CyberTrader Clients
It seems we got off track here so I'd like to address an issue that may be of interest to lurkers here.
You all may know that CyberTrader was purchased by the Charles Schwab Corp. in early March, 2000. The sale was based on CyberTrader revenues. Those revenues were compared to Schwab revenues as a proportion, and then Cyber was valued as a function of that formula applied to Schwab's market cap at the time. The sale was paid for in Schwab common stock, available for immediate sale by the owners of CyberTrader. Of course Philip Berber - SI profile here:
Member 4323025
owned the majority, more than 60%. His personal stake was worth between $300 and 500 million, depending on whether he sold immediately, or a few weeks later, when SCH stock rocketed 60%.
Another core holder is Leslie M. Moor. Her stake is estimated to have been worth $40-60 million.
Both of these individuals were intimately involved in the kickback scheme alleged here and before the San Francisco Superior Court - though Ms. Moor has not been named as a defendant - yet.
The vast majority of Cyber revenues were based on commissions. These commissions were skyrocketed through Cyber funneling its clients to investment advisory sites like Trading Places, Undergroundtrader.com, wstreet.com and dozens of others, comprising several thousand traders. For example, in 1998, Cyber revenues were $5.5 million. This was before the kickbacks got going full throttle. In 1999, they exploded 350%, to $24.5 million. So, as alleged in the Complaint, the vast majority of these revenues constitute what is legally termed an "unjust enrichment." Furthermore, under California law if individuals and/or companies are unjustly enriched through deceptive trade practices such as alleged here then all proceeds from those practices are subject to what is termed "disgorgment of all ill-gotten gains." That means they have to give every penny back. That would mean first of all all commissions paid as a result of the false churn investment advice. It doesn't stop there, however. It would also include the sale proceeds. In this case, fully 70-80% of the revenues may be directly attributed to the kickbacks. So then so would be the sale, 70-80% of the total $500-800 million be ill-gotten gains and subject to disgorgement. However, the sale didn't only comprise the revenues but also the kickback scheme business model. It is unlikely Schwab would have purchased Cyber at all without it. Therefore, at a certain point, I intend to argue that the entire sale is an ill-gotten gain, as Cyber's business model was predicated on "pervasive fraud," i.e. Cyber's core business was made on violation of the law.
So you see what is at stake here. The disgorgement would benefit all former Cyber clients and also all former IA clients.
Now Berber has argued he is not subject to California jurisdiction. He committed perjury trying to support that argument, and he won the first round. Now the ruling is in the Court of Appeal. My Appellant's Opening Brief was filed Monday. Berber's answer is due July 6, I send in my Reply brief shortly thereafter, and then we await the Court's ruling. What is interesting about Berber's argument is that he says because he did not personally know me there is no jurisdiction. He argues further that he was just a mere "employee" of Cyber - when in fact he directed the scheme personally, and did so because of his majority stake in the company. He actually dared swear before the Superior Court that he "never engaged in business in the state of California." Those of you who've been to the Expos in Anaheim, Ontario and Oakland would probably not agree with that statement. Nor would those of you who are Cyber clients living in California, who communicated with Berber through the Internet, while you were there. If there are any Cyber clients here who are California residents I would be very interested in speaking with you, in complete confidence.
Finally, Cyber/Schwab. They filed a motion to compel arbitration. They succeeded, by misleading the Court about the nature of the investment advice and about my agreement with them. I am interested in hearing from Cyber clients, what kinds of agreements you signed. I suspect I am not alone in signing an Account Agreement that didn't contain anywhere an arbitration clause. Cyber claimed it was on their website and I agreed. But that agreement required signatures, wasn't even a contract to be signed with Cyber -it was with Penson - and when I got the forms I got them by fax, because their site was not working.
Any of you have similar stories I would greatly appreciate hearing them, either here or in private. This is a key issue because Cyber/Schwab seek to force arbitration where brokers often sit on the panel, discovery (i.e. access to evidence) is limited, and, believe it or not, the arbitrators who in effect are the judges of the claims are specifically authorized to ignore "all factual and/or legal reasoning." So, they can ignore the facts and they can ignore the law - and there are brokers on the panel - but of course no traders! I am sure many of you find the legality of this kind of thing hard to believe but form NASD clauses like this one have often build upheld by the courts. It is incomprehensible, but there you are.
The relevance of my writ petition seeking to overturn the arbitration order for other Cyber clients similarly situated is this: if I succeed, then, if some of you who were Cyber clients are in a similar situation, then Cyber/Schwab cannot force you into arbitration. It would set a precedent - that is, if that happens, that it would be published by the Court, making it legally binding on other courts (though the court does not have to publish their opinion, it is discretionary).
And believe me they are EXTREMELY concerned about this case seeing a jury. I look forward to hearing from you. |
