FINRA Panel Imposes Punitive Damages - Another Lost Generation for Wall Street Reform.

September 22, 2010

In a FINRA Arbitration Statement of Claim filed on September 18, 2009, Claimant alleged, in part, fraud, negligence, and breach of contract; and sought, among other relief, damages in excess of $350,000, disgorgement of excessive commissions, fees and compensations received by Respondents, and punitive damages arising out of the purchase of units in the Land Entitlement and Opportunities Fund (the "Land Fund"). In the Matter of the Arbitration Between Martha C. Campbell, personally and on behalf of the Martha C. Campbell Rollover IRA, Claimant, versus Kevin A. Williams, North Global Securities, Inc. North Wealth Management Company, Asset Management Strategies, LLC, Steven Lee Thornton,  Daniel Guillen, Respondents  (FINRA Arbitration 09-05650, September 20, 2010).

According to online descriptions at, the Land Fund (now closed to new investors} is a:

private placement offering authorized to raise $50,000,000.00 for investment into pre-entitled, post-entitled or other land based opportunities that the fund management deems attractive for investors. North Wealth Management Company LLC has maintained relationships with long-standing real estate law and land development professionals in the Pacific north and southwest areas of the United States. The Fund provides Equity and Debt participation into Real Estate projects, providing current income, capital appreciation and the security of Real Estate ownership.

Respondent Guillen was not a member or associated person of FINRA and did not voluntarily submit to arbitration; and, therefore, the FINRA Arbitration Panel made no determination with respect to him.

On January 29,2010, the FINRA Panel was advised that Claimants had dismissed Respondent Thornton without prejudice.

Initially, Claimants requested an entry of default against Respondents Williams, North Global, and North Wealth, and Asset Management for their failure to answer the Statement of Claim. On March 9, 2010, those Respondents filed an Answer and, in accordance with Rule 12801 of the Code, FINRA terminated default proceedings against them. Respondents Williams, North Global, and North Wealth, and Asset Management generally denied the allegations and asserted various affirmative defenses.

Discovery Sanctions

On June 11, 2010, Claimants filed a Motion for Discovery Sanctions for failure of the answering Respondents to comply wtth the FINRA Arbitration Panel's  Chairperson's Discovery Order of May 21, 2010. Respondents did not file papers in opposition to that motion. On July 7, 2010, Claimants filed a motion to renew the June 11, 2010,  Motion for Discovery Sanctions. On July 14, 2010, Respondents filed responsive correspondence and on July 15, 2010, the Panel conducted a pre-hearing conference to hear oral argument concerning the requested sanctions. On July 7,2010, the Panel granted Claimants' Motion, ordered Respondents to produce documents in compliance with the Chairperson's May 21st Order, and imposed sanctions of $1,000 payable to Claimants.

Panel's Rulings:

The FINRA Arbitration Panel found that all investments of Claimant's IRA were unsuitable in view of Claimant's age, lack of financial knowledge, and financial needs.

With regard to the Land Entitlement and Opportuntities Fund, LLC, the Panel found that fraud, gross misconduct, breach of fiduciary duty, and/or gross negligence were committed by Respondents by way of

(a) Taking undue advantage of an older, retired, financially unsophisticated, and financially-limited client for Respondents' own financial interests;

(b) Placing Respondents.' own needs and interests above Claimant's needs and interests, thereby violating Respondents' fiduciary duty to Claimant; and

(c) Misusing Claimant's IRA savings through, among other things, deceit and misleading and reckless behavior.

The Panel found Respondents Williams, North Global, North Wealth Management, and Asset Management Strategies jointly and severally liable and ordered them to pay

  • $397,034.00  in compensatory damages (subject to Claimants giving up all rights to the Land Fund); and
  • $75.000.00 in punitive damages pursuant to Hobbs v. Bateman Eichler, Hill Richards Inc., 164 Cal. App. 3d 174 (Ct App. 1985).
  • $165.211.90 in attorneys' fees, pursuant to Land Fund Operating Agreement;
  • $3,806.02 for costs.

