Stock Broker Fraud Blog

A senior couple has filed a $1.2 million arbitration claim against Fisher Investments for allegedly neglecting to fulfill its fiduciary duty to them. According to Georgia residents Michelle and Brent Murphy, the investment advisory firm invested too much of their $2.5 million portfolio into stocks last year—nearly 100% in equities—even when it knew the market was failing.

Fisher Investments started handling the couple’s investments in 2007. The Murphy’s securities arbitration lawyer says that Fisher Investments neglected to properly diversify his clients’ portfolio, which should have been done considering that the two of them are retired and need fixed-income investments. He says that he will be filing more claims against Fisher Investments.

Responding to the claim, Fisher Investments chief executive Ken Fisher called it “nonsense,” says his firm acted appropriately, and he vowed to teach the couple’s attorney an unforgettable lesson.

Fisher Investments is one of the biggest US investment advisory firms. It has 37,648 accounts and $28 billion in client assets.

When hearing about Fisher’s response to the Murphys' arbitration claim, Shepherd Smith Edwards and Kantas, LLP founder and securities fraud lawyer William Shepherd responded, “The attitude of a claim as 'nonsense' is typical for financial firms. Sadly, regulators reinforce this attitude with inaction and occasional slaps on the wrist. The only route to justice for investors is to hire an experienced securities law firm and file an arbitration claim. Our firm has represented thousands of investors nationwide in arbitration including against the most powerful financial firms. It will be my pleasure to teach Mr. Fisher a lesson he will not forget!”

Related Web Resources:
Couple slaps a feisty Ken Fisher with $1.2M arbitration claim, Investment News, May 12, 2009

Senior Investment Fraud News & Alerts, North American Securities Administrators Association

Continue reading "Fisher Investments Hit with $1.2 Million Arbitration Claim by Senior Investors Alleging Breach of Fiduciary Duty" »

An Illinois federal court has ruled in line with the Seventh Circuit and says it will impose sanctions on a party that tried to get an arbitration award vacated because he only put forth frivolous arguments. The case is Halim v. Great Gatsby's Auction Gallery, Inc.

Cameel A. Halim purchased items via an auction that Great Gatsby's Auction Gallery had put together. Halim eventually sued the gallery. He claims that the items he bought were not as they had been described in the catalog. Per their agreement, the parties went into arbitration.

The arbitrator had told the parties to cooperate in good faith when discovery disputes were first brought before him. The arbitrator would go on to refer the parties to the earlier order as the disputes ensued.

The arbitrator denied the claims made by Halim, who then tried to get the award vacated. Gatsby responded by filing a confirmation motion and a motion for sanctions because it contended that Halim’s motion was frivolous and therefore violated the Federal Rules of Civil Procedure’s Rule 11.

Halim presented two arguments for his motion. He said the arbitrator acted in manifest disregard of the law by (1) not resolving a discovery dispute when he told the parties to turn back to the earlier order and (2) by not issuing a reasoned award. The court said these arguments were frivolous.

The court also imposed sanctions on Halim after determining that there was no evidence to support his contentions. Halim has been ordered to reimburse Gatbsy’s legal fees from when it had to move for sanctions and oppose the motion to vacate.

Congress is currently considering a bill to prevent companies from forcing arbitration of consumer disputes by using arbitration agreements contained in contracts. However, Wall Street's influence will likely cause securities arbitration to be exempted from the bill.

The best way to ensure a successful outcome when you are involved in a case that is being disputed through securities arbitration is to retain the services of Shepherd Smith Edwards and Kantas, LLP. We have helped thousands of investors recover losses resulting from improper sales transactions.

Related Web Resources:
Read the Memorandum Opinion filed on February 15, 2007 (PDF)

Great Gatsby's Auction Gallery, Inc.

The US District Court for the Western District of Texas should confirm an arbitration award for brokerage firm Citigroup Global Markets Holding Inc. against a former employee who failed to pay his promissory note—so says magistrate judge Nancy Stein Nowak.

Nowak argued before the Texas court that even if “equitable reasons” exist for why stockbroker Ernest Elam shouldn’t pay the brokerage firm the money he owes for the note, the arbitrator's decision must still be upheld because the former Citigroup broker failed to provide a reason for why he shouldn't pay that falls under the Federal Arbitration Act.

Last July, the arbitration panel found in favor of Smith Barney and Elam was told to pay the investment firm $193,484.28, $15,768.70 in legal fees, and 5% interest per annum for any balance that is not paid. In turn, Elam asked for the award to be vacated because he claims that:

• The promissory note was a forgivable lone.
• He was misled about repayment requirements.
• Smith Barney sought repayment because the broker’s departure caused the branch manager’s end of the year bonus to go down.
• Smith Barney benefits financially from commissions through Elam’s previous clients.

According to Nowak, Citigroup Global Markets Holdings Inc. and Citigroup Global Markets Inc. (as Smith Barney) had asked for confirmation of the award against Elam for the 2004 note he defaulted on in the original principal amount of $270,878. The magistrate judge says that according to the FAA, an arbitration award can only be vacated if:

• The award was obtained through fraud, corruption, or undue measures.
• The arbitrators were at least partially corrupt or engaged in misconduct or went beyond the scope of their powers.

Therefore, Novak contends that the district court cannot vacate the award and should grant Smith Barney’s motion.

Continue reading "Magistrate Judge Tells Texas Court that Citigroup Global Markets Holding Inc. Should Not Be Denied Arbitration Award for Unpaid Promissory Note" »

Separate Financial Industry Regulatory Authority arbitration panels have issued awards to investors who suffered financial losses in Regions Morgan Keegan mutual funds. Last week, a FINRA panel awarded two California residents $267,711 plus interest for their losses—the largest bund fund arbitration award that Morgan Keegan has been ordered to pay to date.

In two arbitration cases last month, investors were also awarded six-figure sums, with one award amount larger than the damages claimed by investors. To date, FINRA panels have awarded over $871,000 to investors for their Morgan Keegan-related claims.

All of the arbitration claims accuse Morgan Keegan of concealing the actual risks associated with their bond funds. The investors have accused Morgan Keegan of selling certain funds as relatively conservative investments when they were actually exposed to a number of high risk debt instruments, including collateral debt obligations and subprime mortgage securities. They say Morgan Keegan engaged in a scheme to defraud investors of certain bond funds and misrepresented the extent of their holdings in riskier investments.

Morgan Keegan investors sustained substantial financial losses after the subprime mortgage market declined. RMK funds named in the allegations against Morgan Keegan, include:

RMK Select Intermediate Bond Fund
RMK Strategic Income Fund
RMK Advantage Income Fund
RMK High Income Fund
RMK Select High Income Fund
RMK Multi-Sector High Income Fund

Stockbroker fraud law firm Shepherd Smith Edwards and Kantas LLP is investigating claims by investors who say they sustained financial losses with Morgan Keegan, and our securities fraud attorneys are filing investment fraud claims on their behalf.

