(Adds comments from BNP spokeswoman)
By Suzanne Barlyn
June 30 (Reuters) - A BNP Paribas SA unit must pay $16.6 million to a London-based couple in a dispute stemming from an investment product that is typically sold to hedge funds and institutional clients, a securities arbitration panel has ruled.
Arbitrators from the Financial Industry Regulatory Authority (FINRA) found BNP Paribas Securities Corp liable in the case, which alleged gross negligence and civil fraud, according to the ruling dated June 26 and posted to FINRA’s website on Tuesday.
“We disagree with and are deeply disappointed by the arbitrators’ decision,” a BNP spokeswoman said in a statement.
The ruling in the long-running case, which began in 2010, includes $16.1 million in compensatory damages, which represents the full amount initially sought by the couple plus interest.
Arbitrators also ordered BNP Paribas to pay a $500,000 sanction for failing to comply with its orders about exchanging information with the claimants during the proceedings.
FINRA’s arbitrators, as is typical, did not include their reasons for the decision.
The investors, James and Margaret Eringer, set up a company, Ontonimo Ltd, as urged by BNP Paribas, for the purpose of buying the investment with their personal funds, said their lawyer, Barry Lax in New York. BNP “believes that it conducted itself professionally and appropriately with respect to Ontonimo and its investments,” a spokeswoman said.
The Eringers, who came into the money through the sale of a bakery business by one of their parents, put more than 60 percent of their investable assets into the product. But the investment became “worthless” 18 months later, Lax said. The couple had paid BNP more than $2 million for fees and costs, Lax said.
BNP recommended the “highly speculative and leveraged” product to the Eringers and required them to set up a company for buying the investment, which BNP typically sold only to institutional clients, Lax said.
BNP also required James Eringer to sign an agreement representing that he was an investment adviser, even though Eringer had no prior professional financial experience or a securities license, Lax said.
The BNP spokeswoman declined to comment on Lax’s remarks about the investment.
FINRA arbitrators decided the case after more than 90 days of hearings. (Reporting by Suzanne Barlyn; Editing by Chizu Nomiyama, Christian Plumb and Andrew Hay)