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Office Locations:
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(954) 570-8989
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Boca Raton, FL
(561) 752-1414
Aventura, FL
(786) 621-8011
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(561) 752-1414
Coral Gables, FL
(786) 621-8011
Nationwide Toll Free
(866) 277-8631
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Wites & Kapetan Wins $500,000 Arbitration Award for Defrauded Investors
Wites & Kapetan, P.A. today announced that Judy Schulman, a Boca
Raton resident who suffered substantial losses in a risky portfolio of
Collateralized Mortgage Obligations (CMOs) sold to her as a safe and
conservative investment by Brookstreet Securities Corporation,
received an arbitration award of $523,300. After a 4-day hearing, the
Financial Industry Regulatory Authority (FINRA) Arbitration Panel
found Brookstreet and its President, Stanley Brooks, jointly and
severally liable for Ms. Schulman's losses.
Ms. Schulman, who was 53 when the account was opened, argued that
Brookstreet failed her by recommending a risky, complex portfolio
comprised almost entirely of CMOs, which Brookstreet marketed to her
as a conservative investment that would yield income and was as safe
as a bank CD. Ms. Schulman had very limited investment experience, and
clearly told her broker that she wanted only very conservative
investments and did not want to lose any money.
Ms. Schulman's lawyer, Marc A. Wites of Wites & Kapetan, P.A., in
Lighthouse Point, Florida, argued that Stanley Brooks should be held
jointly and severally liable because Brooks' directed his firm to
engage in a company-wide scheme to misrepresent and promote CMOs as
safe, conservative investments, and that Brooks and the firm knew that
they were volatile, risky and suitable only for sophisticated
investors.
CMOs are highly complex and volatile investments suitable only for
sophisticated investors. In a 1993 notice to its members, FINRA (which
was then known as the National Association of Securities Dealers or
NASD) pronounced that CMO positions like the ones sold to Ms. Schulman
are volatile, and suitable only for sophisticated investors with high
risk profiles. Ms. Schulman's Brookstreet account declined in value
within months after it was opened in September 2005, and it never
recovered.
According to Mr. Wites, the case was the first in the nation
concerning Brookstreet's CMO Program to reach the final arbitration
hearing, which is the equivalent of a trial. He added, though, that
unlike Mrs. Schulman's case, the dozens of other cases against
Brookstreet were brought by investors who allege that they were
fraudulently induced to purchase unsuitable CMOs and suffered losses
caused, in part, by margin calls that led to the ultimate demise of
Brookstreet in June 2007. Ms. Schulman's account was not subject to
any margin calls, and was closed before Brookstreet went under.
The Arbitration Panel also found that Brookstreet and Mr. Brooks
failed to comply with discovery requests and orders of the Panel, and
sanctioned them $15,000. As additional sanctions, the Panel ordered
them to pay Ms. Schulman's attorney's fees, and to pay all of the
hearing session fees charged by FINRA to run the arbitration, which
totaled $20,400.
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