A FINRA arbitration panel has ordered Oppenheimer to pay a former client $800,000 for over-concentrating his money in a risky investment typically used by professional traders as a hedging vehicle.
Robert Dekas, a “CNBC addict” who fell under the spell of then Oppenheimer celebrity analyst Carter Worth, was put into a product called the VXX, an exchange-traded note tied to the VIX volatility index, according to his attorney, Martin Unger of Long Island law firm Wexler Burkhart Hirschberg & Unger.
He invested all of his money and lost a significant chunk of it after about a year, Unger said.
The ETN was a sophisticated vehicle that Unger explained was "not meant to be held for any long period of time because it ultimately goes to zero."
Dekas’ broker, James Forsythe, nevertheless continued to hold the investment for reasons that never became clear.
"They just sat there while he was losing all of his money in this thing," Unger said.
Oppenheimer then allowed Dekas, who was in his 60s, to put what was left of his investment into the Global Chartist Fund, a new fund that Worth was going to run.
It was the “ultimate gamble,” Unger said of the speculative, untried fund, which launched in January of 2012 and was liquidated in May of 2013.
Dekas had seen Worth on CNBC and “fell in love with him,” Unger said. He wanted to invest in the new fund because “he thought Carter Worth could walk on water.”
In the end, Dekas “lost pretty much everything” he had in his three Oppenheimer accounts, a loss that was “well into the seven figures.”
Dekas was seeking $2 million in punitive damages and more than $1.5 million in compensatory damages, according to the arbitration award.
Oppenheimer’s in-house attorney, Donald Corbett, had no comment on the panel’s decision.
Unger, who typically represents brokers and brokerage firms, said he was appalled by Oppenheimer’s lack of supervision over Forsythe. During the hearing, he derided the firm for failing to a have supervisory procedures in place to monitor the sale of a product that most other firms don’t allow retail investors to buy.
“Oppenheimer had no procedures for monitoring VXX, which FINRA says you need procedure for if you’re going to let people do it,” he said.
In addition to holding Oppenheimer liable for $800,000 in compensatory damages, the panel denied the firm’s request to expunge Dekas’ complaint from the regulatory records of Forsythe and Worth. Neither Forsythe nor Worth were parties to the FINRA arbitration.
Dekas alleged that Forsythe, Worth and Oppenheimer caused sales practice violations, executed unauthorized trades and invested his accounts in unsuitable investments, according to BrokerCheck records. He also claimed that he “understood” that Worth would be instructing Forsythe on this account, Worth’s BrokerCheck report shows.
Forsythe declined to comment on the matter. Worth, who no longer works for Oppenheimer, could not be reached.
Unger chose not to pursue Forsythe or Worth in the dispute for strategic reasons. “If there is an award of money, as there was here, it is easier to get paid from the broker-dealer,” he said.