UBS, 2 reps hit with rare award on punitive damages
A stunning $4.6 million award against UBS Financial Services Inc. and two of its brokers late last month revealed how irate the arbitrators were with UBS.
A stunning $4.6 million award against UBS Financial Services Inc. and two of its brokers late last month revealed how irate the arbitrators were with UBS.
The money will be awarded to a former UBS rep from Fort Worth, Texas, who claimed ex-colleagues spread lies about him, specifically that he was heading toward a nervous breakdown and posed a risk to the firm.
A three-member arbitration panel in Dallas awarded the ex-UBS broker, Sammy Joe Gordon, $1.7 million in compensatory damages, plus interest, as well as $2.5 million in punitive damages.
Punitive damages are extremely rare in such cases.
The Financial Industry Regulatory Authority Inc. dispute resolution panel also ordered that Mr. Gordon be paid $391,000 in attorneys’ fees.
“This arbitration panel was really upset with UBS,” said Andrew Stoltmann, a plaintiff’s attorney in Chicago. “There’s no question, this is an old-fashioned, Texas-style rear-end kicking.”
He added that the amount of punitive damages was also astounding. “This could be the largest punitive damages award — that’s collectible — in the past year or two.”
Other attorneys agree.
“For [the arbitrators] to award punitive damages and attorneys’ fees is relatively rare,” said James A. Nofi, a partner with Page Perry LLC of Atlanta.
When a broker leaves a firm, there can be a “mad scramble” for the assets, said Mr. Nofi, who handles both investor claims and employee claims against broker-dealers. “This was an egregious example. The claims of mental health [problems], I hadn’t seen that before.”
“There must have been something that happened at the hearing that provoked or incensed the arbitrators,” said Steven Caruso, a partner in New York with Maddox Hargett & Caruso PC of Indianapolis. “It’s a clear warning shot for all brokerage firms when they mark up a broker’s U5.”
Employers file a Form U5 with FINRA of New York and Washington after they fire a broker, to explain their reason for termination.
The arbitrators took issue with UBS’ records of the affair. “The U5 form UBS filed regarding Sammy Gordon is false,” the award statement said. The panel determined that UBS Financial Services, which is based in Weehawken, N.J., along with Jeffrey Carroll and Rebecca Gadus, UBS reps based in Fort Worth, Texas, were jointly liable for the damages and attorneys’ fees.
Mr. Gordon worked for UBS from 2004 to 2005. He currently works in the Fort Worth office of Detroit-based H&R Block Financial Advisors Inc. The arbitrators’ report of the award, which was dated Nov. 26, gave details of the allegations, with the two sides filing a bitter series of claims and counterclaims.
The case centered on the termination of Mr. Gordon’s employment, as well as the actions of UBS and the two other brokers before Mr. Gordon stopped working at UBS in 2005, according to the award.
UBS, Mr. Carroll and Ms. Gadus fired the first shot in the case, filing a claim in February 2006. The initial claim alleged that when Mr. Gordon left UBS, all sides agreed to transfer the obligation of a $926,000 promissory note to the other two brokers if Mr. Gordon agreed not to disparage the firm or solicit clients. He then retaliated, filing a counterclaim in October 2006.
“Gordon alleged that Gadus and Carroll conspired to steal Gordon’s clients by em-barking on a campaign to disparage Gordon’s name and reputation by repeatedly telling malicious lies about him, including that he was on the verge of a nervous breakdown and a risk to the firm,” the award statement said.
Mr. Gordon “further alleged that even though he exhibited no signs of impaired mental health, UBS concocted a pretextual basis to terminate Gordon by accusing him of improperly giving clients documents without management approval and then lying when questioned by management,” the statement said.
“As a result, Gordon alleged that UBS gave him an ultimatum: ‘Resign immediately or be fired for cause,’” it said.
UBS then allegedly applied intense pressure to Mr. Gordon, the award statement said.
“As further alleged, Gordon resigned and, under extreme duress and coercion, signed the agreements UBS placed before him,” the award said.
UBS denied Mr. Gordon’s allegations.
The arbitrators decided that Mr. Gordon did not break his separation agreement and solicit clients from UBS or the other brokers.
The panel also said Mr. Gordon did not interfere in any business relationships of the other brokers, and also that he did not disparage UBS, Ms. Gadus or Mr. Carroll.
The arbitration panel found that the agreements Mr. Gordon signed when he left UBS “were procured by coercion and/or duress and/or fraud,” and were therefore void.
“UBS disagrees with the findings and the decision rendered by the arbitration panel,” spokesman Kris Kagel said Dec. 3 in an e-mail. “We will explore all of our available options as they relate to this case.”
Bruce Kelly can be reached at [email protected].
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