Two FINRA Arbitrations and an Innocent Broker Clears His Reputation

By Robert M. Thornton, Attorney, Kilgore & Kilgore PLLC

Every once in a while, you get a FINRA arbitration case that reminds you of why you became a FINRA arbitration lawyer in the first place. That was the case with Kilgore & Kilgore’s representation of Mel Schonhorst, a former managing director, financial advisor and bond executive with RBC Capital Markets. Over the last seven-and-a-half years Ted Anderson and I tried to help Mr. Schonhorst clear his name and reputation from the widespread negative (and in our opinion totally unjustified) publicity he received in 2007 as the result of the public disclosure of an FBI investigation into public corruption and bribery in the bond market in El Paso.

Mr. Schonhorst lost his job with RBC in 2007. The Form U-5 report, which RBC filed with the Financial Industry Regulatory Authority (FINRA) to explain the reasons for his termination discloses only that RBC was informed by an agent of the FBI that Mr. Schonhorst was the subject of an investigation. This report created the impression that the FBI had evidence linking Mr. Schonhorst to the scandal, and became part of Mr. Schonhorst’s permanent FINRA record.

Shortly thereafter, in August 2007, a leading industry newsletter, The Bond Buyer, published a series of articles concerning this federal investigation. The story attracted great interest within the bond industry because of the involvement of public officials and employees of prominent bond advisory and underwriting firms. There was also a great deal of speculation regarding the identity of persons who might be subjects of the investigation, in addition to those who were indicted.

Mr. Schonhorst was one of the bond industry executives who became the subject of an article in The Bond Buyer, published on August 16, 2007, under the headline, “Two RBC Executives Step Down in El Paso in Wake of Investigation.” He was mentioned by name in each of its follow up articles as among the executives who had lost or left their jobs in the wake of this investigation. The Bond Buyer was not the only publication to pick up this theme. What was never mentioned at the time was the possibility that Mr. Schonhorst was completely innocent, and that his employment was terminated simply because he was being investigated, and not because there was any finding of wrongdoing on his part. Because of this disclosure and the widespread publicity concerning the investigation, Mr. Schonhorst was unsuccessful in gaining new employment in the bond industry thereafter.

During the course of our representation, I came to know Mr. Schonhorst fairly well. I found him to be straightforward and sometimes stubborn. But, I formed the strong conviction that he was also decent and honest.

Ted Anderson and I were subsequently able to obtain an award of over $5 million in damages against RBC on Mr. Schonhorst’s behalf through FINRA arbitration. However, we were not initially successful in getting the information regarding his involvement in the investigation expunged from the record.

Five years after his termination, when limitations ran out on any possible charges against Mr. Schonhorst, and no charges had ever been filed against him, Mr. Schonhorst sought to have his permanent record with FINRA amended. In December 2014, over seven years after his wrongful termination became a matter of public record, Mr. Schonhorst finally obtained a FINRA arbitration award from a FINRA arbitrator, ordering RBC to amend its U-5 filing to add the following information:

“Mr. Schonhorst was never charged with a crime or a violation of an investment-related statute, regulation, rule or industry standard of conduct. The USAG closed its investigation July 2012. The statute of limitations expired in August 2012 relating to any possible charge arising from Mr. Schonhorst’s employment with RBC.”

In his ruling at the second arbitration, the Arbitrator commended Mr. Schonhorst for his tenacity, and told him that he had been represented by two of the best lawyers he had ever had before him as an arbitrator (including Charles (Chuck) Weninger an attorney who worked directly with the Justice Department to clear Mr. Schonhorst from the investigation, and who served as a witness at the arbitration). That was a generous overstatement, but it had the intended effect of reinforcing the feeling that we had done everything we could have done, from a legal standpoint, to mitigate the damage to Mr. Schonhort’s reputation.

To his credit, Richard Williamson, the author of the 2007 articles in The Bond Buyer, published a follow up article on March 24, 2015, in The Bond Buyer, describing Mr. Schonhorst’s struggle to clear his name and re-establish his reputation.