A Financial Industry Regulatory Authority Inc. arbitration panel has awarded $276,226 to an investor who lost money buying securities in what turned out to be a Ponzi scheme.
Independent broker-dealer Quest Capital Strategies Inc. must pay the award for not supervising more closely one of its brokers, Frank R. Dietrich, who sold the investor $400,000 worth of mortgage notes sponsored by Woodbridge Group of Companies.
Woodbridge, which was called a $1.2 billion Ponzi scheme by the Securities and Exchange Commission, went bankrupt a little over a year ago. The law firm of Goodman & Nekvasil, which represented the investor, said it was the first Woodbridge case to go to a final arbitration hearing.
Quest allowed Mr. Dietrich, who sold $10.8 million worth of Woodbridge mortgage funds to 58 investors and earned $260,864 in commissions, to retire last March. The broker was barred by Finra in November for not getting approval from Quest to sell the Woodbridge notes.
When he met Mr. Dietrich, investor John C. Medeiros, a retired Coast Guard veteran, was living in Virgina and taking care of his blind wife, according to the law firm. He received a marketing letter from Quest offering a $100 gift card to an Olive Garden restaurant if he met with Mr. Dietrich, according to the firm. The letter said the adviser specialized in the needs of retirees and offered "safety net" style investing and a lifetime income plan.
Mr. Medeiros ultimately lost $140,035 through his investments with Woodbridge, according to his lawyers.
According to his BrokerCheck report, Mr. Dietrich had a 23-year career in the secruities industry. He worked for Quest for five years and four other broker-dealers before that. He had 10 disclosure events detailed on his record, including seven customer complaints related to the sale of Woodbridge securities.