Dimond Kaplan & Rothstein, P.A. Wins Arbitration Award Against Wedbush Securities

Dimond Kaplan & Rothstein, P.A. recently prevailed in a FINRA securities arbitration against Los Angeles-based brokerage firm Wedbush Securities. The arbitration hearing, which took place in Los Angeles, California, involved claims that the brokerage firm recommended and sold a fraudulent investment, Provident/Shale Royalties 8, to our client. More specifically, we argued that Wedbush: (a) negligently approved the fraudulent product for sale to customers; (b) failed to disclose numerous material risks about Provident/Shale Royalties; and (c) negligently supervised its broker, who began recommending and selling the fraudulent investment even before Wedbush negligently approved the product.

Wedbush's broker who recommended the fraudulent investment, Bambi Holzer, has a deplorable disciplinary record, having been the subject of more than 50 prior customer complaints involving stockbroker misconduct. She also previously was placed under heightened supervision by California securities regulators as a result of her terrible disciplinary record. Notwithstanding Ms. Holzer's dubious past, Wedbush hired her and permitted her to recommend and sell the fraudulent Provident/Shale Royalties securities before Wedbush even had completed its review of the investment.

Provident/Shale Royalties, which purported to invest in interests in oil and gas, raised $485 million through the sale of private placements to about 7,700 investors. Unfortunately, Provident was a Ponzi scheme and now is subject to an SEC receivership. As a result, Provident/Shale Royalties investors lost their money.

Wedbush ultimately approved of Ms. Holzer's sales of the fraudulent securities despite the facts that there were no audited financial statements and Wedbush took no meaningful steps to verify Provident/Shale Royalties' internal financial statements or business operations. The SEC receiver has determined that Provident/Shale Royalties' records reflect that the company never had any significant business, and that the company routinely used new investors' money to pay "investment returns" to earlier investors, in classic Ponzi-scheme fashion.

Importantly, our client is a multi-millionaire with a Harvard MBA. Brokerage firms typically argue that they should not be held liable in cases where the investor is educated and financially well off. Of course, the fact that a customer is educated and of significant means does not give a brokerage firm the right to mislead the customer, commit securities fraud, or otherwise fail to abide by the law or industry standards.

Although the FINRA arbitrators did not provide an explanation for their award, they apparently were not moved by Wedbush's plea for leniency. The arbitrators ordered Wedbush to pay our client approximately 90% of his net losses. The arbitrators also ordered Wedbush to pay our attorneys' fees, something that arbitrators rarely do.

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