (See id. ¶¶ 71, 170).

Yellen, who is one of Morgan Stanley's in-house attorneys, initially represented both Morgan Stanley and Sathianathan in connection with the Venkatramani Claim. (Id. ¶ 271). At first, Sathianathan was comfortable with Yellen and cooperated with him in this endeavor. (Id. ¶¶ 236-37, 273-74, 288-89 & Ex. Set Seven, Tab 5). On the other hand, Sathianathan was unwilling to cooperate with "his enemy," Smith Barney. Indeed, he offered to assist Venkatramani in the prosecution of his claim against Smith Barney. (Id. ¶¶ 238, 293).

Although Sathianathan was satisfied with Yellen's services, he was instructed to attend a meeting on December 13, 2001, to meet Amery, who had been hired by Smith Barney and Morgan Stanley to represent Sathianathan in the Pacific Exchange arbitration. (Id. ¶¶ 333-36). The persons present at that meeting included Restaino, Yellen, Friedman, Amery, and Sathianathan. (Id. ¶ 337). Sathianathan attended reluctantly, and the meeting broke up within five minutes after it had started, once Sathianathan indicated that he was unwilling to cooperate with Smith Barney. (Id. ¶ 339). Thereafter, Amery met privately with Sathianathan. (Id. ¶¶ 345-47). Sathianathan contends that this meeting occurred, despite his professed unwillingness to cooperate with Smith Barney, because Smith Barney, Morgan Stanley, Amery, and others wanted Amery to debrief Sathianathan, after which he was to be fired by Morgan Stanley and left without the funds needed to retain his own counsel. (Id. ¶ 344).

During the private meeting that Amery had with Sathianathan in furtherance of this plot, Amery told Sathianathan that he could not represent him in a suit against Smith Barney to recover any commissions that Sathianathan allegedly was owed. (Id. ¶¶ 341, 347). Nevertheless, Sathianathan believed that his discussions with Amery were subject to the attorney client privilege. (Id. ¶ 356). In or around April 2002, however, Sathianathan learned that Amery had been communicating with Smith Barney. Believing that he was being "raped" of his confidential agreement with his lawyer, (see id. ¶ 108), Sathianathan rejected Amery's representation and filed his own answer in the Pacific Exchange arbitration. (See id. ¶¶ 173, 672 & Ex. Set Three, Tab O (email to Amery, dated Sept. 7, 2002) ("I am shocked, aghast and shattered at your flagrant and egregious breach of my attorney client privilege with you regarding this arbitration")). Subsequently, on April 23, 2002, Amery withdrew from any further representation of Sathianathan. (Id. ¶¶ 80, 1540 & Ex. Set Four, Tab 3).

Notwithstanding these developments, Sathianathan continued to cooperate with Morgan Stanley to defend against the Venkatramani claim. (Id. ¶¶ 236-37). On July 29, 2002, however, when Morgan Stanley submitted an affidavit to the arbitration panel explaining that it believed it had a joint defense privilege with Smith Barney, Sathianathan sent a letter to Restaino and Sullivan of Morgan Stanley pointing out the firm's potential liability to Venkatramani. (Id. ¶ 507). Sathianathan also sent copies of this letter to all of the parties to the Pacific Exchange arbitration, including Venkatramani. (Id.).

Ultimately, Morgan Stanley settled with Venkatramani by paying him $750,000 in return for a release of Morgan Stanley and Sathianathan for the period of time Sathianathan worked there. (Id. ¶¶ 178, 499, 511). Sathianathan did not contribute to this settlement. (See id. ¶ 188).

In or around February 2002, Morgan Stanley fired Sathianathan. The ostensible reasons for his termination were that he had placed an order for a customer who refused to pay and had not followed instructions regarding the procedures required for large trades. (See id. ¶¶ 934, 936-37). Sathianathan contends that these reasons were pretextual. (Id.).

On October 31, 2002, Venkatramani amended his claim against Smith Barney in the Pacific Exchange arbitration to raise the damages sought to over $22 million. (See id. ¶ 180). Although the arbitration was scheduled to commence in early January 2003, Smith Barney reached a settlement with Venkatramani in or around late December 2002. (Id. ¶ 184). Pursuant to the settlement agreement, Smith Barney paid Venkatramani $5 million in exchange for his release of Smith Barney from any further liability for the period of time Sathianathan worked for that firm. (Id. ¶¶ 184-88, 499 & Ex. Set Four, Tab 11). Although Smith Barney had arranged for a release for Sathianathan, who was not being asked to contribute to the settlement, Sathianathan refused to provide a mutual general release to Venkatramani. (See id. ¶¶ 185-88, 547-52 & Ex. Set Five, Large Tab 3, Small Tab 8, Item 28).

