A FINRA arbitration panel ordered BNP Paribas Securities to cough up $16.1 million to compensate a couple for duping them into buying an unsuitable security.
It was one of the largest arbitration awards of compensatory damages that FINRA has ever rendered in a customer dispute, according to New York City litigation firm Lax & Neville.
BNP Paribas recommended that James and Margaret Eringer invest approximately $14.3 millionmore than 60% of their investable assetsin a highly speculative and leveraged derivative call option that in less than 18 months became worthless, said Barry Lax, one of the two attorneys with Lax & Neville who represented the couple. The "resettable strike equity option transaction" was reserved for only institutional clients who could manage a high amount of leverage, Lax said.
Indeed, the firm had a policy in place that prohibited the sale of the product to retail customers. To circumvent that policy, BNP Paribas required the Eringers to form a corporate entity called Ontonimo through which the Eringers purchased the investment. In addition, it required James Eringer to become an investment advisor for Ontonimo, even though he had no prior professional financial services experience and no securities licenses, Lax & Neville explained in a press release.
The $16.1 million arbitration award covered the clients' $14.3 million loss, plus $1.8 million in interest. In addition, BNP Paribas was ordered to pay an additional $500,000 to cover attorneys' fees, bringing the total award to $16.6 million.
"The investor won 100% of their losses, which is obviously very rare in these arbitrations," said Lax.
Proskauer Rose, the New York law firm that represented BNP Paribas, offered a different perspective. We disagree with and are deeply disappointed by the arbitrators decision, the firm said in a statement. BNP Paribas Securities Corp. takes its responsibilities to its clients seriously and believes that it conducted itself professionally and appropriately with respect to Ontonimo and its investments.
The hearing, which lasted 95 days, was the longest customer FINRA arbitration hearing in the last 20 years, according to Lax & Neville.
"This was a long, hard-fought litigation," said Lax.