Penson Faced Multi-Million Dollar Day-Trading Claim in FINRA Arbitration

June 1, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim initially filed in September 2009, Boushy North Investments, Ltd., sought $3,872,555.07 in compensatory damages, $4 million in punitive damages, and costs as a result of Respondents' negligence; gross negligence; breach of fiduciary duty; and unauthorized trading. Claimant alleged that Respondents failed to prevent an unauthorized and unsuitable day-trading strategy for Claimants' family limited-partnership account. At the arbitration hearing, Claimant amended its actual/compensatory damages to a range of $1,700,000.00 to $3,700,000.00 in addition to a request for costs; but withdrew its request for exemplary/punitive damages and attorneys' fees.

In the Matter of the FINRA Arbitration Between

Boushy North Investments, Ltd., Claimant, vs. Penson Financial Services, Inc., Respondent;

= and =

Penson Financial Services, Inc., Third-Party Claimant, vs. Second Mile Wealth Management, Inc. and

Thomas Cooper, Third-Party Respondents (FINRA Arbitration 09-05503, May 24, 2011).

Respondent Penson generally denied the allegations, asserted various affirmative defenses, and filed a Third-Party Complaint against Second Mile and Thomas Cooper. The Third-Party Complaint asserted causes of action of indemnification; breach of contract; and fraud related to Third-Party Respondents' alleged material misrepresentations about the trading and the direction of all of the trading in Claimant's account.

Second Mile Wealth Management, Inc. generally denied the allegations made in the Third-Party Claim and asserted various affirmative defenses.

Jockeying for Position (and jurisdiction)

In April 2010, Thomas Cooper indicated that he would not submit to FINRA's jurisdiction or participate in the hearing. Cooper was not a member/associated person of FINRA and, as such, the FINRA Arbitration Panel made no determination regarding him.

On or about April 20, 2011, Penson Financial Services, Inc. dismissed its Third-Party Claim's cause of action for fraud.

On or about April 25,2011, Second Mile Wealth Management, Inc. indicated that it would not attend the hearing but did not object to the hearing going forward.


The FINRA Arbitration Panel found Respondent Penson liable to and ordered it to pay to Claimant $500,000 in compensatory damages. The Panel characterized Penson's Third-Party Claim as effectively withdrawn because Penson "failed to assert or argue its Third-Party Claim."