Wall Street Journal reports on a multi-million dollar award for client arbitration represented by Brian Smiley.
Josephthal Lyon & Ross and one of its former brokers must pay nearly $2 million in an arbitration case that alleged the former broker steered an investor to risky private-company investments without spelling out the risks.A Louisiana man, Michael Dobison, claimed that in 1993 he was advised by his broker, Rodney Sailor, to invest in a privately owned company, Comtech Labs. Mr. Sailor allegedly assured Mr. Dobison that Comtech would go public in the near future. Mr. Dobison invested $405,000, assuming it would be a safe short-term investment and that he could use the profits from the company’s public stock offering to pay a looming unrelated tax bill, said his attorneys, Brian Smiley and Edward Saunders of Page & Bacek in Atlanta.
Instead, he found that his broker had gotten him into a convertible note with an option to purchase stock and warrants in the company, and that the note was payable only when Comtech went public, or by October 1998, whichever came first. The company, which had incurred a $14 million loss from April 1990 to the end of 1993, has since gone out of business, the attorneys said.
What’s more, the attorneys for Mr. Dobison said, Mr. Sailor allegedly persuaded Mr. Dobison to invest $129,319 in a brokerage firm, Stealthco Securities, where Mr. Sailor was president. Mr. Sailor allegedly told Mr. Dobison that Stealthco owned a radio station that was going to make a large profit during the Olympics, and that with his investment Mr. Dobison could become vice president of Stealthco.
However, the complaint alleged, Stealthco’s securities weren’t registered in Louisiana or Georgia, nor were they subject to registration exemptions in those states. Mr. Dobison alleged he had no idea that Stealthco was poorly financed, privately held and in the initial stage of development at the time he invested. Mr. Dobison also charged that Mr. Sailor deposited more than $37,500 of the Stealthco investment into Mr. Sailor’s personal account.
Josephthal, which had said that Mr. Sailor’s actions, if true, were contrary to company policy, was found liable by a National Association of Securities Dealers arbitration panel for $651,201 for negligence, fraud and conversion, and $329,664 for attorney’s fees and costs. Josephthal won an equal amount from Mr. Sailor in a cross-claim against him. An attorney for Josephthal couldn’t immediately be reached for comment.
Mr. Sailor, who couldn’t be reached for comment and who resigned from Josephthal, was found liable by the NASD panel for $1 million in damages, fraud and conversion, as well as for $980,865 to Josephthal.
By Deborah Lohse