Oppenheimer Hit With $1 Million Damages in FINRA Arbitration

August 31, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in July 2010, public customer Koslow asserted various causes of action including breachof fiduciary duty, negligence, and violations of the Colorado Securities Act involving his purchases of

  • shares of Alcoa, GVI, General Electric, Freeport-McMoran, and Exco-Resources; and
  • call options of General Electric, Freeport-McMoran, and Exco-Resources.

Claimant Koslow sought:

  • disgorgement of all profits eamed by Respondent Oppenheimer through alleged excessive trading of Claimant's account;
  • at least $4,000,000.00 in damages;
  • lost investment opportunity costs;
  • pre-judgment and post-judgment interest; and
  • Reasonable attorneys' fees, expert fees, and costs.

In the Matter of the FINRA Arbitration Between Steven Kolow, Claimant, vs. Oppenheimer & Co. Inc., Respondent  (FINRA Arbitration 10-03410, August 26, 2011). 

Respondent Oppenehimer & Co. generally denied the allegations and asserted various affirmative defenses. 

At the opening of the hearing, Claimant moved to exclude from the hearing room  (except during any testimony by him as a witness) Mr. Loren Ben, the Oppenheimer broker who handled Claimant's account. The FINRA Arbitration Panel granted the motion and Ben was never called as a witness.

SIDE BAR: An excellent move by Claimant.  Just because someone has taken a seat at the arbitration table doesn't mean that they should be permitted to remain in the hearing room.  More to the point, unless the folks in chairs at the table are named parties or their legal counsel, generally, you should demand that any interlopers be given the boot. 

Why is it such a big deal not to allow a witness to sit in on an arbitration hearing?  For starters, a mere witness should not be given the opportunity to hear and see what everyone is saying.  If nothing else, that gives the witness a chance to tailor his/her testimony to better suit the manner in which the case is progressing.  Moreover, it gives the witness a feel for the cross-examining lawyer and could lessens the anxiety of walking into an unfamiliar room and being  forcefully confronted by a hostile attorney. 

An arbitration's goal is not to make everyone participating comfortable. It's not supposed to be a kumbaya moment. We call it an adversarial system for a reason.  Knives have an "edge" so that they cut better. 

The FINRA Arbitration Panel found Respondent  Oppenheimer liable and ordered it to pay Claimant $1,112,500.00 in compensatory damages, which includes all requested damages, fees, and costs.

The Panel ordered that payment to Claimant shall be made within the standard 30-day period beginning on the date of service of the Award. If the Claimant is not paid within the standard 30-day period. Respondent is liable for and shall pay to Claimant 9 % per annum post-judgment Interest on the amount of $1,112,500.00 from the date of service until paid in full.  Any accrued interest shall be added to the amount due Claimant.

Bill Singer's Comment

The guts of this dispute appears to have been Claimant's contention that his account was excessively traded by Respondent Oppenheimer. Sadly, there's virtually not discussion of the extent of trading in the account, and there is no rationale provided as to why the FINRA Arbitration Panel awarded roughly $1 million versus the $4 million-plus sought by Claimant.  Alas, readers of the BrokeAndBroker Blog know that this is an all too common failing of FINRA Arbitration Decisions.

Nonetheless, the Award is sizable and merits coverage.  Similarly, arbitration participants would be well advised to heed the wisdom of moving the Panel to exclude from the hearing room any non-party.