A Finra arbitration panel has ruled against Société Générale SA and a handful of its affiliates, ordering the bank to pay $61 million to a California-based fund manager.
The decision brings two years of arbitration between the bank and Aurum STS Aggressive Trading LLC to a close.
Though
Financial Industry Regulatory Authority Inc. initially had ordered the bank to pay a total of $125.9 million in damages, plus $26.9 million in interest, the arbitration panel gave the bank credit for $91.9 million in payments it had made to Aurum to settle the disputed transaction.
As a result, the net damages owed by Société Générale come up to $61 million.
The case goes back to 2003 and 2004, when the fund manager purchased warrants — derivatives products — issued by SG Warrants Ltd., a unit of Société Générale, that were based on the net asset value of the Aurum Leveraged Fund S1 and tied to the leveraged performance of a basket of hedge funds.
The warrants expired in November 2008 during the thick of the market collapse, and Aurum had the right to receive a payment from Société Générale at the time. Instead, the bank told Aurum that it would make the payments based on a new set of terms put in place by Société Générale, according to the arbitration documents.
In turn, Aurum brought the arbitration action in June 2009, claiming breach of contract, interference with contractual relations, breach of fiduciary duty, unjust enrichment and failure to honor a guarantee.
The bank also had filed a counterclaim alleging that Aurum had breached an agreement with Société Générale and that Aurum's manager, Atef Eltoukhy, had interfered with the fund's obligation to uphold its end of the deal per its agreement with the bank. The arbitration panel dismissed all of Société Générale's counterclaims.
“We are pleased that the panel enforced Société Générale's own contract and issued this award,” said Michael C. Miller, a litigation partner at Steptoe & Johnson LLP, who served as lead trial counsel.
“We believe that the evidence showed that SG met all of its obligations in this transaction and therefore respectfully disagree with the Finra panel's decision,” Jim Galvin, a spokesman for the bank, wrote in an e-mail. “In any event, the arbitrators denied Aurum's demand for substantially greater damages.”
