On February 13, 2012 a three person Financial Industry Regulatory Authority (FINRA) panel ordered South Florida based Kovack Securities to pay a former client $100,000.00 in compensatory damages, $200,000.00 in punitive damages and over $14,000 in costs (see In the Matter of the FINRA Arbitration Between Russell Stephen Tarrant, Claimant, v. Kovack Securities, Inc., Respondent (FINRA Arbitration 10-03532, February 13, 2012). This award is particularly note worthy due to the punitive award. Punitive damage awards are unusual in FINRA arbitration and awards twice the size of the compensatory award are relatively unheard of.
The panel noted the lack of supervision on the part of the firm was particularly egregious (stating it was non-existent). The transactions involved included a $100,000.00 investment in land deal sponsored by the offending broker as well as his instructions to liquidate certain securities held in the client’s account to fund a personal loan. The sale of investments that are not approved by the firm or that are transacted outside the account relationship is known as “selling away” and is considered egregious conduct by regulators. The FINRA panel in this case reaffirmed that message.
The attorney’s at Colling Gilbert Wright & Carter are currently investigating and litigating investor selling away claims. If you believe you have been sold an unapproved investment by your broker or advisor, please contact our office for a free case evaluation. Thank you.