The Financial Industry Regulatory Authority (FINRA) Arbitration Panel has awarded damages to investors in the amount of $1.2 million in compensatory damages and cost of fees associated with the arbitration. The alleged claim was asserted against BBVA Securities of Puerto Rico, Inc. (BBVA Securities) and employees of the brokerage firm.
BBVA Securities is a brokerage firm in San Juan, Puerto Rico.
The Claimants asserted breach of fiduciary duty, unsuitable investments, churning and excessive trading, failure to supervise and gross negligence. These causes of actions related to allegedly unsuitable naked option trading strategy combined with the use of margin which caused losses in the investor’s accounts.
A naked option is a risky position which can incur significant losses. The seller of the naked option strategy does not own any or enough of the underlying security to hedge against adverse price movements. If the price of the security rises against the broker’s strike price, then the broker is required to purchase the security incurring significant losses. Based on the high risk associated with naked option, inexperienced brokers are usually not permitted to employ such trading strategies. The risk of losses becomes exponential when the naked option strategy is combined with the use of margin. The brokerage firm lends the investor money against the securities in the investor’s portfolio. The use of margin is a valuable tool if employed under the right circumstances.
However, if the securities decline then the investor incurs substantial losses. In the matter at hand, the Claimants allege BBVA brokers employed risky strategies to the Claimant’s account. The Claimants neither requested such transaction nor authorized their brokers to conduct the alleged trading because accounts were unsuitable for them based on their age, financial situation, investment objectives and investment experience.
Although BBVA Securities and brokers denied the allegations and asserted various affirmative defenses, the FINRA Arbitration Panel ruled in favor of the Claimants. After the hearing and submissions, the FINRA Panel made a final resolution to the claims asserted by the Claimants. Respondents BBVA was held liable and ordered to pay compensatory damages to Claimants Felix Bernard-Diaz, Julian Rodriguez and Luz Rodriguez. The panel awarded Bernard-Diaz $635,000.00 in compensatory damages and $15,000.00 in costs. Julian Rodriguez and Luz Rodriguez were awarded $547,000.00 in compensatory damages and $15,000.00. Furthermore the panel dismissed without prejudice all claims against Respondent.
The attorneys at Gana Weinstein LLP represent investors in securities litigation and FINRA arbitration cases. The attorneys are experienced in investigating claims of unsuitability, churning and excessive trading. Our law offices are currently investigating claims by investor who purchased Puerto Rico municipal bonds funds from brokerage firms such as UBS Puerto Rico, Popular Securities, and Santander and have suffered losses as a result.
By: Shazia Ahmad