Nearly $4 million awarded to registered representatives who sued their former broker dealer for fabricating customer complaints.

The claimants originally complained about investments in unspecified real estate investment trusts. The respondents then brought a third-party action against the principal and their former broker dealer, arguing that he assisted the claimants in fabricating the complaint. The claimants ultimately voluntarily dismissed their claim. The third-party claim went forward, and the arbitration panel found that the third-party respondent assisted the claimants and other customers to write complaint letters to damage the respondents’ publicly available industry records, extract settlement monies and divert attention away from the third-party respondent’s own management directives. Moreover, the panel determined that the third-party respondent collaborated with the claimants’ counsel to plant, publish, and disseminate derogatory and sensational news stories charging the respondents with fraud and elder abuse. The arbitration panel awarded the respondents compensatory damages of $800,000, punitive damage in the amount of $2.5 million and attorney’s fees of nearly $370,000.

Case Law Alerts, 4th Quarter, October 2014