Related Web Resources:
The Law Firm of Shepherd Smith Edwards & Kantas Continues to File Cases Against Morgan Keegan Bond Fund Investments in Light of Recent Arbitration Awards -- RSF, RMA, RHY, RMH, RHICX, MKHIX, RHIIX, RIBCX, MKIBX, RIBIX, Globe Newswire, April 2, 2009

Morgan Keegan must pay investor $267,000, regulator says, Birmingham News, April 2, 2009

Arbitration and Mediation, FINRA

Many lawyers and investors complain about securities arbitration. According to Shepherd Smith Edwards and Kantas, LLP Founder and Stockbroker Fraud Attorney William Shephard, however, the following Morgan Stanley case is “one of many cases filed in court which would have likely not been dismissed in securities arbitration.”

Earlier this month, the U.S. District Court for the Southern District of New York tossed out a securities class action lawsuit filed against Morgan Stanley, Morgan Stanley DW Inc. (MSDWI), Morgan Stanley & Co. Inc. (MS&Co.), the Technology Fund, the Information Fund, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Advisors Inc. (MSIA), and Morgan Stanley Distributors Inc. The class action case is on behalf of investors in the Morgan Stanley Information Fund and Morgan Stanley Technology Fund over alleged improprieties in initial public offering shares allocations, as well as alleged conflicts of interest between Morgan Stanley’s research and investment banking departments.

According to the court, the investors claim they lost millions of dollars in the purchase of the funds as a result of violations of the 1933 Securities Act. The plaintiffs are also claiming that Morgan Stanley, MSDWI, and MS&Co. publicly said that they kept a “Chinese Wall” between their research and investment banking departments so there wouldn’t be any conflicts of interest when, in fact, this wall had fallen and MS & Co. was acting to benefit its investment banking departments. They also claim they were told that analyst recommendations and research were not influenced by the interests of Morgan Stanley or its affiliates.

Among the conflicts of interest, the investors are alleging that the defendants engaged in at least one of the a number of roles involving companies that with shares included among the funds’ portfolio securities for the class periods, including:

• As underwriters for certain securities.
• As investment bankers for certain companies with securities in the funds’ portfolios.
• Preparing and sending out research reports and recommendations about companies that had shares in the funds’ portfolios.
• Trying to get first-time or more underwriting and additional business from the companies that had shares in the portfolios.

The plaintiffs contend that MS & Co. factored in how much investment bank business research analysts were able to secure when determining their total compensation. This resulted in MS & Co.'s promotion of Morgan Stanley shares or those of potential clients, which then would lead to the price inflation of the companies’ shares. They also claimed that the portfolio funds had a substantial amount of Morgan-Stanley sponsored-stocks and that Morgan Stanley took part in “laddering,” which involved rewarding customers with “hot” IPO shares when they went after research tie-ins that artificially inflated an IPO stock’s aftermarket share price.

The court, however, dismissed the lawsuit saying that the plaintiffs failed to plead material omissions that Morgan Stanley should have disclosed.

Related Web Resources:
Morgan Stanley Suits Over Conflicts Tossed, Law360.com, February 4, 2009

Morgan Stanley

Continue reading "Morgan Stanley Court Case Demonstrates Why Securities Arbitration is Often a Better Forum" »

The Financial Industry Regulatory Authority says that between 2007 and 2008, the number of securities arbitration claims increased by 85%. While Investors filed 1,985 claims against brokerage firms in 2007, last year, 3,667 cases were filed.

Between November 30 and December 31, 2008, 462 securities arbitration claims were filed with FINRA. Through November 30, FINRA received 3,215 claims.

Some of the reasons why there were so many more claims last year than the year before are that the market has been so volatile and certain investment products have experienced losses. Among these are the frozen auction-rate securities market and losses from the Regions Morgan Keegan bond funds and a number of Charles Schwab YieldPlus funds.

Investors, frustrated that brokerage firms placed them in a position to experience such losses, are seeking to recover through arbitration and in court. Unfortunately, it is a challenging time for many investors to recover their losses, especially those involving defaults and bankruptcy. This is one reason why investors are filing their cases now instead of waiting to do so years later.

FINRA’s Arbitration Process
Arbitration provides parties with a way to resolve their securities industry-related disputes. This alternative to filing a securities fraud lawsuit is considered a less costly and more rapid way for investors to resolve their claims with broker-dealers.

The resolution of an arbitration case is considered final and binding. Parties who choose to resolve their case through arbitration have generally given up their right to bring the case to court.

Related Web Resources:
Arbitration Process, FINRA

Charles Schwab YieldPlus funds

Continue reading "FINRA Says Securities Arbitration Claims Increased by 85% in 2008" »

This month, the Texas Court of Appeals concluded that two ex-Stanford Group Co financial advisers must arbitrate state labor law claims that their former employer constructively discharged them for complaining about its unethical business practices. The appeals court’s decision reverses a lower court’s ruling to not compel arbitration.

According to Chief Justice Hedges, former Stanford advisers Charles W. Rawl and D. Mark Tidwell signed U-4 registration applications that had arbitration provisions. The promissory notes they executed that were payable to Stanford also came with arbitration provisions.

While they worked for Stanford, the two men allegedly discovered that the company engaged in several unethical and illegal business practices, such as the deletion of certain electronic data in the wake of a Securities and Exchange Commission probe and the inflation of certain asset values in order to mislead potential customers. Tidwell and Rawl contend that they told management to investigate the alleged illegal activities, but their requests were ignored. The two advisers then resigned from the company because they thought they could be implicated for the alleged illegal activities.

After they left the firm, Stanford began FINRA arbitration proceedings against the two men to collect on promissory notes that allegedly were due to be paid as soon as they resigned. The former advisers responded by filing an employment discrimination lawsuit. They claim that their constructive discharge violates the Texas Labor Code because they refused to participate in Stanford’s alleged illegal acts. They also maintained that Stanford’s behavior was actionable under Sabine Pilot Services Inc. v. Houck, 687 S.W.2d 733 (Tex. 1985).

Stanford’s response was a motion to compel arbitration. The two men then said that under FINRA Rule 13201, their employment claims were excluded from arbitration.

The appeals court says that although the Texas labor code prohibits employment discrimination, the plaintiffs failed to note that their discrimination was based on any protected classes named in the statute. As a result, Judge Hedges said the trial court was in error when it did not compel arbitration.

