Brokerage ordered to pay ex-employee US$4.3 million for making him sell securities that failed

A US$4.3 million arbitration award to a broker who was encouraged by his former firm to sell securities that later failed could spawn similar complaints from other brokers.

The unusual ruling, issued late on Wednesday by a Financial Industry Regulatory Authority arbitration panel, requires Los Angeles brokerage Wedbush Securities to pay the broker after nearly a decade of litigation stemming from the securities.

He had alleged that the firm failed to properly disclose the risks of mortgage-backed securities he sold to his clients. The clients who bought them later lost money and filed their own complaints against the firm, which now appear on the broker’s permanent record. He said he lost clients and income, according to the ruling.

The decision could open the door to cases by other brokers who have become targets of customer arbitration cases, after the securities that their firms had promoted as safe later failed, securities lawyers say.

“I’ve never heard of anything like that,” said Michael Sullivan, a lawyer in Morristown, New Jersey, who represents brokers.

The case means more brokers may seek compensation from their firms if their businesses are hurt by passing along the misleading claims of their brokerages to customers, Sullivan said.

“We wholeheartedly disagree with the ruling and are currently reviewing our options,” said Wesley Long, head of private client services for Wedbush Securities, in a statement.