A bilked investor wins big - Panel awards nearly $18 million
Posted on Thu, Jan. 30, 2003
A bilked investor wins big
Panel awards nearly $18 million to be paid by former broker and firm's new owner, Wachovia
RICK ROTHACKER
Staff Writer
Belgian millionaire L. R. Castelein was looking for a safe investment for his $12.5 million. Instead he got bilked.
Now his former Charlotte broker and the firm he worked for have been slapped with a rare damages award of nearly $18 million.
The arbitration panel that awarded the damages called the actions of broker Douglas Walter Reid "reprehensible" and said Corporate Securities Group Inc., now part of Wachovia Corp., operated in "willful and wanton disregard of its duties" to supervise him.
The securities industry arbitration panel said Reid and Wachovia Securities Financial Network Inc. are jointly liable for $4.1 million in compensatory damages and $12.3 million in punitive damages, plus some other costs.
The award is significant, securities attorneys said, because punitive damages are rarely awarded in arbitration cases. The $12.3 million award amounts to more than half of the total punitive damages awarded in securities arbitration cases in 2002 and is the full amount allowed under N.C. law -- three times compensatory damages.
"The real importance of this case is that it sends a message to the securities industry that in these days of problems finally coming to light ... arbitrators are going to award punitive damages," said N.C. attorney David Rudolf, who learned of the finding for his client Castelein this week.
A spokesman for Wachovia Securities said the firm was disappointed by the decision and noted that Reid's actions occurred in 1997 before predecessor First Union Securities acquired Corporate Securities Group, then part of JWGenesis Financial Corp. Wachovia and First Union merged in 2001.
"This decision in no way reflects the policies and procedures of Wachovia Securities," spokesman Tony Mattera said. "We are reviewing the award and considering additional steps including an appeal."
After a lengthy FBI investigation, Reid pleaded guilty to money laundering and fraud charges last year in connection to crimes involving Castelein and other investors. Described by the FBI as a former pillar of the Myers Park community, Reid is now waiting to be assigned to federal prison.
Reached Wednesday in Georgetown, S.C., he declined to comment on the damages award but said he testified during the arbitration hearings, which were held in Charlotte in August and November.
"I took full responsibility for my actions and testified against (Corporate Securities Group)," said Reid, who has not been a registered stockbroker for more than two years. "I stepped up to the plate and helped him. He deserved to get his money back."
Castelein is a retired 65-year-old businessman, said Rudolf, a defense attorney whose clients have included former Carolina Panther Rae Carruth. The Belgian resident invested $12.5 million with Reid, who falsely represented himself as a Bear Stearns & Co. Inc. broker, according to arbitration documents. He had Bear Stearns business cards and had the company's name in his office, but actually worked for Corporate Securities Group.
Bear Stearns, a clearing agent in the case, was ordered to pay $200,000 in damages by the panel.
In a three-month period, Reid engaged in heavy trading activity in the account, generating higher than normal commissions for himself, and transferred funds without authorization to third parties, according to the documents. All but $4.1million of Castelein's investment was recovered.
In disputes between investors and securities firms, NASD (formerly the National Association of Securities Dealers) operates arbitration and mediation programs. Arbitration is designed to help determine damages and is binding.
Securities expert Douglas Schulz called the award "monumental" because in arbitration cases investors often don't get all their money back and rarely receive punitive damages.
"The message sent to brokerage firms is when your hand is caught in the cookie jar do the right thing and pay the investor," he said.
Punitive damages can signal that arbitrators were displeased with the conduct of a firm during the arbitration process, said Pat Sadler, president of the Public Investors Arbitration Bar Association.
The arbitrators, in their findings, said Corporate Securities Group did not provide complete information to its attorneys, leading to false statements by attorneys and a witness. Rudolf says he is contemplating filing another lawsuit related to actions taken during the hearings. |
