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Federal District Court Orders Prudential and Smith Barney to Pay


Federal District Court Judge William Mathew Byrne, Jr. yesterday issued a ruling upholding the award of more than $700,000.00 in damages by an NASD arbitration panel. Susan Taus, a single mother of four, had filed her claim against Smith Barney and Prudential in September of 1997 alleging that they had breached their fiduciary duty to her when they allowed her estranged husband to empty his IRA accounts maintained at the brokerage firms.

During the hearing, testimony established that the brokerage firms knew that Ms. Taus and her former husband were in the process of dividing the community property assets (which included the IRA accounts) yet permitted a rushed liquidation without providing any notice to Ms. Taus according to her attorneys, Philip M. Aidikoff and Robert A. Uhl of the Beverly Hills, California law firm of Aidikoff and Uhl.

The Prudential broker testified that prior to the removal of the funds he had told Ms. Taus that a freeze would be placed on the account and the Smith Barney broker had required dual signatures for earlier withdrawals. Relying on these representations, Susan Taus was shocked to learn that the funds had left the firm and have never been located.

NASD arbitration is mandatory in most customer agreements and substitutes a panel for a jury trial. The panel is composed of three people, one of whom is an industry representative. The awards are binding and are not generally subject to appeal however, in this case, the brokerage firms filed a petition to vacate the arbitration award in Federal District Court. This practice is becoming more common place according to Aidikoff who said that “the firms are doing everything they can to make it as difficult as possible for wronged investors to collect their money. It’s satisfying to see that the courts are not letting them get away with it.” Uhl also added that “no matter what tactics are employed by the brokerage firms, legitimate claims should always be pursued by defrauded investors.” The award also includes interest at 10% until paid.