If the Award is not paid within 30 days, the Panel ordered the subject Respondents to pay (on a joint and several basis) the sum of $472,034.00 at the interest rate of 6% per annum until full payment is made.

Bill Singer's Comment: An impressive win for the Claimant, replete with over $200,000 in punitive damages and attorneys' fees.  Tack on to that the Panel's biting commentary about taking advantage of an older, retired, unsophisticated client through deceit, and this one has to sting.

Separately, if you are unfamiliar with the Hobbs case that the Panel cited in support of its award of punitive damages, you should read it HERE at

In the Summary of Hobbs, the Court explains the essence of the case as follows:

Plaintiff and respondent Mittie F. Hobbs, individually, and Mittie F. Hobbs, trustee of that trust agreement dated December 23, 1974 (Mrs. Hobbs), was awarded $96,000 in compensatory damages against defendants and appellants Bateman Eichler, Hill Richards, Incorporated and Alan Ravenscroft (individually, Bateman Eichler and Ravenscroft and, collectively, appellants) and $220,000 in punitive damages against Bateman Eichler by a jury which determined that appellants had breached their fiduciary duties to Mrs. Hobbs. Mrs. Hobbs showed that appellants had made unsuitable investments for her, had "churned" her account, had made transactions without obtaining her permission and had failed to advise her of substantial losses in her account. The trial court denied appellants' motions for judgment notwithstanding the verdict and for new trial and entered judgment on the verdicts. Appellants appealed. We affirm the judgment and orders of the trial court.

In the relevant portion of the Hobbs' Decision cited by the FINRA Arbitration Panel, the Court noted that:

Again, viewing the facts in the light most favorable to the judgment, we find that Bateman Eichler's conduct amounted to a breach of fiduciary duty to its client, which is precisely the type of tortious conduct that an award of punitive damages is designed to deter. The $220,000 award of punitive damages against Bateman Eichler was not excessive.

Hobbs was decided by the California Court of Appeal in 1985 -- some 25 years ago. At the time, I was a young regulatory lawyer charged with prosecuting industry respondents who were violating the rules and regulations of Wall Street.  I remember how dramatic Hobbs was when first announced. Sadly, in reading the "Conclusion" to that decision, I see that little has changed in the span of a generation.  The fraud persists. The regulators fail to regulate. Inexorably, things continue to go from bad to worse:


The supreme irony in this case is that Ravenscroft testified he told Mrs. Hobbs that her stated objectives would have to change because he could not generate $15,000 a year income for her on an $80,000 portfolio. Yet Ravenscroft did exactly that for Bateman Eichler, generating a $15,000 a year income in commissions. This is a classic example of the conflict of interest which exists in the securities industry and is at the heart of the circumstances which resulted in the "hobbling" of Mrs. Hobbs. On the one hand, brokers act as investment advisors to their clients. On the other hand, they are salespersons, dependent upon their brokerage commissions for a livelihood. Commissions are received only when customers engage in transactions. Individual brokers employed by a brokerage firm normally obtain as their sole compensation between 30 and 40 percent of the commissions they produce.

"Under this compensation system, `few brokers are immune to the temptation to consider their financial interest from time to time while they are advising clients. Being at once a salesman and a counselor is too much of a burden for most mortals.'" (Poser, Options Account Fraud: Securities Churning in a New Context (1984) 39 Bus. Law. 571, 573 (hereinafter cited as Securities Churning); see also Mundheim, Professional Responsibilities of Broker-Dealers: The Suitability Doctrine (1965) Duke L.J. 445, 447.)

Sadly, the Securities and Exchange Commission, while prosecuting numerous churning cases, has not seen its way to correct the abuse. (See Securities Churning, supra, at p. 574.) Under these circumstances, it is our view that the imposition of substantial punitive damages against a predatory broker will serve to curb the appetite of others similarly inclined.