C. Sathianathan Claim

Following the settlement of Venkatramani's claims against Smith Barney,

Sathianathan filed a cross-claim in the arbitration proceeding against Smith Barney, Torrico, Morgan Stanley, and Venkatramani (the "Sathianathan claim"), in which he sought $30 million in damages and $450 million in punitive damages. (Id. ¶ 188; see also Moving Defs.' Req. for Judicial Notice, dated Jan. 24, 2005 ("RJN"), Ex. A (Second Am. Stmt. Of Claim ("SOC"), ¶ 205). Sathianathan alleged that he was the victim of a Wall Street scandal as important as a recent research analyst scandal unearthed by New York State Attorney General Eliot Spitzer. (SOC ¶ 5). He further alleged that the law departments of NASD member firms were systematically conspiring to defend in bad faith against legitimate customer claims. (Id. ¶ 7). One element of this scheme was that the firms would defraud stockbrokers out of effective independent legal representation in connection with customer arbitrations. (Id. ¶ 8).

Sathianathan contended that in his own case, by not entering into a good faith settlement with Venkatramani, Smith Barney and Morgan Stanley had forced Venkatramani to commence an arbitration in which Sathianathan was named. (Id. ¶¶ 53, 56; see also id. ¶ 39). According to Sathianathan, had he been represented by independent counsel, he "could have made a 'plea bargain' deal" with Venkatramani in exchange for helping him with respect to his claims against Smith Barney. (Id. ¶ 90; see also id. ¶ 35). Instead, Smith Barney failed to retain independent counsel for Sathianathan and illegally sought to have Venkatramani dismiss his claims against him without prejudice, which would have deprived Sathianathan of the right to have his claims against Smith Barney heard as part of the same arbitration. (Id. ¶¶ 57, 92). According to Sathianathan, Morgan Stanley was complicitous in this wrongdoing in that it "continually refused to pay for a lawyer of [Sathianathan's] choice" to represent him in the arbitration. (Id. ¶ 36A; see also id. ¶ 84).*fn2

The Pacific Exchange deemed Sathianathan's cross-claim against Morgan Stanley untimely because the firm had settled with Venkatramani and been dismissed from the proceeding before it was filed. Smith Barney answered, however, denying Sathianathan's allegations and filed a counterclaim against him seeking, among other relief, contribution and indemnification as a result of its settlement with Venkatramani (the "Smith Barney Claim"). (See FAC ¶ 196; RJN, Ex. B). In connection with the Sathianathan and Smith Barney Claims, Sathianathan appeared pro se; Smith Barney was represented by KYL. (See RJN, Ex. B).

D. Pacific Exchange Arbitration

The Pacific Exchange heard evidence regarding the Sathianathan and Smith Barney Claims over the course of ten days in March 2004. (FAC ¶ 198). Thereafter, on April 7, 2004, the panel issued a written award ("Award"), in which it found that the Sathianathan Claim lacked merit and that Smith Barney was entitled to the dismissal of his claim. (Id. ¶ 201; Award at 4). The panel also awarded nominal damages to Smith Barney on its claim. (See Award at 4). The panel summarized its Award, insofar as relevant, as follows:

1. FINDINGS OF FACT

a. . . . Smith Barney and Mr. Sathianathan share responsibility for Mr. Venkatramani's damages.

b. . . . Smith Barney paid $5,000,000 to Mr. Venkatramani in settlement of his claims.

2. DECISION

a. [Sathianathan] has not met the burden of proof to show illegal activity, or willful or negligent disregard of [his] rights.

b. [Smith Barney] has not met the burden of proof to show that [Sathianathan's] claims were frivolous, nor that the fault in causing damages to Mr. Venkatramani lies substantially with Mr. Sathianathan.

3. AWARD

a. Monetary damages: Mr. Sathianathan shall pay to . . . Smith Barney the amount of Ten Thousand Dollars ($10,000) as contribution for the Venkatramani settlement.

b. Punitive damages: None. (FAC ¶ 625; Award at 4-5).*fn3

E. Other Proceedings

Following the Award, Sathianathan filed a total of seven additional actions or proceedings and has expressed a desire to file at least one more. Additionally, the NASD brought an enforcement action against him. Those proceedings and actions may be summarized as follows:

1. California Proceedings

a. Federal Suit

On May 28, 2004, in an effort to vacate what he alleges was a "corrupt" Award, Sathianathan filed a "Complaint and Motion to Vacate Arbitration Award" in the United States District Court for the Northern District of California. (See FAC at 555 & ¶¶ 162, 166-69). Smith Barney was the only defendant named in that suit. (Id. at 555). On July 27, 2004, Smith Barney filed a motion to dismiss, or, in the alternative, to confirm the Award. (See FAC at 556 & ¶ 162; see also Moving Defs.' Suppl. P. & A. in Supp. of Mot. to Dismiss ("Defs.' Suppl. P. & A."), Ex. A). Thereafter, Sathianathan requested leave to amend his complaint. (Defs.' Suppl. P. & A., Ex. A).