According to Shepherd Smith Edwards and Kantas, LLP Cofounder and Securities Arbitration Attorney WIlliam Shepherd, "The key on this one is that registered securities representatives must go to securities arbitration and can not take employment cases to court despite language securities arbitration code concerning statutory labor claims in the Texas Labor Code. Our securities arbitration law firm often represents such persons against their employer or former employer."

Related Web Resources:

3201. Statutory Employment Discrimination Claims, FINRA

Texas Labor Codes

Continue reading "Former Stanford Group Co. Financial Advisers Must Arbitrate Constructive Discharge Claims" »

The Texas Supreme Court says that former NEXT Financial Group Inc. stockbroker Michael Clements’s claim that the brokerage firm fired him for refusing to cover up churning activity must be arbitrated. Clements was hired as a NEXT Financial regional supervisor in September 2006. Nearly a year later, the brokerage firm fired him because he allegedly failed to perform his required broker responsibilities related to an NASD audit.

Clements filed a lawsuit against the company, claiming he was terminated from his job because he refused to conceal the fact that a NEXT trader had violated federal securities laws by churning client accounts. NEXT pushed for arbitration, claiming that Clements had signed a Form U-4 when he was hired, which requires that he resolve any claims with the brokerage firm through arbitration—per the Federal Arbitration Act.

Clements has maintained that because his claim was based on at-will employment and wrongful termination, rather than a contract connected to a commercial transaction, his claim is exempt from the FAA’s arbitration requirement. He also asserted that his claim resulted from NEXT’s alleged illegal behavior, not its business dealings, and that a recent change in NASD code (following the National Association of Securities Dealers’s merger with the Financial Industry Regulatory Authority) indicated an intent to exclude disagreements involving employment matters from arbitration. Clements noted Sabine Pilot Services v. Hauck, (1 687 S.W.2d 733, 1985), a case where the Texas Supreme Court held that an employer had to pay an ex-employee damages because the worker was fired for refusing to perform an illegal act.

The Texas Supreme Court, however, upheld that the FAA was applicable in this case, NEXT could compel arbitration, and the NASD rule 13200 (a) did not exclude employment and termination-related claims. The court’s decision reverses the trial court’s ruling, which denied NEXT’s request, as did the court of appeals.

Related Web Resources:

Orders and Opinions, Texas Supreme Court

Read Next Financial's Petition for Writ of Mandamus (PDF)

Next Financial Group Inc.

Continue reading "Former NEXT Financial Group Stockbroker’s Claim that He Was Fired for Refusing to Conceal Churning is Subject to Arbitration" »

Merrill Lynch, Pierce, Fenner & Smith, Inc. and a number of its workers have won an arbitration dispute filed by a couple that invested in a money market mutual fund. In U.S. District Court for the Southern District of New York, Judge George Daniels confirmed the award.

Konstantinos Karetsos and Greta Rothstein began their New York Stock Exchange arbitration in February 2006. The married couple accused Merrill Lynch and several of its employees of alleged deceit, fraud, conspiracy, deceptive practices, misrepresentation, obstruction of justice, material omissions, unauthorized transactions, unsuitable investments, gross negligence, breach of fiduciary duty, and account management related to their money market fund purchase.

Arbitration proceedings took place over a six-day period. On the 4th day, the arbitration panel dismissed claims against three Merrill Lynch employees with prejudice. At the end of the proceedings, more claims against Merrill Lynch and a fourth employee were dismissed with prejudice.

The arbitration panel also found that claims against one Merrill Lynch employee were obviously erroneous and that the couple had filed claims against another employee who did not take part in the “alleged investment-related sales practice violations.”

According to the district court, the opposition that was noted in the couple’s pro se pleadings appeared to be based on many of the arguments they made in arbitration. Judge Daniels also said that the couple’s “vague and conclusory” terms” impugned the arbitration panel's “integrity and neutrality.”

Commenting on Merrill Lynch's arbitration award, Securities Arbitration Attorney William Shepherd said, “Investors who do not hire a lawyer, or hire one without experience in securities arbitration, fare very poorly in claims against brokerage firms. While securities arbitration has less formalities than court cases, investors simply cannot alone understand how to properly present their claims to the arbitrators.”

Related Web Resources:

Rothstein et al v. Fung et al, Justia

Change in Arbitration Panels Will Allow Investors Only, NY Times, July 25, 2008

Continue reading "District Court Confirms Merrill Lynch Arbitration Award in Investor Dispute" »

The Financial Industry Regulatory Authority says it has set up an arbitration process designed to resolve claims involving auction-rate securities. Parties now have the option to have their claims reviewed by an arbitration panel with members that are not connected with any firm that may have recently sold the securities.

FINRA says the process was developed following the system it set up for Citigroup’s settlement with the Securities and Exchange Commission. Earlier this month, Citigroup Inc. reached an agreement with state and federal regulators to redeem $7.3 million in illiquid auction rate securities that retail investors had purchased, as well as pay $100 million in fines. The agreement was to settle charges over misconduct related to sales practices.

FINRA Dispute Resolution President Linda Fienberg says it is only fair that all investors with auction-rate securities claims be given the opportunity to resolve their disputes in the same way. She said that FINRA would work hard to put the process in place so that claims wouldn’t be delayed unnecessarily. Persons that since January 1, 2005 have sold auction-rate securities, worked for a company that sold the securities, or supervised the selling of the securities cannot be on the panels.

FINRA Creates Process for Arbitrations Involving Auction Rate Securities, Marketwatch.com, August 7, 2008

Citigroup Returning $7 Billion To Auction-Rate Securities Investors, Courant.com, August 8, 2008

FINRA

Continue reading "FINRA Rolls Out New Arbitration Process for Auction-Rate Securities Claims" »

Citigroup Global, Merrill Lynch, Wachovia Securities, UBS, Charles Schwab, and Morgan Stanley have volunteered to participate in a Financial Industry Regulatory Authority pilot program that would allow investors to have their cases heard by a panel consisting of three public arbitrators. Currently, investors have the option of having their cases dealt with by a panel made up of two public arbitrators and one non-public arbitrator.

Investors that choose to participate in the pilot plan and the firm they have filed a claim against will be given the same three arbitrator lists that those involved in regular arbitration proceedings would receive. The parties can strike the same number of names from the lists and rank according to preference the names of arbitrators they are willing to have on the panel. Parties participating in the pilot can cross out the names of all non-public arbitrators.

Except for Charles Schwab, all of the firms will submit 40 arbitration cases annually for the duration of the two-year program. Schwab will refer 10. However, the decision of whether to avail of this new panel model will be left to the investor. The pilot is available for eligible claims filed after October 6.

