The Securities and Exchange Commission today announced that UBS Financial Services Inc. has agreed to pay approximately $25 million to settle fraud charges relating to a complex investment strategy referred to as YES, or Yield Enhancement Strategy.…

Read the Full Press Release

Have a securities law question? Call New York Securities Lawyers at 212-509-6544.

A FINRA arbitration panel awarded a hedge fund manager $60 million in damages for defamation against D.E. Shaw, three members of its executive committee and one of its managing directors.

While FINRA arbitration awards provide very few details, the manager sued for $600 million, plus his deferred compensation, punitive damages, interest and attorneys fees. That is an interesting outcome, given the size of the claim, but the award provides no details as to the basis of the $600 million dollar claims. We obviously have no idea how much his compensation was, but Financial Times reported that he was earning $40 million a year.

Assuming that number to be correct, it appears that the $600 million demand was for more than 10 times his then current compensation. I have no problem with claimants asking for the maximum amount they can justify. If you don’t ask for it, you won’t get it.

So, with that background, the award isn’t shockingly large, nor is it shockingly small, and considering he left in the middle of a year, it probably amounts to a year and a half of compensation.

He also apparently lost his deferred compensation, which might be an issue. Of course, that depends on how his deferred compensation was calculated – sometimes the employee is entitled to a portion of it back, sometimes he isn’t.

There are a couple of other interesting items. First, there are only two arbitrators. This type of case gets three. The award states that one of the arbitrators withdrew and the parties agreed to proceed with the remaining two arbitrators. That goes against the “common wisdom” but there are plenty of valid reasons for doing so – in this case it appears that the arbitrator withdrew after 18 days of hearings. That alone is enough of a reason to go forward with two arbitrators.

Two other points. First the case involved allegations of sexual misconduct, which was the basis of the defamation claim. The Arbitrators went out of their way to state in the award “The Panel specifically finds that Claimant did not commit sexual misconduct.”

But while making that statement, and awarding $52 million dollars, the Panel ordered the manager to pay 1/2 of the forum fees – $46,575.00! Again, I don’t know anything about the case, but given the size of the award, which was for defamation, and the added finding of no misconduct, it seems to me that the hearing fees should have been assessed against the Respondent.

One last point, and this is important – the award is joint and several against the firm, and the 4 individual respondents. That means that each of them is responsible for the $52 million. While I am sure that D.E Shaw will pay the award, making each of the individuals personally responsible sends a very strong message about liability for defamation.

Defamation cases are difficult to win in court, and even more so in arbitration. I have won a few over the years, but it is not easy.

-Mark Astarita

From the Internet:

Financial Times apparently has a detailed analysis of the case, but it is behind a pay wall.  Medium.com has an article on the case, which quotes portions of the Financial Times article. Financial Times also has an article about the award, which for some reason is not behind a paywall.

Bloomberg did a write up, but tucked it behind a paywall.

Business Insider wrote about the case when it first broke. The article references a letter the manager wrote to David Shaw at the time of his separation. The manager posted the letter on his Twitter feed, which is an interesting read if you want to read more about his side of the case.

The Securities and Exchange Commission today charged Haverford, PA-based Egan-Jones Ratings Company, a nationally recognized statistical rating organization (NRSRO) registered with the Commission in certain ratings classes, with violating conflict of…

Read the Full Press Release

Have a securities law question? Call New York Securities Lawyers at 212-509-6544.

The Securities and Exchange Commission today charged registered broker-dealer Western International Securities, Inc. and five of its registered representatives, or brokers – Nancy Cole, Patrick Egan, Andy Gitipityapon, Steven Graham, and Thomas Swan –…

Read the Full Press Release

Have a securities law question? Call New York Securities Lawyers at 212-509-6544.

The Securities and Exchange Commission today announced that investment advisory firm Weiss Asset Management LP has agreed to pay approximately $6.9 million to settle charges that it violated the federal securities laws when it unlawfully purchased stock…

Read the Full Press Release

Have a securities law question? Call New York Securities Lawyers at 212-509-6544.