Investor awarded $447,000 for losses
Firing a "loose cannon" was not enough for SII Investments, found liable in arbitration for failing to warn the broker's customer.
By HELEN HUNTLEY
Published October 27, 2005
Clearwater lawyer Kalju Nekvasil took a chance when he agreed to represent an 85-year-old Sarasota widow whose broker cost her most of her life savings. All he had to go on was an unusual legal theory:
"Brokerages must warn their clients of negative information about their brokers so that they can protect themselves," Nekvasil said.
He argued that because SII Investments Inc. didn't warn client Jean Jenks that it knew broker Dean Urick was a "loose cannon" and the subject of customer complaints, she followed him to another brokerage. There he invested Jenks' money and lost most of her life savings, $310,000, buying unregistered stock in a company that went out of business.
An arbitration panel for the National Association of Securities Dealers agreed that SII was liable for Jenks' losses and awarded her $447,000 in costs and damages. Hearings were this month in Tampa and the award was announced Tuesday.
Nekvasil said he thinks this is the first securities arbitration award in which a brokerage was found liable for failing to share broker information with an investor.
"If that is the premise for the decision, then it is an unusual duty for arbitrators to impose upon a former employer whether in the securities industry or elsewhere," said Richard Ryder, publisher of the Securities Arbitration Commentator, which tracks arbitration rulings.
The award says only that SII is liable on claims of "breach of fiduciary duty, negligence and gross negligence," without elaboration.
"The problem for the employer here is that if they did go out to the customers and said something, the former broker would be all over them with a defamation suit," Ryder said.
Arbitration is a substitute for court proceedings so arbitration awards do not set legal precedent in the same way court cases do. However, the award is likely to cause consternation in the securities industry.
When it fired Urick in May 2001, SII said the reason was that his activities were "inconsistent" with the firm's business strategies and said he was the subject of three customer complaints that year, "although no conclusion of any violation or wrongdoing was reached."
However, internal memos written by Urick's supervisors at SII were more blunt, describing Urick's failure to follow procedures and calling him a "loose cannon" and "an accident waiting to happen."
SII, which is based in Appleton, Wis., said it will pay the award.
"Although the sale of the private security by Mr. Urick happened several months after he left SII, we nonetheless agreed to the arbitration process and will abide by the panel's decision," spokesman Andrew Silver said.
The panel's award included $25,000 in sanctions against SII for failing to turn over documents Nekvasil had requested.
"When you are in a fiduciary business, taking money from people because they trust you, it means putting their interests before your own and disclosing these risks to people," Nekvasil said. "It's about time firms followed that."
Nekvasil did not pursue an arbitration claim against Urick, who is no longer in the securities industry and faces unrelated criminal charges for leaving the scene of a traffic accident. He could not be reached for comment.
Rosenthal Collins Securities LLC, the brokerage where Urick worked when he sold Jenks the bad investment, is no longer in business, Nekvasil said.
Helen Huntley can be reached at email@example.com or 727 893-8230.