An arbitration panel ordered UBS AG's (UBS) U.S. retail
brokerage to pay at least $5.4 million in damages and legal fees to
a former broker for business he said he lost after selling risky
investments that later went bad.
Edward Graham Dulin Jr. had alleged that UBS misled him and his
clients about the risks of so-called structured notes tied to
Lehman Brothers Holdings Inc., which collapsed in 2008, according
to a claim he filed in 2010 against UBS with the Financial Industry
Regulatory Authority.
Finra, the brokerage industry's self-regulator, oversees the
arbitration processes.
UBS denied the allegations and said it is considering appealing
the arbitrators' decision. The company "is disappointed with the
panel's decision, and believes it to be legally and factually
incorrect," a spokesman said.
Mr. Dulin, who left UBS in 2008 to join Bank of America Corp.'s
(BAC) Merrill Lynch in Scottsdale, Ariz, had testified on behalf of
clients who took UBS to arbitration to recover some of their
losses. His "ability to increase his asset base and his production
have been severely limited by the UBS Lehman note debacle," he said
in his claim.
The broker sold Lehman structured products to 71 clients, who
represented more than half of the $226 million in client assets he
managed in 2007, he said. The clients "sustained an almost complete
loss" when Lehman failed, even though UBS had described the notes
as safe, he said in his claim.
Structured notes often include equity and debt linked to
options, futures or swaps. They may offer higher returns than
fixed-income alternatives and some principal protection if held to
maturity, but they can also be costly and may present credit and
liquidity risks.
In a counterclaim, the company had sought almost $4 million from
Mr. Dulin to cover losses it had to pay his customers, according to
the arbitration award document.
The arbitration panel instead awarded Mr. Dulin $4 million in
compensatory damages along with $1 million in punitive damages
because, the panel said, UBS held back information about Lehman's
deteriorating condition when recommending the sale of structured
notes, according to the award document.
Mr. Dulin also was awarded $250,000 in legal fees and the cost
of the arbitration. The panel ordered that all 39 customer
complaints on his public records be removed. That process, known as
expungement, requires a court's approval. If the court decides
against erasing the complaints, the arbitrators said Mr. Dulin was
entitled to an additional $4 million from UBS, according to the
award document.
"I have never heard of an award with this number of
expungements," said Rosemary Shockman, Mr. Dulin's lawyer. "This is
clearly an overwhelmingly strong statement against UBS and its
conduct."
It is rare for a broker to seek damages from his firm over
business lost because of bad investments recommended by the firm.
Claims are more typically filed by the clients who suffered direct
losses.
But bad investments, particularly related to risky products
where brokers claim their firms had not briefed them sufficiently,
can severely affect a broker's future and employment with another
firm.
Last year, Michael Farah, a former broker with Wedbush
Securities Inc., won an arbitration award of $4.3 million to make
up for damaged he suffered from selling mortgage-backed
securities.
-Daisy Maxey contributed to this article.
Write to Matthias Rieker at matthias.rieker@dowjones.com
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