By George H. Friedman, SAA Publisher & Editor-in-Chief
As widely reported in the media, a former Merrill Lynch broker, who had earlier this year been released from prison after serving a three-plus year sentence resulting from his misconduct, was hit with a more than $7 million Award.
Financial services media widely reported recently that former broker Tom Buck had been released from prison in January after serving a 40-month sentence for “overcharging clients by more than $2 million” (see, for example, Months After Release from Prison, Ex-Merrill Broker Tom Buck Ordered to Pay $7.5 Mln, reported May 9 by AdvisorHub. On May 9 the All-Public Panel in Compton v. Merrill Lynch and Buck, FINRA ID No. 20-02468 (Memphis, TN), rendered an Award of over $7.5 million against him (the claims against Merrill were voluntarily withdrawn with prejudice.) We analyze the case below.
In the customer’s Statement of Claim: “Claimant asserted the following causes of action: violation of Indiana’s Corrupt Business Influence Act - Operating An Enterprise Through A Pattern Of Racketeering; violation of Indiana Corrupt Business Influence Act - Use Of Racketeering Proceeds to Operate an Enterprise; violation of the Racketeer Influenced and Corrupt Organization Act - Operating An Enterprise Through A Pattern Of Racketeering; Civil Recovery Under Indiana’s Crime Victim Statute; breach of fiduciary duty; fraud; and negligent supervision and ratification. The causes of action relate to overtrading of long-term securities and overcharging of commissions by Respondent Buck in Claimant’s MLPFS accounts, and the alleged lack of supervision by Respondent MLPFS.”
Compton sought: “an amount equal to the returns Claimant lost due to Respondents’ alleged failure to prudently manage her accounts (e.g. well-managed damages); disgorgement of the balance of the commissions Claimant had not recovered to date from the SEC’s Victim’s Fund; pre-judgement interest at the highest rate allowed by law; treble damages; attorneys’ fees, costs and expenses; punitive/exemplary damages; and such other, different or additional relief and damages which the Panel deemed to be just and equitable.”
The claims against Merrill were dismissed voluntarily with prejudice, leaving the claims asserted against Buck individually. After denying Bucks’ motion to dismiss based on timeliness and eligibility, the Panel awarded as follows (ed: presented essentially verbatim):
- $770,269 in compensatory damages.
- interest on the well-managed damages amount of $5,812,948.80, which represents 80% of the overall loss value of the accounts requested by Claimant, at the rate of 8% per annum from March 25, 2018, through and including March 25, 2022. The total interest awarded is $1,860,144. Please note that the Panel is not awarding the well-managed damages amount of $5,812,948.80. It is only basing its interest calculations on the amount of well-managed damages.
- $2,310,806 in treble damages pursuant to 18 U.S.C. 1964(c) - the Racketeer Influenced and Corrupt Organization Act, and the Indiana Corrupt Business Influence Act (Indiana Code Ann. § 35-45-6-2).
- $2,585,232 in attorneys’ fees pursuant to 18 U.S.C. 1964(c) - the Racketeer Influenced and Corrupt Organization Act, and the Indiana Corrupt Business Influence Act (Indiana Code Ann. § 35-45-6-2).
- $375, which represents the non-refundable portion of the filing fee previously paid by Claimant to FINRA Dispute Resolution Services.
The $40,050 in hearing session fees were assessed as follows: $6,412.50 against Claimant; $5,512.50 jointly and severally to Merrill and Buck; $28,125 to Buck.
(ed: *We checked with SAC’s Award Database to see how this fit among the largest awards in securities arbitration, etc. The Buck award is the largest compensatory award by a FINRA Panel in a customer-initiated case, with sole liability assessed against an individual. There are a fair number of bigger awards against individuals where punitive damages were the bulk of the award. Thus, the “compensatory” qualifier. “Sole liability” is also key, because there have been many larger joint and several awards against two or more individual respondents. **We reached out to one of Buck’s attorneys, David Robbins, who said: “I had the distinct privilege to be on teams of attorneys in Indiana and New York, with the significant participation of a stellar expert from Ohio, representing Tom Buck in the criminal case in Indiana and in the one arbitration filed against him, in Tennessee. We have discussed the options available to Tom and he is considering them.” ***This is definitely one to watch.)