Penson Financial Services Gets Hammered For $500,000

A Financial Industry Regulatory Authority (FINRA) arbitration panel in Houston, TX has decided that Penson Financial Services, Inc. is liable and ordered them to pay a family partnership $500,000 in compensatory damages. The partnership asserted various causes of action in its Original Statement of Claim including negligence, gross negligence, breach of fiduciary duty and later asserted allegations that Penson failed to prevent unauthorized and unsuitable day trading in its family limited partnership account. The original damage request was for $3,872,555 in compensatory damages and $4,000,000 in punitive damages. At the hearing, the range of damages was reduced to between $1.7 million and $3.7 million.

After the conclusion of the four day evidentiary hearing, the panel considered all of the evidence, oral and documentary, and concluded that Penson was liable to the partnership and ordered them to pay $500,000 in compensatory damages. The $12,000 in forum fees for the arbitration was split equally between the parties, assessing each side $6,000. (FINRA# 09-05503; Boushy North Investments, Ltd v. Penson Financial Services, Inc.)

Respondent Penson in its Original Answer to Statement of Claim generally denied all allegations and also filed a claim against Third Party Respondents, Second Mile Wealth Management and Thomas Cooper, for indemnification, breach of contract, fraud and misrepresentations the trading and that they had directed all of the trading in the account. Ultimately, the panel decided that the Third Party Claim was effectively withdrawn since Penson did not offer any evidence or arguments in support of it during the evidentiary hearing. Interestingly, the claim for unauthorized trading was apparently not included in the Original Statement of Claim filed in September 2009. The first attempt to amend and add it was in February 2011, which was denied by FINRA, since no new or different pleadings can be filed after a panel has been appointed, without having been granted a leave to amend. Finally after the appropriate motions were filed, on April 20, 2011, the panel granted the addition of Count III – Unauthorized Trading.

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