The program’s results will be assessed, including who decides to participate in the pilot, who decides to avail of an all-public panel, the duration of the hearings, and the outcomes of both pilot and non-pilot claims. FINRA CEO Mary Shapiro says the pilot “better serves and protects the interests” of investors.

“This is really a political move," says Securities Arbitration attorney WIlliam Shepherd. "An outcry from consumer advocates has resulted in a bill Congress to make ‘pre-dispute arbitration’ clauses in consumer contracts un-enforceable. Some lawmakers want investors to be included as consumers protected by the bill.

"Wall Street brokerage firms are lobbying hard to exempt themselves from this mandatory arbitration ban," adds Shepherd. "Despite its name, FINRA is the former National Association of Securities Dealers, a non-profit corporation owned by brokerage firms. FINRA is attempting to show Congress it is willing to reform securities arbitration rather than end it. Doing away with the ‘industry arbitrator’ is one of the so-called reforms it is proposing.”

Related Web Resources:

Test Lets Investors Pick Form of Arbitration Panel, The Wall Street Journal, July 25, 2008

FINRA to Launch Pilot Program to Evaluate All-Public Arbitration Panels, BusinessWire.com, July 24, 2008

FINRA

Continue reading "FINRA Pilot Program Offers Up All-Public Arbitration Panel to Hear Investor Claims" »

The U.S. District Court for the Eastern District of Michigan has concluded that Mouayad Shammami, an investor that is accusing brokerage firm Broad Street Securities Inc. of fraudulently inducing him to change his investment goals, must arbitrate this dispute rather than pursue the matter through the courts.

In 2004, Shammami entered into an agreement with Broad Street stating that the brokerage firm would give him investment and management advice. Broad Street and clearing broker Pershing LLC had their own agreement between them that allowed Broad Street to ask Pershing to trade securities for Shammami. Shammami and Pershing entered into a marginal agreement in 2005, which contained a pre-dispute arbitration clause.

In 2007, Shammami filed a lawsuit alleging that Broad Street and Pershing traded securities and churned his account without honoring his stated investment goals. Pershing and its parent company Bank of New York Mellon LLC filed a motion to have the case dismissed. Per the terms of the agreement with Shammami, both firms wanted to resolve the dispute in arbitration.

In its opinion, the court said that there was “no allegation” that Shammami was fraudulently induced into agreeing to the arbitration provision, which was included in its contract with Pershing LLC.

As a result, even if the charges applied to the margin agreement, they would be applicable to the entire contract and therefore must be dealt with in arbitration.

The stockbroker fraud law firm of Shepherd Smith and Edwards has recovered $100 million in investor losses for our clients in negotiation, mediation, arbitration and litigation. We would be happy to discuss your case during a free consultation.

Related Web Resources:

Shammami v. Broad Street Securities, Incorporated et al, Justia

Arbitration, SEC

Broad Street Securities

Pershing LLC

Some folks resolve their disputes by going on TV, where they also get paid and enjoy their 15 minutes of fame (or infamy). But what does a TV judge do to resolve disputes and, perhaps, gain notoriety? Take his case to the U.S. Supreme Court!

TV trials are really arbitrations. The parties sign an arbitration agreement to resolve their disputes on TV. The shows pay each party so, reportedly, no one is actually out any money. One participant or the other may walk away with more than the other, or even all the money. The loser gets rid of the claim and, more importantly, is a loser on national TV. (Hey, people agree to eat worms, get caught cheating on their mates or to getting “punked,” proving some people will do anything to get on TV.)

TV’s “Judge Alex” is a male version of “Judge Judy” (only prettier). Allegedly, Florida State Judge Alex Ferrer, gave up his real judge gig in 2002, to try his luck on TV, though the help of promoter Arnold Preston, who claims Judge Alex agreed to pay him 12% of his income. After Judge Alex made the big time he decided he did not have to pay Preston because Preston was not a registered talent agent under California law. Preston claims he is a manager, not an agent, and does not have to be registered.

As the battle began, Preston says an arbitration agreement in the contract between the two governs how disputes must be decided. Judge Alex claims a California Commission must first decide whether the contract is even legal.

The case may not be as scintillating as Judge Alex’s own cases, including episodes such as "Deli Defamation," "Pool Shark Blues" or "Mover's Smash Up," aired in 185 syndicated markets. However, legal scholars say the case is important enough for the Supreme Court to decide because the outcome affects whether the Federal Arbitration Act preempts (has more force) than the State of California’s laws regulating talent agents.

The Supreme Court Justices have not decided the case, but heard “oral arguments” this week. In reality, “oral arguments” are when the Justices grandstand as they grill the lawyers on their positions. Not much different than TV justice shows, really, except “The Supremes” do not allow cameras - or not yet.

The justices do not appear to be buying Judge Alex’s argument. "I used to teach contract law," Justice Antonin Scalia said, "and I am sure that when you say you'll arbitrate, it means you won't litigate." A postponement to let the California Commission decide "virtually destroys the value of arbitration," stated Justice David Souter, "They don't want to go to arbitration eight to 12 months later, they want to go now." Justices Ginsburg and Kennedy scoffed at Judge Alex’s attorney for contending it was "undisputed that Preston was an unlicensed agent.”

What’s really at stake? The U.S. Chamber of Commerce and various a trade associations have weighed in to oppose Judge Alex. They say a state court must not interfer with arbitration, which they consider a faster and cheaper alternative to litigation. Many believe that argument is just code for “we do not want plaintiffs to have their cases decided by a jury of their piers.”

Consumer advocates in Congress are now attempting to outlaw arbitration clauses in consumer contracts, including agreements with stockbrokerage firms. Yet, it appears the U.S. Supreme Court is not wavering in its almost universal support of arbitration agreements over the past 20 years. Meanwhile, it is odd that Judge Alex, who himself arbitrates disputes daily, would be the poster child for avoiding arbitration agreements.

The securities fraud speicialists at Shepherd Smith and Edwards law firm have represented thousands of investors in securities arbitration against hundreds of securities firms, including all major U.S. stock brokerage firms. Our experienced attorneys and staff assist investors who have lossed in securities and other investments based on the wrongdoing of investment brokers and advisors or their firms. If you or someone you know might be a victim of such conduct, contact Shepherd Smith and Edwards for a free case evaluation by one of our attorneys.

On December 12, The North American Securities Administrators Association told the Senate Judiciary Constitution Subcommittee says that it is calling for a voluntary securities arbitration system. NASAA also approves of the proposed Arbitration Fairness Act (S. 1782).

NASAA says that right now, nearly every broker-dealer has to include a pre-dispute arbitration provision in its customer agreements that says public investors must submit any disputes with a firm and its associates to an arbitrator.

