FINRA Panel Hits Pacific West with Compensatory Damages, Punitive Damages and Sanctions
A Financial Industry Regulatory Authority (FINRA) arbitration panel in San Francisco, CA scorched Pacific West Securities in an award that came out June 27, 2011. The Claimant in the case alleged various causes of action, including the violation of state and federal securities laws, breach of fiduciary duty, breach of contract, negligence and gross negligence among others. The claims asserted revolved around the Claimants' investments in DBSI Offices at Brookhollow and Garlock & Company Museum Parc Garage Tenants-in-Common (TICs) securities.
The evidentiary hearing on this case began on May 23, 2011. At the beginning of the evidentiary hearing, the Claimants moved to sanction Respondent, Pacific West Securities for failing to timely produce discovery, failing to produce its witness list and many documents prior to the hearing getting under way. The hearing was recessed until 9:00 AM on Tuesday, May 24th. On the second day of the evidentiary hearing, May 24th, the Respondent produced five binders of evidence for the Claimants and the panel. After argument by counsel, the panel was sympathetic to the Claimants for having been presented with voluminous documents during the hearing and no time to review them. The FINRA panel resoundingly admonished the Respondent for their shenanigans and ruled as follows:
- "Respondent Pacific West Securities would be allowed to distribute the five binders of evidence to the Claimants and could also use the materials if they paid sanctions in the amount of $80,000.00 in the form of a cashier's check to Claimants' counsel's law firm, no later than 9:00am on May 24, 2011."
- "If the payment was not received in time, the sanction of $80,000.00 would stand and Respondent would only be able to call witnesses and refer to Claimants' evidence."
After the conclusion of the five day evidentiary hearing, the panel took the case under advisement to consider all of the oral and documentary evidence and entered its award as follows. In addition to the $80,000 in sanctions assessed by the panel for discovery abuses, Pacific West was found liable and ordered to pay Claimant Wiborg Trust $300,000 in compensatory damages and ordered to pay $50,000 in punitive damages for "flagrant violations of securities laws and appropriate supervision of brokers and branch offices." Additionally, the Claimants were awarded $26,658 for costs and witness fees. Finally, the panel assessed all of the $12,000 in forum fees for the arbitration against Pacific West.
In arriving at their decision, the panel pointed out that Pacific West had caught its representative, Toni Sutherland, selling away the same kinds of products with nothing more than a slap on the wrist and did not conduct an on sight audit of her office for over 2 years. During that time she sold the two TICs to the Claimants that did not fit their investment objectives and tolerance for risk. Finally, the firm's lack of supervision was even more concerning given the fact that they knew Ms. Sutherland had been with 5 firms in 6 years during which time she had been a weak performer. If all of these factors were not enough to justify the award of punitive damages, because of Ms. Sutherland's lack of supervision she was able to hire a convicted felon that had just gotten out of prison to actually have contact with walk in customers, acted as her aide, spoke to clients and went to meetings with her. Her convicted felon was unlicensed. The panel went on to say that these punitive damages were awarded "because of this terrible lack of supervision." (FINRA# 10-02818; Lloyd Wiborg and Jane S. Wiborg, Individually and as Trustees of the Jane S. Wiborg Trust dtd 7/28/86 Amendment and Complete Restatement dtd 4/17/96 v. Pacific West Securities, Inc.)