Securities Law News Update, From the Securities Law Home Page

NYSE Awards, 11/01

New awards include a half-billion dollar award, with 200 million dollars in punitive damages

NYSE AWARDS, 11/01: The New York Stock Exchange ends the arbitration year with a bang, issuing an Award that assesses a Respondent nearly a half billion dollars. The Award, Sanchez v. Perusquia, NYSE ID #2000-008556 (Houston, 11/15/01), is available on the NYSE Arbitration WebSite, one of ten arbitral decisions posted for the month of November.

Of course, Texas was the situs state for this largest of awards. It dwarfs any previous amount on record in securities arbitration, at $429,501,248, and includes the largest punitive damages award as well ($208,700,923).

Enrique Ernesto Perusquia was the sole Respondent by hearing time and he failed to appear. The three-person Houston-based Panel found that Respondent Perusquia “committed acts of fraud, forgery, breach of fiduciary duty, embezzlement, self-dealing, and other heinous acts…. This panel further finds by clear and convincing evidence that the actions of Perusquia were perpetrated with the intent to injure Claimants and were done with willful, wanton and gross disregard for Claimants and their rights and interests.”

Included as Respondents in the caption of the Award are PaineWebber and Lehman Brothers, but they settled before the hearing. Readers of the Lit Alert may recall that PaineWebber sought to cross-claim against Chase Manhattan Private Bank (Switzerland), but the Fifth Circuit refused to compel CMPB to join the arbitration (SLA 2001-31). The Court’s decision has a lot more detail about the factual circumstances of the dispute than does the “Case Summary” in the Award, which essentially just lists the legal claims asserted.

Another Award among the November offering that might be familiar to readers is Sands Brothers & Co., Ltd. v. Generex Pharmaceuticals, NYSE ID #1998-007337 (NYC, 11/6/01). We first covered this dispute when it was ordered to arbitration at the behest of non-member Generex in August 1998 (10 SAC 2(17)). This was an unusual arbitration case, in that it concerned a dispute between an issuer and a financial advisor over compensation owed under their Agreement for advisory services. We reported on an earlier Award in the case, which granted Sands Brothers warrants representing 17% of the issuer’s outstanding common stock (SAA 1999-12). Generex challenged that Award, because it claimed that the terms of the warrants it was directed to issue by the Panel were too indefinite. The New York Appellate Division agreed with Generex and remanded the matter to the same Panel of Arbitrators for further hearings and findings. In the Court’s decision (SLA 2001-50), it suggested the Panel could quantify the value of the warrants and just give Sands a monetary award. Undeterred, the remaining two members of the Panel stuck with the old formula, but expressly found in the new Award that the underlying advisory agreement supplied “all of the required material terms for the warrants to be a contractually binding and enforceable agreement of the parties” and that “all that remained open were ‘boilerplate provisions established by custom and usage in the financial community.’” Just in case, though, the Arbitrators add that the Warrant Exercise Term will be extended, if Generex goes back to court, “by the duration of time of such proceedings and/or appeals.”

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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.