Regulatory lawyer Bill Singer has analyzed and posted the latest crop of FINRA disciplinary cases

  • One enterprising industry Principal falsified journal requests for customers' accounts without their knowledge or authorization and then submitted the falsified journal requests to his member firm as authentic. This subterfuge caused securities to be journaled from the customer accounts to his personal account. This scamster then sold the securities that had been falsely journaled to his account and converted the proceeds. The truly breathtaking aspect of this case is that the amount of the converted proceeds was $1,054,440.97.
    READ HERE at
  • Then there was the unfortunate story of the FINRA member firm that engaged a third-party vendor to preserve its electronic communications, but the vendor did not properly retain them and ultimately purged virtually all of the electronic communications it had initially captured for the firm. FINRA did not look upon the victimized member with much compassion. 
    READ HERE at
  • This one is a bit of an oddball. You understand FINRA's point but you worry whether the precedent will prove troubling. A broker used a a firm-approved presentation during retail seminars with customers -- unfortunately, FINRA determined that the presentation contained misleading, exaggerated and unwarranted statements. Subsequently, the firm received a Letter of Caution from FINRA regarding the presentation.  Notwithstanding, the broker joins a new firm and proposes to use his former firm's non-compliant presentation, albeit in modified form. As you likely suspect, this doesn't turn out particularly well. 
    READ HERE at
  • Although this con artist did not have authority or approval to sign or issue Letters of Credit,  he still went ahead and signed a Letter of Credit on the letterhead of the firm's predecessor in the amount of $55,000 and gave it to a customer without the firm's knowledge or authorization. Not feeling too intimidated, he then signed another Letter of Credit on the firm's letterhead in the amount of $75,000 and gave it to the customer without the firm's knowledge or authorization. The beneficiaries of these Letters of Credit presented them to a bank, an affiliate of the firm, for payment. Uh oh!!!
    READ HERE at
  • Acting with others, a fraudster participated in a fraudulent scheme to solicit investments in an unregistered hedge fund and its general partner, all of which was furthered by a variety of fraudulent and deceptive sales practices.  Seems that the hedge fund was engaging in a highly speculative trading strategy involving futures contracts and there was this nasty pending Commodity Futures Trading Commission (CFTC) fraud action against the hedge fund manager.
    READ HERE at
  • One enterprising individual misappropriated member firm funds by using expense reimbursements for personal expenses, charging personal expenses to her corporate credit card and failing to pay the bills on the card. The employee's firm had previously sent her a memorandum about deficient and late payments on her corporate credit card, reminding her that she had agreed to use the card only for corporate expenses and to pay the balance in full each month. 
    READ HERE at
  • It is with great sadness that I inform you about the registered representative for several burial associations for which the investment objectives were income and the risk factors were conservative, investment-grade or moderate. I come here today not to praise this broker, who engaged in unsuitable and excessive trading in the accounts, resulting in significant commissions for him and losses for the customers. On the other hand, you really have to read my riff on this case -- you know me, I just couldn't resist taking some funny shots.
    READ HERE at
  • What can I say about the talented gent who falsified a client's insurance policy application and related documents without the client's knowledge, submitted the documents to his member firm's insurance company affiliate and subsequently denied to his firm that he had falsified signatures or submitted falsely signed documents. Flush with his exploits, this character then took an online computer examination on his office manager's behalf that his firm's insurance company affiliate required, and falsely denied to his firm that he did so. He also denied in writing and during sworn testimony to FINRA that he took any test posing as his office manager.
    READ HERE at
  • The way FINRA called it, a registered person misappropriated $10,000 from the vault of his member firm's bank. You really should read my pithy diatribe about this seemingly innocuous case.
    READ HERE at



In exchange for a fee, CallService provided the services of English- and German-speaking individuals to persons who had stolen account and biographical information. The identity thief would provide to CallService the name of the bank to be contacted; the stolen account information and biographical information; and instructions from the identity thief as to what to say or how the fraudulent transaction was to be conducted. Thereafter, appropriate individual employed by CallService -- namely someone who was the same gender and spoke the same language as the authorized account holder -- would pose as the authorized account holders and would then telephone financial institutions and other businesses in order to conduct or confirm fraudulent account activity on behalf of the identity thieves. If successful, the CallService employees would successfully confirm unauthorized withdrawals or transfers from bank accounts, unblock accounts, change the address or phone number associated with an account, and engage in other fraudulent activity.