By Suzanne Barlyn
Jan 18 Oppenheimer & Co Inc must pay a total of
nearly $1.2 million to a Texas-based investor in a dispute over
allegations of excessive securities trading in his account, an
arbitration panel has ruled.
Lloyd Gillespie alleged Oppenheimer and two brokers
generated $550,000 in sales commissions on a $2-million
portfolio during a 2-1/2 year period.
"Oppenheimer believes it had strong defenses to this action
but has not reviewed the award and accordingly cannot comment on
it," an Oppenheimer spokesman said in a statement. The ruling
was issued on Thursday by a Financial Industry Regulatory
The case is an example of the extent to which excessive
trading, also called "churning," can diminish the value of an
"This was among the worst churning cases we've seen over the
years," said Craig McCann, an economist based in Fairfax, Va.,
who testified on behalf of the investor.
Trading costs ate away 20-percent of the investor's
portfolio value, McCann said. An ideal threshold is close to
three or four percent, although some experts believe it can be
as high as ten percent, McCann said.
The panel's award to the investor includes $848,000 in
damages, $174,000 in legal fees, plus interest and costs,
according to the ruling.
Gillespie, of Nacogdoches, Texas, filed the arbitration case
in 2009, requesting a total of $4 million in damages, according
to the ruling. He alleged that Oppenheimer and two other firms
where the brokers who advised him later worked, were responsible
for concentrating his portfolio in "highly speculative stocks"
and used margin, a type of loan, to buy the securities,
according to the ruling.
The investments were not appropriate given his risk
tolerance and investment goals, alleged Gillespie, a logger and
former owner of a lumber business. Gillespie, now semi-retired,
also alleged that Oppenheimer and the other firms failed to
supervise the brokers who worked on his account.
The cases against the two other firms were later settled.
Most of the excessive trading occurred through Oppenheimer,
according to Bruce Oakes, a St. Louis, Missouri-based lawyer who
represented Gillespie. A now former Oppenheimer broker who
advised Gillespie between 2003 and 2007, was responsible for
generating about $400,000 of the total $550,000 commission tab,
Oakes said. A second broker who worked on Gillespie's account
for ten months generated about $110,000 in commissions.
Oppenheimer received 60 percent of those commissions, Oakes
said. Gillespie's overall losses were about $1 million, he said.
Arbitrators also denied requests by the two brokers who
worked on Gillespie's account to remove a disclosure about the
arbitration case from their public disclosure records, according
to the ruling.
"I'm glad the panel recognized that brokerages have some
responsibility to protect their clients from the brokers," Oakes
said. "Oppenheimer profited from this more than the brokers
did," he said.