Illinois Secretary of State and Illinois Securities Director Tanya Solov says that mandatory arbitration is unfair to investors and that the securities arbitration system should be voluntary. Currently, arbitration panels are made up of one mandatory securities industry representative and public arbitrators that may have connections to the securities industry.

She expressed the concern that even though independent arbitrators are supposed to be conflict-free and therefore qualified to make a decision about a conflict, these arbitrators can't help but bring their own experiences and training to the panel. Solov also called for FINRA to revise its statistics about arbitration outcome. She said that just because an investor recouped a small amount of his or her losses, this didn't necessarily constitute a win for him or her.

Congressional Research Service says that the legislation, introduced on January 12, would:

• Make no predispute arbitration deal enforceable or valid if arbitration of “(1) an employment, consumer, or franchise dispute, or (2) a dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power is required”

• Allow a court, instead of an arbitrator, to determine an agreement’s enforceability or validity.

• Render arbitration provisions in collective bargaining agreements from this S. 1782, the Arbitration Fairness Act of 2007 exempt.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents investors who are trying to get their money back in arbitration or in court.
Our stockbroker fraud lawyers have helped thousands of clients get their lost investments back. Contact Shepherd Smith and Edwards today.

Related Web Resources:

North American Securities Administrators Association

S. 1782, the Arbitration Fairness Act of 2007 (PDF)

Congressional Research Service

A $2.4 million NASD Arbitration Award to a former UBS financial adviser, who was fired in 2003 by the company that preceded UBS PaineWebber Inc. is being upheld by the U.S. District Court for the Western District of North Carolina. The court said that it did not agree with UBS’s theory that the arbitration award did not honor provisions made in the arbitration contract or that it was in manifest disregard of the law.

Former financial adviser W. Van Pelt Jr. had served as a financial advisor UBS and its predecessor JC Bradford from 1999-2003. Upon his hiring, he filled out a Form U-4 industry form in which he agreed to not hold UBS liable if it provided specific information, including notice of termination.

He was let go in January 2003 during an internal probe. UBS filed a U-5 form reporting Van Pelt’s termination because of “concerns of conduct” in a matter involving a customer transaction. On the form, UBS said that Van Pelt was not under investigation because the probe was already over at that time.

Van Pelt started NASD arbitration proceedings soon after. He cited defamation, breach of fiduciary duties, and negligence among the tort claims that he cited. An arbitration panel ruled against UBS in 2005. The firm was ordered to pay the former UBS broker $2.4 million in compensatory damages and $16,579 million for expert witnesses.

The panel said that the Form-5 that UBS filled out included defamatory language in its explanation of Van Pelt’s firing and suggested that UBS revise the wording. The panel asked UBS to submit an amended form stating that Van Pelt was being investigated and to provide details of the probe.

In affirming Van Pelt’s award, the court said that even though Form U-4 did release UBS from liability regarding information it included on Form U-5, UBS could easily be held liable based on Van Pelt’s other claims, which included conversion, interference with contractual relations, or breach of duty of good faith and fair dealing.

If you are an investor who has lost money because of broker misconduct, your best chance of recovering your losses is to speak with a securities litigation attorney right away. Shepherd Smith and Edwards has helped thousands of investors across the United States get their money back.

At Shepherd Smith and Edwards, our securities fraud attorneys believe in holding shady brokers liable for their misconduct—not in rewarding them. Contact Shepherd Smith and Edwards today and ask for your free case evaluation.

Related Web Resources:

UBS

United States District Court, Western District of North Carolina

A recent study conducted by the Public Investors Arbitration Bar Association indicates that securities arbitrators frequently agree to erase past settlements that were paid to investors from brokers’ records. Removing brokers’ settlement payments from their histories could cause future investors to not find out about the brokers’ past misconduct.

The study reveals that 99% of the time, FINRA arbitrators are the ones who suggest expunging these records. Over 70% of these decisions were made without hearings, even though there are new rules in place that say that a record can only be expunged if the complaint is false, erroneous, or did not involve the broker that was accused.

FINRA disagrees with the study results and claims expungements have dropped dramatically since the new rules were put in place in 2004.

According to a number of securities litigation lawyers, FINRA officers, and regulators, arbitrators are not the only ones at fault. 93% of the time, the people filing complaints are small investors that agree to not contest an expungement as part of their settlements.

Melanie Senter Lubin, Maryland’s securities commissioner, says that most claimants are more focused on receiving compensation from brokers that they believe misled or defrauded them than they are about preserving the integrity of the brokers’ disclosure system.

The study examined 200 cases from 2006. In these cases, parties reached settlements based on the claims’ merits and without hearings. FINRA says that these cases are just a small percentage of the cases that were settled last year and that the study had been selective when citing statistics.

Public Investors Arbitration Bar Association President David B. Caruso says that the specific cases that were chosen for the study were the ones that regulators had expressed concern over because no arbitrators had been involved in the hearings. Caruso also said that even though investors wanting settlements could be held partially responsible for the expungements, it was up to arbitrators to figure out whether the settlements should be expunged from broker's records.

In one case, Karsner & Associates broker Joseph Karsner IV allegedly recommended that investors make investments that were not suitable but did not properly notify them of the risks. Karsner’s lawyer has denied the allegations. Settlements were reached between Karsner and the investors that complained. Arbitrators consented to 18 expungements for Karsner.

If you are an investors that has lost money because of the misconduct of a broker or a brokerage firm, Shepherd Smith and Edwards would like to offer you a free consultation. Our securities litigation lawyers are dedicated to helping investors that have been the victim of broker misconduct recover their losses. We have helped thousands of investors throughout the United States.

Contact Shepherd Smith and Edwards today.

Related Web Resources:

Brokers' Settlement Records Often Wiped Clean, Washington Post, September 25, 2007

Public Investors Arbitration Bar Association

FINRA

Industry arbitration critics want the Financial Industry Regulator Authority to forbid “public” arbitrators from having any connections to the industry. Although the majority of arbitration panels in the industry continue to be made up of one industry member and two “public” panelists, critics say that the public members are not actually public—especially if the arbitrator has any industry ties.

Investor attorneys want FINRA to adopt a “zero tolerance” policy toward any public arbitrators that have a connection to the industry.

Public arbitrators currently can have up to 10% of their yearly income from the last two years come from clients that participate in activities related to the securities industry.

FINRA has suggested limiting the revenue amount that a public arbitrator can earn from brokerage firms for overseeing disputes to $50,000. This proposed rule awaits approval from the SEC. The purpose of the rule is to allow defense attorneys that don’t work a lot in the industry to keep serving as “public” panelists.

Plaintiff’s attorneys have praised the $50,000 proposed limit but say that to call someone a “public” arbitrator that is “neutral” when he or she has industry connections is misleading. State regulators are in agreement and have called for FINRA to remove any semblance of bias from the arbitration forum.

