A former star Wedbush Securities Inc. broker last 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 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. He filed his initial claim against Wedbush Securities in 2005 and an amended claim last year.
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 him in legal fees in this claim and other arbitration proceedings.
It was the second million-dollar arbitration award to a former Wedbush Securities em-ployee 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 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.
Mr. Farah was the “longtime No. 1 producer at the firm,” Mr. Aidikoff said.
