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Panel Awards Record Amount In Stratton Case

Wall Street Journal

An arbitration panel awarded a California doctor a record $10 million in punitive damages from four former officers of the defunct brokerage firm Stratton Oakmont.

A National Association of Securities Dealers panel in Los Angeles awarded the punitive damages to California doctor F. Clark Gardner on top of 3154.583 in compensatory damages and 324,375 in interest. Mr, Gardner claimed that a former Stratton broker, Samuel Weber, recommended unsuitable investments and made unauthorized transactions in his account in early 1995.

The $10 million punitive damage award is the largest ever made in customer arbitration, according to the Securities Arbitration Commentator, a newsletter based in Maplewood, N.J. The arbitration panel found that former Stratton president Daniel Porush, whom NASD barred from the securities industry last December, must pay $4 million of the punitive award. In addition, Jordan Shamah, Stratton’s former vice president, Andrew Greene, its former head of corporate finance, and former head trader Steven P. Sanders must each pay $2 million in punitive damages to Mr. Gardner. Although the arbitration claim initially named Stratton, Mr. Weber and compliance officer Paul F.

Byrne, proceedings were stayed against the three because each has filed for bankruptcy. according to the NASD decision. According to Mr. Gardner’s attorneys, Philip Aidikoff and Robert A. Uhl, the evidence against Mr. Weber included transcripts of taped phone calls in which Mr. Gardner asked Mr. Weber 23 times to sell shares of MVSI Inc. The transcripts also show that Mr. Weber, who could not be reached for comment, repeatedly appeared to steer Mr. Gardner to hold the shares. Such failure to execute a client’s order violated enforcement rules set forth by an independent consultant, who was brought in by order of the Securities and Exchange Commission as part of a 1994 settlement of a civil case against Stratton. The firm was required to tape all calls as a result of that action.

The arbitration panel made the unusual stipulation that the punitive damages be paid by four officials of Stratton – two of whom did not have direct supervisory authority over the broker. The panel decided the men must pay “premised upon their participation in the overall business of Stratton Oakmont,” according to the decision.

Attorneys for the defendants, who denied any wrongdoing in the arbitration case. say that the panel went far beyond its authority in granting such a huge punitive damages award. “This decision is lawless.” said Mr. Greene’s attorney, Steven pay,”Mintz, who called the panel a “kangaroo court.”

“There was no hearing on punitive damages, no opportunity’ to present evidence regarding [the defendants] ability to pay,” says Mr. Mintz, who added that the men probably will be unable to pay the awards. Mr. Mintz and Martin Unger, an attorney for Mr. Sanders, say the men are deciding whether to ask a federal district court to vacate the award. Mr. Porush’s attorney could not be reached, nor could Mr. Shamah, who represented himself and did not appear at the hearing.

The NASD forced Stratton to close its doors in a Dec. 1996 decision involving excessive markups in the securities of a small company, Master Glazier’s Karate International. In barring Stratton, as well as Mr. Porush, from the securities industry, the NASD cited the firm’s persistent disciplinary problems. The NASD also suspended Mr. Sanders for one year. Stratton Oakmont is now being liquidated by the Securities Investor Protection Corp.