The SEC is considering all feedback and will very likely not rule on FINRA’s proposal until later this year.

Whether you choose to pursue your investment losses through litigation or arbitration, it is important that you retain the services of an experienced securities litigation law firm so that you can maximize the results and obtain the most successfully outcome possible for your case.

At Shepherd Smith and Edwards, we are one of the law firms on record that advocates the zero tolerance policy of no ties between the industry and public arbitrators. We have successfully represented thousands of investors in arbitration and in federal and state courts. We are committed to helping our clients recoup their investment losses caused by the negligence or wrongful actions of members of the securities industry.

Contact Shepherd Smith and Edwards today and ask for your free consultation with one of our securities litigation attorneys.

Related Web Resources:

FINRA urged to cut industry ties for arbitrators, Investment News, September 4, 2007

FINRA

U.S. Securities and Exchange Commission

FSC created "an extremely cozy environment for a man bent on defrauding his customers," said three NASD Securities Arbitrators, “management ineptness was broad" and the firm ignored red flags that the broker had "selling away" issues (using one's status at a firm to aid in the sale of investments not approved by the firm).

FSC Securities of Atlanta, part of the AIG Financial Group, had warning when it hired broker Scott Hollenbeck that he had problems during his past employment, said a panel of three arbitrators in their award to several investors. During his past employment, they say, he even embezzled money from a church organization.

Hollenbeck was based in Kernersville, N.C. where he was employed by FSC for over 5 years, ending in 2002, not counting a 20 month hiatus. Not named in the arbitration claim, Hollenbeck faces charges over an alleged Ponzi investment scheme which reportedly took place after he left FSC and included the use of billboards.

Securities arbitration is a private process, without records available to the public, and the decisions made ("awards") generally do not include much discussion about the case. However, these arbitrators saw fit to blast FSC while awarding victims almost $700,000, including legal fees and expenses. FSC claims the award includes payment to non-parties to the arbitration, a problem for all the victims if true and the award is challenged.

Shepherd Smith and Edwards represents investors nationwide in claims against members of the securities industry. We have represented investors in more than 1,000 securities arbitration cases. To learn whether we are able to assist you with a claim contact us to arrange a free consultation with one of our attorneys.

A NASD arbitration panel ordered Merrill Lynch & Co. Inc. to pay an Iranian former employee $1.6 million, for claims that his boss set him up to be fired after discovering his ethnicity. Merrill is currently defending a suit filed in court by another Iranian who has also accused the firm of discrimination.

In an unusually lengthy decision, the securities arbitration panel awarded Fariborz Todd Zojaji $400,000 in compensatory damages and $1.2 million in punitive damages. The arbitrators explained that Merrill Lynch defamed Mr. Zojaji in a required exit disclosure form (Form U-5), which "destroyed claimant's ability to become employed in the securities industry."

This language may cause the award to be undone, since it was recently determined that brokerage firms have total immunity for statements made in such disclosures. Yet, the standard for vacating arbitration awards is quite high and a court could let the decision stand if it determines the arbitrators could have decided the case for any other reason. It is also possible the arbitrators heard evidence that the derogatory statements made in the U-5 were stated orally or in writing elsewhere, thus not be protected by the privilege.

The panel said an internal investigation of Zojaji was "so reckless and wanting in care that it constituted a conscious disregard and indifference to the rights of claimant." It also described that Mr. Zojaji, a broker in suburban Miami had been on a management track before his former manager relegated him to a reduced role after the terrorist attacks on September 11, 2001. In November 2004, Mr. Zojaji was fired on his manager’s charges he made unauthorized trades in two clients' accounts and broke the firm's privacy policy by allowing his wife to act as a translator during a phone call with a client who spoke Spanish.

Such determinations may keep the award viable even if the defamation claims are determined to be “manifest disregard for the law” by the arbitrators. While “manifest disregard” is not one of the statutory routes of overturning an arbitration award, it can be used in most jurisdictions as a “common law” reason to vacate an award. If the award is vacated, Mr. Zojaji would need to then file a new claim in arbitration to be determined by different arbitrators.

NASD securities arbitrators are not required to give reasons for their awards, which many lawyers would like to see changed. However, Mr. Zojaji’s and his lawyer are likely wishing the three arbitrators had simply awarded him the money without any discussion. It is likely that the parties will resolve the issue for a lesser amount rather than face lengthy litigation, and possibly additional arbitration to arrive at a final result.

Shepherd Smith and Edwards represents investors nationwide in claims against members of the securities industry. We do not represent brokerage firms but we often represent brokers who are victims of the conduct of brokerage firms. Whether client or broker, if you have a claim against a financial firm contact us to arrange a free consultation with one of our attorneys.

The California Supreme Court and a U.S. Court of Appeals have both determined that securities arbitration standards do not violate the California Constitution. The courts have instead decided that The Federal Arbitration Act preempts (is superior to) California's ability to govern securities arbitration.

Rapidly growing arbitration is forcing consumers to, often unknowingly, forego their right to go to court. To protect its citizens from injustices in arbitration the California legislature passed legislation in 2001 ordering the California court system to create ethical standards for commercial arbitrators. Comprehensive standards were then created regarding arbitrators, including disclosure and conflict-of-interest checks.

The NASD's Arbitration Code is not consistent with these new standards and the NASD refused to make adjustments to comply with the California requirements. It instead sued members of the California court system in federal court seeking a ruling that California could not set standards regarding securities arbitration. In November 2002, the US Court dismissed the lawsuit holding the US Constitution barred the suit in federal court.
The NASD appealed.

Meanwhile, the California Supreme Court ruled that federal arbitration law preempts the standards set by California court system "at least in the context of self-regulatory bodies like NASD." The federal court then came to the same conclusion.

These decisions mean that California and other states have no power to protect their residents from arbitration standards of the NASD they believe are substandard. The NASD is the National Association of Securities Dealers, Inc., an association owned and operated by members of the securities industry with oversight by the SEC.

Virtually all claims by investors against investment firms must be filed in securities arbitration. Since 1990, the law firm of Shepherd Smith and Edwards has represented investors nationwide in more than 1,000 claims against investment firms. You may contact our law firm to arrange a free confidential consultation with one of our attorneys.

In two related decisions the a New York U.S. Bankruptcy Court determined that a failed broker-dealer must arbitrate (under the NASD Code of Arbitration) its differences with a former registered representative and the firm that hired him -- even though the defunct firm is no longer is an NASD member -- and that an arbitration agreement is even enforced when the party seeking recovery is in bankruptcy.

