By Abirami Ananthasingam
On September 15, 2008, Lehman Brothers filed the largest bankruptcy in history with over $639 million in assets and $619 billion in debt. Despite the residual effects of this failure, for one broker, the torment is finally over. On April 7, 2014, Edward Graham Dulin, Jr. was awarded a $5.4 million award to compensate him for the diminution in the value of his career and the damage to his business from being held responsible for losses sustained by investors to whom he had recommended the purchase of Lehman Principal Protected Structured Products (“Structured Products”). UBS’ actions led to the disclosure of thirty-nine (39) customer complaints on Mr. Dulin’s Central Registration Depository records – forms U4 and U5.
The hearing lasted twenty-one days and involved two experts, Dr. Craig McCann and Terry Ormsbee, and thousands of exhibits. The theory of the case focused on the knowledge of UBS compliance officers and managers at the time the products were sold in 2007. UBS attempted to assert that its compliance officers and managers were unaware of the instability of Lehman Brothers and the risks associated with the Structured Products. Nevertheless, Seth Lipner, counsel for Mr. Dulin, was able to show UBS’s knowledge of the failings of Lehman Brothers in 2007 through his examination of UBS employees and presentation of documentary evidence. [The original version of this post incorrectly identified Mr. Lipner as a witness in the proceeding. The IRC apologizes for any confusion caused by the incorrect information in its original post.] Mr. Lipner was further able to present evidence of UBS’s express decision to not cause any panic amongst the brokers by not informing them of this information. Shockingly, UBS compliance officers and managers did not correct any misunderstandings even after the broker in question communicated his misunderstanding via e-mail.
The evidence established that the compliance officers and managers did not understand the product and did not understand the implications of their actions. These misunderstandings were transferred onto the customers by providing them with inaccurate sales materials and free writing prospectuses. The decision to remain mute as to the risks led to dozens of customer complaints and millions in losses.
Mr. Dulin asserted the following causes of action: Intentional Interference with Business Expectancy, Injurious Falsehood, Breach of Contract, and Violation of Arizona Securities Statutes and Regulations. The hearing resulted in an award for the broker of $4 million in compensatory damages, $1 million in punitive damages, $250,000 in attorneys’ fees, $85,000 in costs, $52,000 in arbitrator fees. The panel even recommended the expungement of all thirty-nine (39) of the customer complaints against the broker.