blg secures $5.6 million finra award
NEW YORK--An arbitration panel has ordered Minneapolis-based broker-dealer NDX Trading Inc. and now-inactive TradeRight Securities Inc. to pay roughly $5.5 million to a group of 55 elderly investors who claimed their mutual funds were used as collateral for margin trading without their permission.
The investors, most of whom live in California, accused the firms of fraud and negligence, requesting millions in compensation as well as punitive damages, according to the ruling from the Financial Industry Regulatory Authority arbitration panel.
The investors started out as clients of Advisory Financial Services, a California-based broker dealer that was later jointly acquired by Enterprise Trust Company and TradeRight, according to Pat Baldwin, one of the attorneys who represented the investors.
The Securities and Exchange Commission charged Enterprise with fraud in 2008, alleging that the company induced hundreds of Advisory Financial Services customers to transfer custody of roughly $49 million in mutual funds to Enterprise.
Unbeknownst to the customers, Enterprise allegedly placed their investments into margin accounts where they served as collateral for leveraged margin trading--including options trading and short selling--intended to benefit other customers and some of its executives, the SEC said. More than $8 million in the customers' mutual funds were later sold without their knowledge in order to cover Enterprise's margin debt, the SEC alleged.
Mr. Baldwin said his clients brought their case against NDX Trading because it assumed the TradeRight accounts. Finra records show that TradeRight hasn't been registered with the regulator since 2009.
The investors involved in the case are mostly retired school teachers in their 70s and 80s, added Christopher Mader, another attorney for the group.
The arbitration panel found TradeRight and NDX Trading liable for about $1.8 million in compensatory damages plus five years of interest and $2 million in punitive damages. The panel also awarded the investors more than $500,000 in attorneys' fees and other costs.
NDX Trading didn't immediately return a request for comment.
As is customary, the panel didn't provide details on the reasoning for its decision, which was dated May 10 but made public on Wednesday.