By order dated February 24, 2005, the district court granted Smith Barney's motion to confirm the Award, denied Sathianathan's motion to vacate the Award, and struck Sathianathan's motion for leave to amend his first amended complaint for failure to submit the memorandum of points and authorities required by local rule. (Id. at 16). After an unsuccessful appeal to the Ninth Circuit, and other procedural wrangling, the court granted Sathianathan leave to file a further amended complaint by July 6, 2005. (See Munz Decl., Ex. E; Docket No. 72, Attach. 3 at 15; Docket No. 87 at 6 n.1).

On July 5, 2005, Sathianathan filed a second amended complaint. (See Docket No. 86 (Notice of Order) Attach. at 2; Docket No. 87 at 6 ). Thereafter, by order dated October 11, 2005, the district court dismissed that complaint with prejudice on, inter alia, res judicata and collateral estoppel grounds. (See Docket No. 86 Attach. at 2).

More recently, despite the dismissal of the second amended complaint, Sathianathan has filed "ex parte" applications to amend that pleading further to add as parties defendant the court reporting service and reporters who prepared the 2800-page transcript of the Pacific Exchange arbitration and the KYL Defendants. (See letter dated Nov. 14, 2005, from David N. Kittredge, Esq., to the Court, at Exs. H & I).

During a telephone conference held on February 24, 2006, Sathianathan informed the Court that the district court had not yet ruled on his application to name the court reporters as defendants.*fn4 Sathianathan also disclosed that he filed two motions, pursuant to Rule 60 of the Federal Rules of Civil Procedure, seeking to set aside the Award and the order dismissing his complaint with prejudice. The district court evidently held a hearing on January 31, 2006, during which his motion seeking relief from the order dismissing the complaint was denied. Because Sathianathan had appealed from the order confirming the Award, the district court reserved decision on his second motion until the Ninth Circuit decided whether to remand the case. Thereafter, Sathianathan filed a motion for reconsideration of the order denying dismissal of his complaint, and Smith Barney filed a motion for reconsideration of the court's decision not to deny the Rule 60 motion seeking relief from the order confirming the Award. Both motions remain sub judice.

b. State Court Suit

On September 16, 2004, while the suit in the Northern District of California was pending, Sathianathan filed another motion to vacate the Award in the Superior Court for the County of San Francisco. Sathianathan describes that suit as a 'back-up" in case Smith Barney prevailed on its motion to dismiss Sathianathan's federal complaint for lack of subject matter jurisdiction. (See FAC at 556 & ¶¶ 205, 207). On December 30, 2004, and, again, on January 5, 2005, the Superior Court entered judgments dismissing that action. (See Muntz Decl., Ex. F). Sathianathan apparently concedes that the state court action was properly dismissed as untimely. (See FAC at 556).

2. NASD Arbitration

In early 2003, Sathianathan also commenced an arbitration proceeding against Morgan Stanley before the NASD. In that proceeding, Sathianathan sought to bring, "among other causes of action, claims for wrongful termination and legal malpractice." (See FAC at 556-57 & ¶¶ 432-33, 550). During the February 24, 2006 telephone conference, Sathianathan informed the Court that the NASD arbitration had been "suspended" in July 2005, pending the resolution of this action.

3. NASD Enforcement Action

On October 23, 2003, following Smith Barney's filing of the U-5 Form describing the Venkatramani claim, the NASD brought an enforcement action against Sathianathan. (See FAC ¶ 597; RJN Ex. E ("NASD Dec.")). Sathianathan attempted to bring a counter-complaint in that proceeding against the NASD investigator and attorney assigned to his case, but the hearing officer dismissed that pleading because the NASD Code of Procedure did not permit it to be maintained. (NASD Dec. at 2). Despite that dismissal, Sathianathan contended that Smith Barney had worked closely with the NASD to bring about the charges against him, a claim which the hearing officer flatly rejected. (Id. at 2-3).

The NASD complaint alleged that Sathianathan made unsuitable recommendations to Venkatramani and another customer to purchase Class B mutual fund shares on margin, instead of Class A shares that had lower fees and charges, in violation of the NASD's rules; failed to disclose material facts in connection with the sales of those shares to the customers, in violation of the NASD rules and Rule 10b-5; and engaged in unauthorized discretionary trading in Venkatramani's account. (Id. at 2).

