Rogue Broker - Failure to Supervise:

New York-based investors, located in upstate New York, were befriended by a rogue broker associated with a large, well-known (Manhattan-based) brokerage house. Over a period of time, the broker solicited the investors to invest a substantial amount of money based on stories of high yet unrealistic returns. Lured by this promise of high return, the investors began investing their life savings.

The investors never received proper documentation during the course of their five-year relationship with the broker, and did not know the types of investment vehicles that were used. The investors entrusted the broker with over four million dollars ($4,000,000).

Several years passed and the investors still had not seen any paperwork. Some of the investors became highly concerned as to precisely when they would see the returns and the documentation. At this time, Conway & Conway were retained.

The rogue broker was indicted by the Attorney General’s office and eventually sentenced to over ten years incarceration. The concurrent civil case hinged on the status of the representative of a highly respected brokerage house. The brokerage house was responsible for monitoring any unusual activities of all their brokers. Research indicated that the brokerage house did not conduct any supervisory initiatives to determine whether investment transactions were in compliance with procedures. The brokerage house based their defense on the premise that the firm had no record or any documentation pertaining to the investors’ alleged accounts. In other words, the investors did not have established accounts at the brokerage house, thus removing them from any liability.

Although the brokerage house admitted that it had hired and supervised the broker, it continually returned to the issue of lack of documentation. The arbitrators held the brokerage house liable and gave a clear indication that lack of supervision lay with the brokerage house. The arbitration Panel awarded the investors $3.3 million dollars.

Suitability Case:

This case involved whether certain investments were suitable for individual investors. Conway & Conway sued an individual broker and brokerage firm for recommending unsuitable investments, specifically high-risk stock and for failing to disclose the nature of the risk to the investors. By coincidence, Conway & Conway encountered another group of investors with the same issues. Conway & Conway sued on behalf of each individual and won awards ranging from $1.5 million to $3 million, including interest.

There were 30 additional claims, excluding those represented by Conway & Conway. Attorneys for the other investors recommended that Conway & Conway represent all of the investors. Conway & Conway agreed and ascertained that the best course of action would be mediation.

The brokerage firm had an insurance policy that covered errors and omissions, and which covered the broker. Mediation resulted in a total award of $3.5 million. The case hinged on the fact that the broker did not recommend appropriate and suitable investments to clients, nor did he disclose the risks and liability that the high risks investments entailed.