According court records, in 2000, M. Carleton Boothe went to work for NASD member firm Continental Broker-Dealer Corp. and received $300,000 he was to repay if he left the firm within five years other than through death or disability. Boothe resigned in 2004 and joined Gunnallen Financial Inc. Continental soon closed and was expelled from the securities industry.

After Continental was then thrown into bankruptcy, the bankruptcy court trustee for Continental sought to recover the unpaid balance of the note from Boothe and to obtain damages from Gunnallen Financial for claims including “raiding” its brokers and stealing its clients. Boothe and Gunnallen then sought to enforce certain arbitration agreements to move these actions from bankruptcy court to NASD arbitration. The bankrultcy court agreed.

Claims against brokerage firms and/or their representatives virtually always be determined in securities arbitration, not in court. This is because investors almost universally execute agreements containing agreements to arbitrate. Meanwhile, in their licensing agreements, all NASD member firms and registered representatives also agree to arbitrate any and all disputes with other member firms or registered representatives. (Such agreements do not cover disputes totally unrelated to the securities industry.)

Prior to these decisions, it was uncertain as to whether arbitration agreements could be enforced by defendants seeking to avoid being taken into a bankruptcy court by a bankruptcy trustee, in a suit for damages or to collect a debt alegedly owed to the bankrupt person or entity. (Parties being sued in bankruptcy court by a bankruptcy trustee often feel they can not get a favorable outcome and may prefer to have claims against them determined in arbitration.)

Furthermore, these decisions hold that, even if a brokerage firm or broker is no longer in the securities industry, an arbitration agreement in place at the time of the wrongdoing and/or when the claim arose is enforceable by either party to the agreement to keep the claim from going to court, even bankruptcy court.

While the facts of any matter can result in a different outcome, these decisions likely mean an investor must arbitrate with, and can not sue, a former securities broker, securities firm or those who controlled that firm, for claims which arose when those parties were in the securities industry. As well, if an individual or institution investor is in bankruptcy, the investor’s claim against either a current or former broker or firm will likely not be determined in bankruptcy court but instead in arbitration, with any funds awarded then turned over to the bankruptcy trustee.

In re Continental Broker-Dealer Corp. (Stern v. Boothe), Bankr. E.D.N.Y., Case No.: 04-85318-JBR; Adv. Pro. No.:806-08370-JBR, 5/9/07; In re Continental Broker-Dealer Corp. (Stern v. Gunnallen Financial Inc.), Bankr. E.D.N.Y., Case No.: 04-85318-JBR; Adv. Pro. No.: 807-08003-JBR.

Over the past 17 years, Shepherd Smith and Edwards has represented institutional and individual investors in more than 1,000 claims in securities arbitration. Less than a handful of other law firms can claim such experience in this field. If you or your company has sustained significant investment losses, contact Shepherd Smith and Edwards to schedule a free conficential consultation with one of our attorneys.

U.S. Senator Robert Casey of Pennsylvania has joined the efforts of two other U.S. Senators, and others, to persuade the SEC to lift the requirement mandating arbitration when there is a security dispute. Senator Casey expressed his opinion earlier this week at the yearly public policy conference hosted by the North American Securities Administrators Association Inc. (NASAA) of Washington. Mr. Casey said he would use his position as a Banking Committee member to push the SEC on this matter.

Senator Russ Feingold of Wisconsin and Senator Patrick Leahy of Vermont had written a letter to the SEC just last week requesting that mandatory arbitration in securities disputes be banned.

Currently, most investors are required to sign agreements mandating that they take their disputes to an NASD-operated arbitration system. NASAA has asked the U.S. Congress to consider letting investors bring their disputes to the courts.

At a separate panel on investor protection, Ira Hammerman, senior vice president and general counsel of the Securities Industry and Financial Markets Association, spoke in favor of the arbitration system. He sees it as a more efficient way for customers to have their claims addressed. He did say that because arbitration was becoming more like litigation, however, there could come a time when it might not make sense to pursue arbitration.

Bryan Lantagne, the director of the Massachusetts Securities Division, spoke against the arbitration system. He cited a lack of forum choice for investors and the fact that industry arbitrators, as arbitration panel members, got to issue decisions regarding claims made by investors. He also pointed out that investors did not usually receive written decisions, nor did they have the right to appeal decisions. He also spoke out against a recent proposal by the Committee on Capital Markets Regulation that would allow company shareholders to be come part of the arbitration system.

Shepherd Smith and Edwards has helped thousands of investors recover funds by representing them in arbitration and/or mediation proceedings. Our firm is made up of a team of experienced lawyers, consultants, and others that are committed to helping our investor clients who have been victimized by the wrongful action of members of the securities industry. Contact Shepherd Smith and Edwards today to schedule your free consultation.

Related Web Resources:

Senators urge end to mandatory arbitrations, Investment News, May 8, 2007

North American Securities Administrators Association

The SEC is considering a new policy that could let companies resolve shareholder complaints via arbitration. If adopted, this policy could limit a shareholder’s ability to sue the company in court.

A move toward arbitration could shift the balance of power between corporate managements and shareholders during a time when the balance has been more and more in favor of shareholders. The change could also restrict shareholders’ ability to recover financial, as well as other kinds of compensation from corporations.

The SEC is also examining whether corporations should be allowed to change their bylaws to make room for arbitration. This type of amendment will, in some cases, require the approval of shareholders.

Christopher Cox, SEC chairman says he doesn’t see arbitration as a remedy for all problems. He has a track record of trying to limit what he considers to be excessive securities regulation. Just this year, the SEC supported business in a “friend of the court” brief that was part of a Supreme Court case that had to do with the standards needed by a plaintiff to have a case go forward. According to the SEC, it was supporting the standard that was approved by most of the appeals courts.

A blue-ribbon committee suggested arbitration as a dispute resolution last November. An SEC roundtable may be a forum where this issue could be addressed.
There are many kinds of disputes that are already being settled through arbitration. Companies often include arbitration clauses in their contracts and brokerage firms insist that clients resolve claims in front of an arbitration panel.

There are many out there who claim that the possibility of shareholder lawsuits has helped remove some of the competitive edge among U.S. financial markets. In 2006, U.S. companies settled about 95 shareholder class action suits for alleged misconduct, paying a collective total of approximately $17.6 billion. Those who oppose these kinds of lawsuits say that lawyers are getting rich at the shareholder’s expense because of these cases and companies that might have listed stock in the US are now scared to do so as a result.

Giving companies the choice of arbitrating shareholder disputes could likely result in staunch opposition from trial lawyers and groups representing investors’ rights. Arbitration critics claim that the panels used by brokerages usually side with the industry instead of the consumer. Also, consumers’ rights to look at and review important information from the opposition is not as clear as in litigation.

