Oppenheimer & Co. Inc., long dogged by regulators over its advisers' sales of penny stocks, complex exchange-traded funds and other matters, Tuesday lost a huge arbitration decision of $36.7 million to eight investors who were sold a private equity fund by a former Oppenheimer broker, John Woods, near Atlanta. Last year, the Securities and Exchange Commission charged Woods with running a $110 million Ponzi scheme.
Several former Oppenheimer financial advisers were named as third-party respondents in the matter.
The investors originally claimed $6 million in compensatory damages, according to the award, which was issued under the aegis of Finra Dispute Resolution Services, the industry arbitration arm of the Financial Industry Regulatory Authority Inc. The investors alleged negligence, violation of Finra rules and other claims, and also alleged a violation of Georgia's RICO statute, which creates the potential for triple damages in such cases.
The investors also claimed punitive damages, which, all together, amounted to a final award of six times the original compensatory damages claimed. Punitive damages and RICO awards are highly unusual in Finra arbitration claims.
"Oppenheimer intends to file a motion to vacate the award in its entirety," a company spokesperson wrote in an email, adding that the firm believed the Finra arbitrators erred in several ways in making their decision.
“While Oppenheimer regrets that any of the claimants may have suffered losses due to the actions of John Woods, the firm believes that the other defendants, who are currently covered by a judicial stay and did not appear at the hearing, are the parties responsible for any losses,” the spokesperson wrote.
The third-party defendants did not appear to testify, according to the Finra award.
"The claimants’ compensatory awards were trebled under Georgia’s so-called Racketeer Influenced and Corrupt Organization, or RICO statute," said the claimants' attorney, John S. Chapman. "The Finra award provides no explanation, per usual, but our primary claims were, one, failure to supervise, and, two, Oppenheimer acting in concert with, or aiding and abetting, its employees who perpetrated the Horizon scheme."
RICO laws were first devised to combat organized crime.
"Under the Georgia RICO statute, whenever people combine or act in concert to do harm, the RICO statute may apply," Chapman said. "The RICO statute in Georgia rewards litigants who bring claims against conspirators ... by trebling damages and paying attorneys' fees and costs."
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