Former Bell Rock owner sues alleging failure to advise
A former Rehoboth Beach investment advisor says her former regulatory attorney cost her about $2 million – and ultimately her company – for not disclosing the law firm's relationship with financial giant Schwab & Co. when it came under federal scrutiny, according to a lawsuit filed in New Jersey federal court earlier this year.
“This was definitely a conflict,” said Rich Galluci, an attorney hired by Cassandra Toroian in her lawsuit against Stark and Stark, a regulatory law firm that had previously represented her company. “At some level, Stark & Stark has to at least disclose that there is internal conflict between clients within their firm.”
A spokesman for Stark & Stark declined to comment on the lawsuit.
Toroian, a former registered investment advisor and owner of Bell Rock Capital in Rehoboth Beach, says in the U.S. District Court complaint that she had retained the New Jersey law firm in 2011 to advise her on regulatory and compliance issues involving the Securities and Exchange Commission.
“Due to the growth [Bell Rock Capital] was experiencing and the growth Ms. Toroian had planned for the business, she believed it was important to have a skilled and knowledgeable SEC regulatory lawyer to advise her as BRC’s business grew. Stark and [attorney Thomas] Giachetti represented themselves to be skilled and knowledgeable SEC regulatory lawyers,” the complaint states.
Toroian believed Bell Rock would soon undergo a routine audit by the SEC, and she depended on the law firm's expertise, the complaint states.
The firm, however, never told her that its client Schwab was investigated by the SEC in 2018, and as part of a consent order, the complaint states, Schwab gave the SEC information on “many small firms, including the plaintiffs, in cases where it had some question regarding trading practices at those firms, but had never reported” them.
These questionable practices included cherry picking, of which the SEC filed action in 2022 against Bell Rock, accusing it of buying investments to benefit itself instead of its customers.
In 2023, Toroian entered a consent order and final judgment, which barred her from working in the securities industry. She sold Bell Rock – a firm she founded in 2006, eventually serving up to 200 clients and managing as much as $220 million in assets – to Bryn Mawr Capital Management the same year. Since then, she started a new company, Firsthand Research and Consulting, that builds on her experience and financial background but has a focus on new technologies such blockchain and cryptocurrency.
In the complaint, Toroian states the law firm only told her about also representing Schwab after she informed her attorney that she had canceled a custodian agreement with Schwab over block trading stocks. After switching to TDAmeritrade, the complaint states, Toroian learned of trading rules that prohibit block trading for single accounts, which she had done while with Schwab.
“Ms. Toroian was very surprised, knowing that for the past 10 years, she had been doing those same single-allocation trades, and not once had Schwab, as the firm’s custodian, nor Stark, BRC’s regulatory attorney, made her aware of this rule. Upon being properly advised by TD, both verbally and via email with a copy of the FINRA rules, within minutes Ms. Toroian ceased attempting to do these sorts of trades, let her staff also know what she had just learned, and decided for herself personally to simply stop using the block trading account since TD’s trading technology was far superior to Schwab’s, making it just as easy to do all the trades necessary for clients in their separate accounts,” the complaint states. “Going forward, all staff at BRC only used the block trading account for multiple customer trades related to fixed income as was entirely proper and in compliance with SEC laws, rules and regulations.”
Overall, the complaint states, Toroian spent more than $2 million in legal fees because the law firm never properly advised her. SEC penalties against Bell Rock were more than $1 million, and the complaint states that Bell Rock was valued at half its roughly $15 million worth when she sold it.
“But for Stark’s actions and inactions, plaintiffs would have been compliant with the securities laws, rules and regulations, and there would have been no investigations or SEC actions,” the complaint states.
Toroian is asking for a jury trial, and for the court to reimburse her for the SEC fines she paid, attorneys’ fees and further relief the court deems appropriate.
“I’m very happy as far as my new ventures go, and grateful that I have attorneys who are willing to fight for me because I felt it was very necessary to hold these people accountable,” Torian said.
