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Kentucky Panel Enters Award on Claims for Misappropriation and Fraud

MAY v. STIFEL NICOLAUS & CO., INC., NASD ID #01-02950 (Louisville, 10/15/02). Although this is another NASD “say-nothing” Award, the outcome, an award to two investors of $4.356 million in compensatory damages and $117,5000 in attorney fees, rings loud and clear!

The “Case Summary” section of the Award lists numerous causes of action brought by the Mays and a related enterprise and then cryptically states: “These allegations involved transactions in common stocks, including purchases of stock on margin.”Regarding relief requested, Claimant sought $11.8 million in compensatory damages against Stifel and two individual Respondents.

The claims against the individuals did not proceed to decision and, at the close of their case, Claimants voluntarily dismissed all claims but “those claims filed under the Kentucky Blue Sky Law.” While that put all of Claimants’ eggs in one basket, it also tied the Arbitrators to a legislative scheme that allows attorney fees and statutory damages. Indeed, the Panel indicates that the attorney fee award is based upon the authority of “the Kentucky Securities Act, K.R.S. §292.480(1)(2).” Stifel was also directed to pay $25,250 in forum and member fees and to reimburse the Mays for the initial filing fee of $600. Claimant David May is awarded $2.336 million, Claimant David Franklin May II is awarded $2.020 million, and Claimant M&M Enterprise’s claims are “denied with prejudice.”

For a sense of the factual allegations, we referred to a copy of Claimants’ Pre-hearing Statement, which sets forth three bases for alleging violations of the Kentucky Securities Act: (1) that Stifel’s Agent misappropriated $500,000 from David May’s account through a fictitious bond purchase scheme; (2) that Stifel “ignored multiple red flags that should have put them on notice” of the theft of client funds occurring not only in Mr. May’s account, but in other accounts as well ($5 million total); and, (3) that misrepresentations and omissions accompanied the purchase of $3.4 million of Qualcomm stock, the promised sale of the stock on March 30, 2000, and purchases of CMGI stock that caused losses “in excess of $4.5 million in the stock.” (SAC Ref. No. 02-42-01)


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Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article. 


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