[ Dow Jones News Wire article below ]
An Ohio jury has sent what could be a chilling verdict to Wall Street.
It ordered Prudential Securities on Friday to pay $11.7m in compensation and $250m in punitive damages to investors who accused the firm of unauthorised trading in their accounts.
The award is one of the largest on record against a brokerage by individual investors. It is being taken by many as a sign of Middle America's new hostility toward Wall Street amid crashing stock prices and corporate scandal.
"One really has to question Pru's decision to try it before a jury and not settle," said Mark Maddox, a lawyer at Maddox, Hargett, Caruso, which represented the investors. "The current environment poses a real threat to Wall Street firms."
The case is even more unusual because it involves a former Prudential stock broker who sold his clients' stock investments amid the froth of the bull market in order to protect them. Neither the broker nor the firm are alleged to have profited from their conduct.
Jeff Pickett, a stock broker in Prudential's Marion, Ohio office, sold all equity holdings for about 250 elderly clients over a two-day period in October 1998 without informing them, the complaint said. Mr Picket then used the proceeds to buy them more defensive money market investments.
Mr Pickett made the trade after the Russian default and the near-collapse of the Long Term Capital Management hedge fund raised fears of a global market meltdown.
The stock market quickly recovered and moved far higher. The investors claimed they lost more than $10m as a result of the unauthorised trades.
The case offers a rare barometer of an American jury's views of Wall Street. Most securities complaints are settled behind doors in private arbitration.
Prudential vowed to fight: "We will be asking the court to set aside the verdict," the firm said. "We believe that it doesn't have a legal basis and we believe it is unjustified."
NEW YORK -- An Ohio jury Friday awarded $11.7 million in compensatory damages and $250 million in punitive damages to a group of investors who alleged that their stockbroker sold their holdings without their permission.
The plaintiffs claimed that after the securities were sold in 1998, their value rose significantly.
The class-action suit was filed in a Marion, Ohio, court against Prudential Securities Inc., the employer of the stockbroker, Jeffery Pickett.
"We hope this verdict sends a loud message to Wall Street that they must respond to problems immediately in an honest and ethical fashion," Thomas Hargett, a lead attorney for the plaintiffs, said in a prepared statement. "Ignoring their obligations to clients will no longer be accepted as the status quo for Wall Street brokerage firms."
A spokesman for Prudential Securities, a unit of Prudential Financial Inc., said the firm would ask the court to set aside the verdict. "There is no legal basis for it and it is completely unjustified," he said.
Steven Caruso, a partner with Maddox, Hargett & Caruso, whose firm was a co-lead on the case, said the jury award was the one of the largest ever for such a lawsuit. Individual investors who have complaints against their brokers usually must submit to arbitration, and cases that go before a jury are rare.
Mr. Pickett left Prudential Securities in February 1999. In December 2001, the New York Stock Exchange censured and barred him from the securities industry for six months after a hearing panel found he had "engaged in conduct inconsistent with just and equitable principles of trade in that he effected unauthorized trades in the accounts of multiple customers" while at Prudential. He didn't admit or deny guilt.
Mr. Pickett's attorney, Michael Ungar, a partner with Ulmer & Berne LLP in Cleveland, said he was "shocked and dismayed" by the jury's verdict, although it didn't involve his client directly. Mr. Ungar said Mr. Pickett admitted that he had engaged in unauthorized trades and that it was wrong to do so, but noted that Mr. Pickett is now an investment adviser at his own firm and serves some of the same clients who had sued Prudential.
The lawsuit was originally filed in September 1999 after three retirees in the Marion area claimed Mr. Pickett sold their stocks and reallocated them into more conservative funds without their permission. The plaintiffs alleged conversion, breach of contract and breach of fiduciary and professional duties, among other things.
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