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NASD Arbitration Panel Awards Investor Commissions and Attorneys' Fees even though Account Profitable
A National Association of Securities Dealers (NASD) arbitration panel has awarded an investor all of her commissions paid, as well as attorneys' fees, even though the account returned a net profit of several hundred thousand dollars.
James J. Eccleston of Eccleston & Associates (which sponsors FinancialCounsel.com) argued that the brokerage firm, Reliance Capital, Inc., and its broker, Shashin Patel, "churned" the investor's account to generate excessive commissions. In 11 months, the investor paid $58,000 in commissions, on an average equity balance of about $1 million. That equity balance was turned over nearly 750% on an annualized basis in making over $7 million in purchases.
The arbitration panel rejected the brokerage firm's defense that it had no liability because the account made over $300,000 during the 11 month period. The investor presented legal authorities holding that investors may recover commissions paid when their brokers have churned their accounts, and that it simply is irrelevant that an account was profitable despite being churned.
Further, the investor presented evidence showing that, during the same period, alternative investments, such as growth stock mutual funds or index funds, would have fared equally well if not better, without being saddled with the burden of excessive commissions.
In addition to being fully reimbursed for commissions paid, the NASD arbitration panel awarded all of the investor's attorney's fees. State securities statutes and some common law claims provide for the recovery of attorney's fees.
Source: NASD Office of Dispute Resolution Award, June 11, 2001
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
investors nationwide in arbitration, litigation and regulatory matters, and a shareholder with the law firm
Shaheen, Novoselsky, Staat, Filipowski & Eccleston
P.C.(www.snsfe-law.com). This Web site contains material
of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment advisor when building and protecting your wealth.
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