Stifel Financial Corp. saw its retail broker-dealer suffer a stunning loss of an lawsuit involving complex products and a star broker in south Florida, with a Finra arbitration on Thursday awarding investors $14.2 million in the matter, including a stunning $9 million in punitive damages.
The broker-dealer Stifel Nicolaus & Co. Inc. is the home to Stifel Financial’s network of retail financial advisors, but the advisor at the heart of the dispute, Chuck Roberts in Miami Beach, was not sued in the matter.
The three person panel, under the aegis of Finra Dispute Resolution Services, which adjudicates investor and employee legal claims against brokerage firms, did not give any reasoning for its decision despite the fact that punitive damages are particularly rare in such arbitration decisions.
The plaintiffs, Louis and Elizabeth Deluca and their business, UBS Inc., which is not related to the Swiss investment bank and brokerage, sued Stifel Nicolaus last year, claiming up to $5 million in damages. The Delucas alleged fraud, negligence, negligent supervision and other claims in their complaint relating to their investments in structured notes, a complex and potentially volatile product.
According to the arbitration decision, the plaintiffs were awarded $4 million in compensatory damages, plus interest; $9 million in punitive damages; and $1.1 million in legal fees, plus another $100,000 in costs.
“The evidence in this case was overwhelming,” said Stefan Apotheker, an attorney for the plaintiffs. “And the punitive damages reflects the wrongdoing.”
He added that Erez Law, with managing partner Jeffrey Erez, had more than a dozen similar claims pending against Stifel.
Stifel Financial was not pleased with the arbitration panel’s decision.
“While we respect the Finra arbitration process, we strongly disagree with this panel’s decision and the way it conducted the hearing,” said a company spokesperson. “This windfall award vastly exceeds any actual damages incurred by an extremely sophisticated client and is simply not supported by the facts of the case. We will be moving to vacate the award.”
Motions to vacate are almost never granted by courts in such arbitration awards.
The performance of structured notes is typically tied to an underlying asset, such as a specific stock, or index, like the S&P 500 stock index.
InvestmentNews reported in 2023 that Robert was a 33-year industry veteran and has worked at Stifel since 2016. At the time, he was facing multiple investor claims totaling more than $20 million in damages.
Wall Street banks underwrite structured notes, which can be volatile because they are a hybrid of a bond and a derivative. Some notes have principal protection, but others don’t, and investors can lose a portion or all of their principal based on the terms of the note and market volatility.
“While structured notes may enable individual retail investors to participate in investment strategies that are not typically offered to them, these products can be very complex and have significant investment risks,” according to a Securities and Exchange Commission bulletin to investors from 2015. “Before investing in structured notes, you should understand how the notes work and carefully consider their risks.”
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