The Investment News reports retirement investors won a $1.8 million FINRA arbitration award in Jackson against Raymond James for putting investors into penny stocks. It reports:

A three-person, all-public Financial Industry Regulatory Authority Inc. arbitration panel found in favor of 20 claimants who alleged they had been hoodwinked by a broker in the then-Morgan Keegan branch office in Jackson, Miss.

The penny stocks sales were for shares in CanWest Petroleum Co. and Ridgeway Petroleum Inc., two Canadian companies. The investments were put into individual retirement accounts. The companies were pitched by the Morgan Keegan broker as the next energy industry breakthroughs.

In reality, the broker was pushing firms that had no hope of turning a profit in transactions that were prohibited by the firm, according to the claimants’ attorney.

“These were sure losers,” said [Madison attorney] Judson Lee, “Any financial adviser who peeled back the layers to look at this would know they were unsuitable for clients. This was a wholesale failure to supervise a broker.”

The Plaintiffs filed their statement of claim in June 2017. The hearing took 32 session over a 7 month period in 2018-2019.

Here is the panel’s decision and Award.   The award included:

  • $1.1 million- compensatory damages;
  • $200,000- punitive damages;
  • $422,000- attorney fees;
  • $14,000- costs; and
  • $31,003- expert witness fees.

Jud Lee of Madison and Robert Greenlee of Flowood represented the Plaintiffs.

Terry Weiss and Stephanie Wayco with DLA Piper in Atlanta represented defendants.

My Take:

At least Defendants didn’t invest Plaintiffs’ money in cryptocurrency. No wait, that would have worked out better.

Overrated: Jury trials. The panel’s award was a big win for the Plaintiffs and is bulletproof from appeal. Who knows what a jury would do. But one thing is certain, there would be a lot of appeal issues and, who knows what an appellate court would have done.

Underrated: Jury trials. There were 32 hearing session between August 2018 and March 2019 at a cost of $1,300 per session for the panel arbitrators. Jury trials are faster and cheaper than arbitration and bench trials. Unlike in those forums, juries don’t get to go home before deciding the case or take 3 month breaks during the trial.

I am not opposed to arbitration in all instances. What most frustrates me about it is that the public justifications for it (cheaper & faster) are false. In my experience, it’s neither.