In the past two years, Philip M. Aidikoff, a mild-mannered securities litigator with Aidikoff, Uhl & Bakhtiari, a boutique firm of six lawyers in Beverly Hills that primarily handles securities arbitrations, has grabbed headlines with back-to-back, record-setting decisions against Citigroup’s Smith Barney brokerage unit. When asked how he does it, Aidikoff smiles and points to six plain file boxes stacked neatly beside his desk.
“We know what’s in the box, what should be in the box, and what isn’t there,” Aidikoff says.
Like most of the boxes Aidikoff sees, these six boxes are full of papers that the defendant has turned over to plaintiff’s counsel. They contain documents that are the daily output of a brokerage house’s back office: emails, performance reviews, notes and manuals. Some of it is stuff a neophyte might overlook. Aidikoff isn’t a neophyte.
“The advantage goes to he who does this all the time,” he says. “And in our practice, this is all we do.”
Securities arbitrations aren’t nearly as formal as court proceedings. There are no depositions, no interrogatories, and no summary judgments. The streamlined procedures might seem daunting to some trial lawyers, but Aidikoff likes the process because he can focus on the merits of the claim.
“When we set a hearing date, it’s pretty much set,” he says. “It’s not like civil litigation where anything can happen and it usually takes years to be heard.”
Securities arbitrations also tend to be comparatively amicable. “There isn’t a lot of unnecessary testosterone in this practice area,” Aidikoff says. “We tend to be a pretty friendly group.”
Finally, Aidikoff feels securities arbitration cases are more black-and-white than most civil litigation cases. “There’s no moral ambiguity in what we do,” he explains. “Either there was wrongdoing or there wasn’t.”
Aidikoff has a sizeable reputation within the small fraternity of securities arbitration lawyers who argue cases before three-member panels set up by the Financial Industry Regulatory Authority (FINRA). Colleagues and adversaries alike are quick to praise him.
“Phil loves the pressure of a hearing,” says firm partner Bob Uhl. “He loves mixing it up. But he’s successful because he prepares harder than anyone else. Combine his preparation with his organization skills and a natural likeability, and Phil is always in a position to speak with authority inside the hearing.”
“Phil never forgets the common-sense approach,” adds Richard Szuch, a partner at Bressler, Amery & Ross, a firm that routinely represents broker dealers and banks. “During a hearing you hear him use phrases over and over again, like, ‘Help me out,’ ‘Explain this to me,’ ‘How can this be so?’ He’s always very polite, but he’s got a real knack for telling his story. And when it comes time for closing arguments, he can be especially irritating because he makes his points so well.”
Aidikoff is equally good at telling his story to a visiting reporter.
“They’re sold these products,” Aidikoff says, describing the dynamics between brokers and their clients, and letting the word sold boom over his normally measured voice. “Nobody comes to their broker saying they want this bond or that derivative. Investors lay out their goals, and the broker has an obligation to build a portfolio that is capable of achieving those goals.”
The practice is so niche that Aidikoff—a past president and director emeritus of the Public Investors Arbitration Bar Association, a trade group for plaintiffs’ lawyers focusing on securities cases—simply happened upon it.
“[Back then] I had no clue about securities arbitration,” Aidikoff says. “I hadn’t even heard of it.”
Born in Brooklyn but raised in Los Angeles, Aidikoff went to law school because, he says, like most middle-class Jewish kids at the time, his parents wanted him to be a doctor or a lawyer and he “couldn’t stand the sight of blood.”
After graduating on the Dean’s List at UC Berkeley, he had what he calls “a detour in Hollywood.” He partnered with a production designer he met while working as a tour guide at Universal Studios. The pair worked on the film A Man Called Horse, starring Richard Harris, and kept doing production design for a few years. But in the end Aidikoff says he “just didn’t like the business” and went to law school.
At Southwestern Law School, he made law review and graduated in 1975, then worked as a civil litigator, first in a partnership with Paul Morgan, then on his own, where he handled cases ranging from business disputes to personal injury. He found the work interesting but didn’t see himself doing it for the rest of his life.
In the late 1980s, a client, for whom Aidikoff had negotiated some contracts and done civil litigation work, asked for help suing a broker who had mismanaged an investment. “He was a good client and I wanted to help,” Aidikoff says. He assumed a few phone calls would turn up a securities litigator. He was wrong but eventually he hit pay dirt.
“A lawyer I knew suggested that I talk to a friend of a friend,” Aidikoff recalls. “He said, ‘I think this guy I went camping with might do what you’re looking for. Maybe. Meet with him and see.’”
