Former star Wedbush Securities broker wins $4.2 million award against firm

A former star Wedbush Securities broker wins a $4.2 million award against the firm in a case over pre-crisis sales of risky CMOs. It's the second big case the firm has lost in as many years. Bruce Kelly has the story.
OCT 10, 2013
A former star Wedbush Securities Inc. broker Wednesday won a stunning $4.2 million arbitration award against his old firm in a case that dated back to sales of risky collateralized mortgage obligations before the credit crisis. At the heart of the claim by former Wedbush broker Michael Farah is the allegation that “Wedbush made misrepresentations and omitted material facts in connection with the collateralized-mortgage-obligation investments that he recommended to his clients, causing Farah to lose clients and annual income,” according to the award, which was issued yesterday by a three-person Financial Industry Regulatory Authority Inc. panel. “We wholeheartedly disagree with the ruling and are currently reviewing our options,” Wesley Long, executive vice president and head of private-client services for Wedbush Securities, wrote in an e-mailed statement to InvestmentNews. The case pitting Mr. Farah against Wedbush Securities, formerly known as Wedbush Morgan Securities Inc., has been years in the making. Mr. Farah filed his initial claim against Wedbush Securities in 2005 and an amended claim in 2012. The panel broke the award into several parts, including $1.3 million to Mr. Farah from Wedbush for loss of income and $1.4 million in punitive damages. The award also included $1.5 million to Mr. Farah in legal fees in this claim and other arbitration proceedings. It was the second significant, million-dollar arbitration award to a former Wedbush Securities employee in as many years. In 2011, a Finra arbitration panel awarded an ex Wedbush municipal sale trader $3.5 million for failing to give him years' worth of incentive-based compensation. In that award, the Finra panel cited the firm's “morally reprehensible failure and refusal to compensate.” Punitive-damage awards are highly unusual in most Finra arbitration awards, which typically pit a broker-dealer against a disgruntled client. Such damages are even more unusual in a Finra arbitration claim involving a former star broker against a broker-dealer, said Philip Aidikoff, Mr. Farah's attorney. Mr. Farah was with Wedbush Securities from 1995 to 2005. He now runs a registered investment adviser. He was the “longtime No. 1 producer at the firm,” Mr. Aidikoff said, adding that Mr. Farah counted such institutions as the Sisters of Saint Joseph in Los Angeles among his clients. Mr. Aidikoff said that Mr. Farah realized there were problems with the CMOs in 2003. “He sold a lot [of the CMOs], in the millions,” Mr. Aidikoff said. “He was told they were a replacement for bonds. In January 2003, the price [of the CMOs] started dropping, and that was inconsistent with what bond desk told him about the volatility.”

Latest News

SEC Says Game Service Roblox Part of ‘Active Investigation’
SEC Says Game Service Roblox Part of ‘Active Investigation’

Short sellers previously said the company was under investigation, though Roblox denied allegations.

Musk’s DOGE descends on CFPB with intention to shut it down
Musk’s DOGE descends on CFPB with intention to shut it down

The Consumer Financial Protection Bureau is in the crosshairs of the Republican group that is widely attempting to dismantle government agencies.

Advisor fighting Finra banishment loses $17.7 million dispute with old firm
Advisor fighting Finra banishment loses $17.7 million dispute with old firm

National Securities Corp. sued the advisor in 2020, alleging breach of contract and unjust enrichment.

Job numbers, inflation leaving room for Fed to hold rates
Job numbers, inflation leaving room for Fed to hold rates

Recent data support a measured pace by the Federal Reserve for the year ahead.

Private assets remain hot despite surging stock market
Private assets remain hot despite surging stock market

Financial advisors are still adding alternatives despite the surge in publicly traded stock prices

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.

SPONSORED Why wealth advisors should care about the future of federal tax policy

Blue Vault features expert strategies to harness for maximum client advantage.