An NASD arbitration panel found American Express Financial Advisors, a division of American Express (NYSE: AXP), liable for $649,612 for failure to properly supervise Los Angeles area broker Edward Torres. On Friday, February 18, 2005, the NASD panel awarded $490,612 in compensatory damages and $159,000 in punitive damages to retired El Paso, Texas residents Pat and Francois Loth. The Loths’ law firm is Aidikoff & Uhl, a Beverly Hills, California firm that represents individuals in disputes with the securities industry.
Mrs. Loth became permanently disabled as a result of taking the drug Phen Phen and sought financial guidance from Mr. Torres with respect to how she should invest the proceeds of her settlement with the drug manufacturer. She was advised to liquidate government bonds and told to transfer all of the money to American Express, where Mr. Torres purchased risky B share mutual funds, limited partnerships and a variable annuity.
“Evidence presented at the hearing proved that the Loth’s had zero investment experience when they went to American Express, and despite their request for safe investments, Torres recommended unsuitable securities that paid him high sales commissions. As the value of the account dropped, the Loth’s repeatedly expressed concern but the broker convinced them that the investments should not be sold,” said Philip M. Aidikoff, who tried the case.
“In their award of punitive damages, the panel relied on a recent California Supreme Court case which imposed liability for recommending that unsuitable investments should continue to be held,” Mr. Aidikoff added. “Brokerage firms have a strict obligation to monitor and control the activities of their brokers and the failure to do so will have serious repercussions, both legally and financially.”