Former Owner Of Daytrading Firm Forced Out By His Partners Before The Sale Of The Company He Built

Mikal C. Watts and Martin J. Siegel represented Russell Grigsby, the former co-owner of a daytrading firm with offices throughout the country, in his successful arbitration against his former partners.

The case stems from Grigsby's ouster from ProTrader Securities Corp. by his partners David Jamail, David Burch and Andy Kershner. Grigsby, Jamail and Burch founded ProTrader (then called Cornerstone), a securities trading firm that earned commissions from daytrader clients, in 1993. Under Grigsby's leadership as CEO and sole director, the company grew from one office in Austin to 19 offices around the country.

In 1999, Grigsby's partners began freezing him out of ProTrader because he refused to endorse their illegal trading practices and complained about their refusal to pay commissions to the firm for their own lucrative trading. In order to squeeze Grigsby out, the Defendants terminated his salary, threatened to withhold dividend payments, and voted in a new board of directors which then formally fired Grigsby. Having deprived Grigsby of his salary and forced him to face significant quarterly tax obligations, the Defendants appeared at Grigsby's house at 10:45 p.m. on Sunday night, April 30, 2000, and offered to buy his stock at a deflated price, telling him the offer expired at midnight and that there were "no other buyers." Under this duress, Grigsby reluctantly signed a "Binding Letter of Intent" agreeing to enter into a future "Redemption and Termination Agreement" ("RTA") effecting the sale.

At the same time the Defendants were forcing Grigsby out of the company he built and claiming there were no other buyers, they had secretly begun negotiating to sell the company to Instinet, a giant of the electronic trading world. The Defendants told Grigsby nothing about these negotiations, though they were obligated to disclose material information before purchasing his ProTrader stock. On May 10, 2001, after suddenly accelerating the formerly dormant negotiations over the RTA finally buying Grigsby out, the Defendants gave Grigsby the RTA to sign, which he did. The next day, Instinet announced its acquisition of ProTrader for $150 million.

Grigsby sued the Defendants for violations of state and federal securities laws, breaches of fiduciary duty and shareholder oppression. After a four week arbitration, the panel awarded a decision in Grigsby's favor.