An Interesting New Orleans Arbitration Case

The Financial Industry Regulatory Authority (FINRA) arbitration panel in New Orleans, LA in this case awarded the Claimant $852,368 in compensatory damages, plus expert witness fees of $17,798 against Respondents NWT Financial Group, LLC, Penson Financial Services, Inc. and James R. Holdman. The Claimant had asserted various claims including breach of fiduciary duty, negligence, fraud, negligent supervision and violations of Louisiana's securities laws, in seeking $1,000,000 in compensatory damages for losses sustained in the Silverwing Fund and the Greenwing Fund.

The interesting and unusual thing about the case is the award itself, which included a very thorough analysis of the case and a well written dissenting opinion by of all people, the Chairman of the Panel. In arbitration hearings a unanimous award is not necessary and a majority award is possible, even if the dissenting panel member happens to be the Chairman. Prior to the hearing, Respondents Johnson and Hausse were dismissed from the case and Respondent Holdman failed to appear at the evidentiary hearing.

Chairman Little's dissent is very eloquently written notwithstanding the fact that it did not change the outcome of the case. He summarized the facts stating that the Claimant had taken early retirement from Exxon Mobil at age 56; he had $1,008,544 in life savings; he sought professional help in managing these funds; he had little experience with investments since it had always been handled by Exxon; he had attended a seminar and was impressed with Respondent Holman who was involved in Little League Baseball and he accepted his qualifications; he signed all the necessary forms but did not read them all and finally, he turned over his entire life savings to Holdman and told him not to lose anything and invest conservatively. Holdman invested Claimant Carter's entire life saving but for $100,000 in two hedge funds, Silerwing and Greenwing. The Chairman was unimpressed with Claimant Carter's assertion that he was unaware of the risks involved and asserted that the funds disclosure documents "set forth in detail the treacherous waters one sailed in." He further viewed the signing of the "plethora of documents" as being significant and not mere "ornaments" showing that he accepted the terms of the documents. Finally, Carter asserted that he would have gotten out of the investments had he known of the declining value of his accounts, even though the accounts provided by Penson and NWT were flat lining.

The Chairman's Dissent said the Claimant's award should be no more than $700,000: with Carter and Holdman being responsible for 1/3 of the amount or $233,333; with NWT and Holdman responsible for 1/3 of $466,667 or $155,557 and Penson and Holdman being responsible for 2/3 of $466,667 or $311,111. In closing, the Chairman said that it was a far greater injustice to award nearly $1,000,000 in a case that deserved a much smaller award. (FINRA# 09-04093; Emmett E. Carter, Jr. individually and on behalf of the Emmett E. Carter, Jr., Individual Retirement Account v. James Holdman, Leslie M. Hausse, Scott D. Johnson, NWT Financial Group, LLC and Penson Financial Services, Inc.)

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