NASD Arbitration Panel Finds Wedbush Morgan Securities, Inc. Liable to Investors
NASD ARBITRATION PANEL FINDS WEDBUSH MORGAN SECURITIES, INC. LIABLE TO INVESTORS FOR $3.8 MILLION IN DAMAGES
BEVERLY HILLS, CALIFORNIA, May 31,2006 /PRNewswire/ – The following was released today by Aidikoff, Uhl & Bakhtiari:
An NASD arbitration panel found Wedbush Morgan Securities, Inc. liable for $3.8 million in connection with the sale of collateralized mortgage obligations (“CMO’s”) to 22 clients of its Newport Beach, California branch office. In addition, the arbitration panel assessed Wedbush Morgan the entire cost of the ten day evidentiary hearing.
The investors were represented by Philip M. Aidikoff and Ryan K. Bakhtiari of Aidikoff, Uhl & Bakhtiari, a Beverly Hills and Newport Beach, California law firm that represents investors in disputes with the securities industry.
With the turn of the securities markets in 2000, many Wedbush customers sought conservative fixed income investments. In response, the Newport Beach branch office recommended the purchase of certain CMO’s. CMO’s pay interest income and are typically created by Wall Street banks by pooling home mortgages backed by collateral.
“My clients were told that these securities were safe enough to put in the trust accounts of widows and orphans,” said Mr. Aidikoff. “Wedbush Morgan represented that they had conducted proper due diligence and research on these investments prior to selling them to our clients, many of whom were elderly and retired. These people were misled by Wedbush. The evidence demonstrated a complete lack of research or due diligence as well as a breakdown in Wedbush’s supervisory system.”
“After promising our clients safe investments ‘guaranteed’ by the collateral in homes, Wedbush neglected to tell them that the collateral wasn’t all real estate, but in fact included trailer park homes that were depreciating assets,” said Ryan Bakhtiari.
At the hearing, expert witness Dr. Craig McCann from Fairfax, Virginia, testified that these lower tranche CMO’s were highly speculative and not suitable for risk adverse bond investors. Dr. McCann testified that this failure to make complete and accurate disclosures was a breach of the fiduciary duty owed to brokerage firm customers.
“In their award of ‘make whole’ damages, the panel sent a clear message to Wedbush Morgan that firms have a solemn responsibility to conduct proper due diligence and make all disclosures to investors. The failure to do so has serious repercussions, both legally and financially,” Mr. Aidikoff added.