After a two-day hearing before a hearing panel, the NASD hearing officer issued a decision on its behalf which found that, in 2000, Venkatramani was a 29-year old employee of Juniper Networks, Inc., an internet company the stock of which was rated as speculative.*fn5 (Id. at 4). Venkatramani, who was an unsophisticated investor, first opened a Smith Barney account in California. He then opened a second Smith Barney account in May 2000 with Sathianathan in Smith Barney's Little Falls, New Jersey, office. His new account application for the second account indicated that Venkatramani had a net worth of $10 million, an aggressive risk tolerance, and investment goals which included speculation -- which was not an accurate profile. Sathianathan testified that he marked the Venkatramani account opening documents in this fashion, in keeping with his routine practice, because it would allow him to recommend the broadest range of investments and permit options trading. As he explained, "I didn't realize that this was treated as very important." (Id. at 7).

After the Venkatramani New Jersey account was opened, it held 60,500 shares of Juniper stock which were then valued at approximately $13.8 million. (Id. at 8). Although Venkatramani wanted to diversify his holdings and preserve his wealth, Sathianathan recommended that he hold his Juniper shares until February 2001 to qualify for long-term capital gains treatment. (Id. at 7). To diversify the account in the interim, Sathianathan recommended that Venkatramani purchase mutual funds on margin, apparently believing that the risk of a margin call with respect to the Juniper stock was the equivalent of "a meteorite hitting New York City tomorrow." (Id. at 7-8).

On Sathianathan's recommendation, Venkatramani bought $200,000 worth of Class B shares of each of fourteen mutual funds on margin. (Id. at 8). By arranging the purchases in this fashion, Sathianathan avoided a Smith Barney restriction against a registered representative purchasing more than $250,000 of such shares in any one fund.*fn6

(Id. at 8-9). Each of the funds that Sathianathan recommended also offered Class A shares which had different sales loads, expenses and commission credits. (Id. at 9). Because Sathianathan recommended Class B shares, he earned higher commissions than he would have earned on Class A shares. (Id. at 11, 34).

Sathianathan also arranged for Venkatramani to make other purchases in his New Jersey account, including index warrants issued by Smith Barney, which he recommended because they offered a six percent sales commission. (Id. at 12-13).

Additionally, as the market turned against Venkatramani, Sathianathan recommended that he purchase additional mutual fund shares to "average down his cost." (Id. at 13). By the end of 2000, Venkatramani owned $3.9 million worth of mutual fund shares, all acquired on margin. (Id. at 13-14).

On November 30, 2000, Smith Barney reduced Venkatramani's Juniper shareholdings by 13,500 shares to correct a clerical error. (Id. at 14). After this adjustment, his Juniper shares were worth only $5.9 million at year end. (Id.). Although further decreases in the Juniper stock price led to margin calls in Venkatramani's account in 2001, Sathianathan recommended against the sale of any Juniper shares, evidently believing that the price would rebound. (Id.). He conceded in a later interview, however, that his original recommendation that Venkatramani buy the mutual funds on margin, rather than taking steps to protect his net worth, was an error. (Id. at 15).

Following Sathianathan's move to Morgan Stanley, and the transfer of Venkatramani's account, Sathianathan purchased more than $1 million worth of Juniper shares for Venkatramani's account. (Id.). Although Sathianathan claimed that he had time and price discretion for these trades, the NASD found that he did not because there had been no specific discussion of such authority being delegated. (Id.). In reaching this conclusion, the NASD relied on an email in which Sathianathan admitted to Venkatramani that he had bought the Juniper shares while Venkatramani was in India "purely based on what he thought was a strong family relationship that he and [Venkatramani] had through the fact that one of [Venkatramani's] best friends is Sathianathan's brother." (Id. at 32-33 (emphasis added)).

The other Sathianathan customer, identified only as "SS," was a Juniper employee referred to Sathianathan by Venkatramani. (Id. at 16). The account opening paperwork for SS's Smith Barney account contained customer profile misstatements similar to those found in the Venkatramani account. (Id. at 16-17).

In August or September 2000, SS asked Sathianathan how to protect the value of his Juniper stock. (Id. at 17). After Sathianathan said that he could place a "collar" around his stock,*fn7 SS instructed Sathianathan to do so, but Sathianathan ignored this instruction, explaining to SS that he was sure the price of Juniper stock would rise in late 2000. (Id. at 17-18).

In November 2000, SS instructed Sathianathan to sell enough Juniper shares so that he could purchase a home the following month. Because Sathianathan once again failed to honor this request, Venkatramani had to use his Smith ...


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