A Connecticut investment bank this week lost a $1.25 million Finra arbitration award that focused on the alleged sale of unsuitable securities to elderly investors.
William Lashlee, 88, and Keith and Joyce McCrea, elderly retirees, alleged in their claim that a Source
Capital Group Inc. broker in 2012 sold them stock in a health care technology start-up that offered small physician groups the ability to convert paper medical records to electronic forms, according to their attorney, Kalju Nekvasil.
Mr. Lashlee invested $220,000 and the McCreas invested $590,000, for a total of $810,000 in the company, called iPractice Group. It shut down in early 2013 and soon thereafter declared bankruptcy, according to Mr. Nekvasil.
The claimants alleged that Source Capital negligently supervised its broker, Mr. Nekvasil said, adding that the evidence in the arbitration hearing showed that the broker was assigned to a Bowling Green, Ky., branch of the firm but the manager of the office was never told that he was responsible for supervising the broker.
David Harris, the president of Source Capital did not return a call on Friday for comment. The firm's attorney in the arbitration, Richard Slavin, also did not return a call.
“This award shows that arbitration panels will make broker-dealers pay when the evidence shows a complete breakdown of supervision,” Mr. Nekvasil said.
The
Financial Industry Regulatory Authority Inc. panel awarded the claimants their out-of-pocket losses of $810,000 as well as interest of $147,000. The three-person panel also awarded $20,000 in sanctions for Source Capital's violation of panel discovery orders and almost $25,000 in costs. Source Capital was also ordered to pay $250,000 in attorney's fees. The award was finalized on Wednesday.
Finra in December also hit Source Capital
with a complaint that alleged that the firm, from September 2009 to September 2014, “abdicated” its responsibility to supervise its office in Bowling Green.
Instead, the firm permitted the principals of two companies of which Source Capital brokers were selling stock to supervise the firm's brokers and manage the firm's systems, operations and activities, according to the Finra complaint. The complaint is pending.
(More: Finra bars former Hilliard Lyons broker)