Many arbitration hearings take place in private, instead of public. Last year, 42% of investors who settled their disputes against brokers in arbitration were compensated. The National Association of Securities Dealers says those figures are down from the 53% of 2000. Even though settlement figures are higher than in past years, the total number of securities class-action lawsuits filed has reached its lowest point in the last decade—says Stanford Law School and Cornerstone Research.

If arbitration continues to gain momentum, a few consumer groups could become worried that by limiting shareholder litigation, the country will lose a powerful means of preventing corporate wrongdoing. Shareholders may also have to pay for hiring a lawyer instead of filing a suit with a class.

If the SEC lets shareholder disputes be resolved in arbitration, this could further decrease the influence the plaintiffs bar’s influence. Recent SEC talks seem to be part of a number of initiatives designed to lower the regulatory burden on U.S. businesses. The SEC has even revised how commissioners review cases involving possible corporate penalties. Instead of waiting until the SEC staff arrived at a preliminary settlement, the revision allows commissioners to get involved earlier. SEC Chairman Cox says this will result in quicker resolutions and stricter penalties. Staffers have expressed concern that the change could deter staff lawyers from pursuing penalties.

A move toward arbitration would be a major policy change by the SEC in the way it interprets federal securities laws.

Shepherd Smith and Edwards represents investors that have filed claims against brokerage firms and their employers for misconduct resulting in investors losses. We have successfully helped thousands of investors across the country recover their losses. Contact Shepherd Smith and Edwards today at firm@sselaw.com or by calling (800) 259-9010 for your free consultation.

SEC Explores Opening Door To Arbitration, Wall Street Journal, April 16, 2007

Related Web Resources:

Securities and Exchange Commission

How The Securities Arbitration Process Works

After the U.S. Supreme Court decided to let brokerage firms make customers sign arbitration agreements, a lot of people thought that this was a faster, less expensive alternative than letting investors take their claims to courts. Recently, however, what seemed like a good way to resolve disputes between brokers and investors has come under close scrutiny.

Certain regulators and lawmakers are now saying that the system needs to be reviewed. According to William Galvin, the Massachusetts Secretary of the Commonwealth of Massachusetts, the arbitration side of disputes need to be fairer and not “stacked against” investors.

These kinds of concerns are taking on a new importance in the wake of the upcoming consolidation of the NYSE Group Inc.’s New York Stock Exchange and the National Association of Securities Dealers.

In arbitration, no broad right of appeal exists, and a three-person panel (rather than a jury of peers) hears the case. One benefit, however, is that disputes can move a lot more quickly through the arbitration system then in a court of law.

Some critics say that the arbitration system has become a lot like the court system that it sought to replace. Others have questioned the system’s fairness, in light of the fact that an industry-affiliated arbitrator sits on each panel. Representatives for investors have voiced concerns that arbitrators that depend on brokerage houses for their salaries may find it difficult to remain impartial.

In addition, there is a falling win rate among investors involved in arbitration disputes. Just 42% of investors won cases in NASD arbitration last year. Also, winnings are often smaller than what an investor had initially claimed if the claim is made against a big firm—reports a new study. In a study that hasn’t been finalized yet, clients’ recovery rates against Morgan Stanley, Merrill Lynch & Co., and Smith & Barney was reportedly at just 10%. (However, indications are that clients who retain attorneys experienced in this area of the law recover at far higher rates.)

Many claims are not reviewed by an arbitration panel. Last year, 81% of customer claims were resolved by mediation or settlement. It is possible that the 19% of cases that do arrive in front of a panel are the ones that brokerage firms believe they stand a good chance at winning.

Shepherd Smith and Edwards is a law firm committed to representing investors who have incurred losses because of brokers and brokerage firms. We have helped thousands of investors recuperate investment losses. Our record against major brokerage firms, as well as smaller firms, is far greater than the reported averages Contact Shepherd Smith and Edwards online, and your first consultation is free.

Related Web Resource:

Arbitration and Mediation, NASD

A panel of arbitrators has found that the former chairman and CEO of Gemstar-TV Guide International Inc. breached warranties and representations that he made to the company. The arbitration panel is ordering Henry Yuen to pay $93.6 million in fees, damages, and back pay to Gemstar. According to the panel, Gemstar was within legal bounds to fire Yuen in April 2003, because of his misconduct relating to a corporate and management restructuring that took place in 2002. The panel also decided that Yuen is not entitled to the $39.9 million dollars he says that the company owes him because he was displaced as CEO and chairman due to the restructuring.

The ruling by the arbitration panel has rejected all of Yuen’s wrongful termination-related claims. This includes approximately $6.9 million in attorney’s fees that were given to the former CEO, some $6.1 million in salary paid to the former CEO since he was let go, and, for breaches of warranties and representation, approximately $80.6 million in damages. The panel also decided that it agrees with Gemstar’s claim that the Patent Rights Agreement between Yuen and the company will stay effective until 2010.

The judgment means that Yuen is not allowed to receive any more advancement of legal fees or indemnification for any matters related to his alleged misconduct. The panel also decided that Gemstar has the right to another judgment for costs and attorneys fees. The arbitrators will decide what this amount will be at a future date. In the meantime, Gemstar says it will pursue the amounts awarded to them from Yuen.

A lawsuit filed by the SEC in March last year found Henry Yuen guilty of committing securities fraud and violating the federal securities law’s recordkeeping and reporting requirements. The Securities and Exchange Commission also said that, in an effort to fulfill Wallstreet’s expectations, Yuen inflated revenues by hundreds of millions of dollars and gave false information to company auditors.

The U.S. District Court for the Central District of California ordered the former Gemstar CEO to pay a total of $22.3 million in penalties, interest, and disgorgement fees. He may still face criminal charges for his alleged misbehavior.

An attorney for Yuen says that his client will be appeal the SEC ruling first and then appeal the panel’s findings. Yuen claims that he agreed to resign as CEO and chairman if Gemstar would pay him $30.9 for stepping down. The agreement also absolved the former CEO of any losses caused by his actions. Yuen claims he did not engage in any misconduct while working at Gemstar.

At Shepherd, Smith, and Edwards our team of attorneys and consultants are experienced in dealing with the securities industries. We have represented thousands of clients across the U.S. who have needed our help as a result of financial losses they experienced because of someone else’s misconduct. Contact Shepherd, Smith, and Edwards today to schedule your free consultation.

Related Web Resources:

Gemstar-TV Guide International

Former Chairman and CEO of Gemstar-TV Guide International, Inc. Ordered to Pay Over $22 Million for Role in Accounting Fraud, SEC.gov, May 10, 2006

SEC Sues Three Additional Former Senior Executives of Gemstar-TV Guide For Their Part in Financial Fraud, SEC.gov, January 6, 2004