The friend of a friend turned out to be Robert Uhl. Uhl also turned out to be a neighbor of Aidikoff’s—a fact that escaped both men until Aidikoff’s wife came into the office and put it all together. “She probably saw Bob a few times a week walking his dog, but I didn’t know what he did,” Aidikoff says, chuckling.
Staying involved in the case at the client’s request, Aidikoff, without a background in stocks, bonds or any other financial products, found himself intrigued by the practice. Uhl helped Aidikoff nail down the basics, and, over time, the two men developed an easy rapport and a hands-on approach that earned them a reputation as a team that knows more about how brokerage houses work than many of the defendants they sue.
On most cases, Aidikoff and Uhl prepare the documents together. “The preparation is formidable,” says co-counsel Steven Caruso of Maddox Hargett & Caruso. According to Uhl, prehearing preparation can mean several weeks of 16-hour days.
Wrongdoing on the part of the broker usually means one of two things: Either the product was mislabeled (meaning it was touted as safe when it was risky), or the broker failed to properly manage the investments. Breach of fiduciary duty, constructive fraud, and failure to supervise are common ingredients in a securities arbitration complaint. But as Aidikoff explains, “the rubber really meets the road when you focus on the wrongdoing in question.”
Simply put, did the brokers do or say something they shouldn’t have? Did they mislead their client?
Lawyers who defend brokers use some or all of the following three arguments: 1) Wealthy, sophisticated clients understand the risks of investments by virtue of their sophistication; 2) The brokerage houses give clients lengthy documents advising them of the investment’s risks, so it’s not as though they weren’t warned; and 3) The defense might simply point toward the economic meltdown and blame the markets. Who saw that one coming?
Even so, this spring, Aidikoff recovered $54.1 million in damages from Citigroup’s Smith Barney unit for two clients: Aspen, Colo., neighbors Gerald D. Hosier, an intellectual property lawyer, and Jerry Murdock Jr., a venture capitalist. Writing about the case for The New York Times, Gretchen Morgenson reported that “arbitrators appeared to reject—resoundingly—[the] three defenses that Wall Street often employs when clients sue.”
Aidikoff is more to the point. “They sold a bad product, and they sold a lot of it,” he says.
The Hosier case could be a harbinger of things to come for Citigroup. The case involved a fund of municipal bonds known as MAT/ASTA, which Citi sold to many of its best clients. When the investment went bust, Citi cited the usual reasons for the investment’s collapse: Investors are sophisticated; they were warned; the economic collapse was unforeseeable. Unsatisfied, many of those clients, including Hosier and Murdock, found their way to Aidikoff, Uhl & Bakhtiari. Today, Aidikoff estimates that he’s worked on, or is working on, 85 MAT/ASTA cases against Citi. Approximately half have been tried or settled.
“All of these clients are really wealthy investors,” he says. “The investments were sold to them as relatively safe … a way to make about two more points over what you’d get with other municipal bonds. But these weren’t safe investments. They were anything but.”
After walking through a series of charts that track the performance of the municipal bond market—a tactic Aidikoff used to refute the assertion that the economic collapse was to blame for his clients’ losses—he focuses on what he thinks went wrong.
“The question that we asked the arbitration panel—the question that we are asking in all of these cases—is this: ‘Why would anyone who is a wealthy, sophisticated investor risk 100 percent of their portfolio to make an extra two points?’”
Aidikoff pauses briefly before answering his own question. “Of course they wouldn’t. These funds were misrepresented and sold to these investors.”
That misrepresentation was deemed so egregious that the arbitrators awarded Aidikoff’s clients $17 million in punitive damages. Part of that decision may have stemmed from Aidikoff’s ability to bring to light damning emails between Citigroup and Smith Barney executives who were questioning the soundness of the MAT/ASTA funds at the same time their brokers were selling the products.
But Aidikoff has another theory about punitive damages, which he says are quite rare in securities arbitration cases.
“You really have to have a perfect storm of factors,” he says. “You need outrageous conduct that’s really egregious, but you also need an unlikeable defendant and a likeable client.”
The year prior to Hosier, Aidikoff had such a “perfect storm” when he represented Larry Hagman, who played the oil tycoon J.R. Ewing in the 1980s hit TV series Dallas. The case settled in 2010, but not before the defendant (Citigroup again) filed a petition to vacate—there are no appeals of FINRA rulings—the then-record $11.5 million ruling, which included $10 million in punitive damages. The fact that an arbitrator on the Hagman panel had failed to disclose a conflict of interest resulted in the two sides to negotiating a settlement, the terms of which remain confidential.
But even with a strong set of facts and a likeable client like Hagman, Aidikoff says he’s never certain of victory.
“When we go into a case, we always say we don’t know if we’re going to win or lose,” he explains. “But we know one thing—we’re not going to get out-lawyered.”