Reuters: Regulatory News: Broker who sold firm's troubled securities wins $4.3-mln arbitration

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Broker who sold firm's troubled securities wins $4.3-mln arbitration Sep 26th 2013, 15:05 By Suzanne Barlyn NEW YORK Sept 26 | Thu Sep 26, 2013 11:05am EDT NEW YORK Sept 26 (Reuters) - An unusual arbitration decision which allowed a broker to collect nearly $4.3 million from his former firm for having encouraged him to sell mortgage-backed securities that tanked, could spawn similar complaints from other brokers. The ruling, issued late Wednesday by a Financial industry Regulatory Authority arbitration panel, requires Los Angeles brokerage Wedbush Securities Inc. to pay the broker. He had alleged that the firm failed to properly disclose the risks of the securities. Clients who bought them later lost money and filed their own complaints against the firm, which now appear on the broker's permanent record. He said he lost clients and income, according to the ruling. The decision could open the door to cases by other brokers who have become targets of customer arbitrations cases, after the securities that their firms had promoted as safe later failed, securities lawyers say. "I've never heard of anything like that," said Michael Sullivan, a lawyer in Morristown, New Jersey who represents brokers. The case means more brokers may seek compensation from their firms if their businesses are hurt by passing along the misleading claims of their brokerages to customers, Sullivan said. A spokesman for Wedbush was not immediately available for comment. The former broker, Michael Farah, became entangled in a string of arbitration cases filed by customers against Wedbush in the mid-2000s, stemming from mortgage-backed securities they had bought through him. Farah, who could not be immediately reached for comment, now runs a registered investment advisory firm in Newport Beach, California. The ruling includes $1.4 million in punitive damages against Wedbush. Punitive damages, aim to punish parties in legal actions for misconduct, are rarely awarded in securities arbitration cases, lawyers say. Link this Share this Digg this Email Reprints

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