NYSE Awards 10/02

Thirty Awards, Including a 9 Million Dollar Member-Member Award, and a Loss for a Customer in An Employee Stock Option Case Against Goldman

NYSE AWARDS, 10/02: Among the 30 Awards released by the New York Stock Exchange’s Arbitration Department for the month of October 2002 were Awards depicting all types of disputes, including a $9.6 million Member-Member Award!

A three-person Panel disposed of $12.7 million in claims by Bear Stearns and $770,000 in counterclaims by Lehman Brothers after eight hearing sessions between June and October 2002. Claimant Bear alleged that Lehman breached an agreement whereby Bear was to provide back-office services in return for fees. Lehman charged that Bear failed to pay Lehman on certain items and did not return a Lehman-owned Taiwanese bond. (Bear Stearns Securities Corp. v. Lehman Bros., Inc., NYSE ID #2001-009415 (New York, 10/31/02)).

Member firms were also Claimants in four Awards involving debit balances in customer accounts. SSB settled one, but the other three were not the clear winners that we often see in collection cases. In a Merrill Lynch case, the claim and the customer’s counterclaim were both dismissed. Prudential initiated the other two and lost one for failure to “sustain its burden of proof.” In the other, Prudential Securities v. Roh, NYSE ID # 2001-009650 (New York, 9/26/02), a mixed Panel considered a claim for $20,611 against the customer, based upon a failure to return a stock certificate “sent to her in error from claimant.” The Panel awarded Prudential $11,000, explaining that “claimant did not, for several months, provide respondent Roh with sufficient documentation to convince her” of the error. The amount awarded represented the stock’s worth “on the date that claimant closed respondent Roh’s account and eliminated her option to replace the shares delivered to her in error.” The Panel also awarded Respondent $450 “as compensation for poor execution” on a single trade, but the Arbitrators assessed the forum fees equally.

Liquidations and deficits also figured in some of larger customer-initiated cases, where customers won in 5 of the 12 Customer-Member Awards. In Tiger, Trustee v. TD Waterhouse Services, Inc., NYSE ID #2002-010065 (Philadelphia, 10/16/02), the customer purportedly “gave timely notice to liquidate,” but the broker-dealer delayed in the execution, causing more than $20,000 in losses. This was probably an estate liquidation, rather than a margin call response, as the sale order was delivered by letter. The Arbitrators evidently accepted the Waterhouse defense that “it does not accept written sell orders” and, in any case, that the liquidation occurred the same day as notice to liquidate was received.

Ojeda v. Merrill Lynch, NYSE ID #2001-009472, Houston, 10/22/02) reflected a counterclaim of $74,441.33 for a debit balance, in response to a variety of churning and other sales practice claims for $625,006.16 by the customer. The “majority industry” Panel requested by Claimants dismissed their claims, but it also dismissed Merrill Lynch’s debit balance claim and charged all fees against the brokerage firm.

A split Panel awarded $176,000 to Claimants on allegations that Respondents “… failed to provide monthly statements for the accounts involved, unauthorized transactions, forgery, an unauthorized change, and misrepresentation, of claimants’ address on account documents.” The Panel in Grace Food Distribution, Inc. v. Oscar Gruss & Sons, Inc., NYSE ID #2001-009018 (New York, 10/2/02) agreed on liability, but a dissenting vote issued on the amount of the damages.

Finally, a $14 million loss in an employee stock option case was decided in favor of the broker-dealer. In XXXXX v. Goldman Sachs, NYSE ID #2001-009311 (San Francisco, 10/7/02), an employee of Cisco exercised company stock options in 2000, but held the stock as it declined, instead of diversifying. In her claim, she alleged that Respondents failed to advise her to sell shares to meet a tax liability, “rather than go on margin.” Similarly, Respondents “failed to diversify her account and recommended that she maintain her highly concentrated position in Cisco.” Respondents, on the other hand, alleged that “it was claimant who insisted upon maintaining the highly concentrated position in Cisco stock.” The Panel unanimously dismissed, finding that “claimant through her participation retained responsibility for the handling of the account…;” forum fees in the amount of $34,800 were assessed against Goldman.

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Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | mja@sallahlaw.com | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.