Duke & Co., the small New York brokerage firm that is closing its retail operations amid investigations by federal and state regulators, was recently ordered to pay a total of $120,000 to a former broker who claimed the firm fired him in 1996, withheld commissions, and then tried to blackball him with his next employer.
Duke denied the allegations, made in a November filing before a National Association of Securities Dealers arbitration panel, which ordered Duke to make the payments. On March 20, Duke & Co. filed an appeal of the panel’s decision to the New York state Supreme Court.
The panel, on Feb. 18, ordered Duke to pay Roger Muniz, 31 years
old, $52,000 in commissions that he earned at Duke but wasn’t paid, $38,000 for loss of wages, and $29,000 for attorneys’ fees, as well as filing and other fees related to the arbitration. The panel denied a claim that Muniz had also filed against Charles Bennett, a Duke principal.
In his claim against the firm, Muniz said he worked at Duke & Co. from July 1994 to June 7, 1996, when he was accused by Bennett of forging Bennett’s initials on an order ticket and summarily fired. Muniz denied forging Bennett’s initials and claimed that Bennett knew his accusation was false.
Muniz also contended that “employees of Duke contacted his new employer and made false, disparaging, and slanderous remarks about him,” according to papers filed in connection with Duke’s appeal. The papers didn’t name the employer. Duke contended that it only explained to others why Muniz was no longer with the firm, the papers say.
Muniz, who still works as a broker in New York, declined comment. Noone answered several calls to the switchboard telephone at Duke’s headquarters office at 909 Third Ave. in New York City. Calls to the firm’s Woodbury, N.Y., branch office were answered by a machine. Duke’s attorney, Marvin Gersten of Gersten, Savage, Kaplowitz, Fredericks & Curtin, didn’t return several calls to his office and home.
Duke officials have told both regulators and the company’s clearing firm that they are closing their retail operations. That may make it difficult for Muniz to recover the amount awarded, none of which has been paid.
“Roger’s reputation has been restored,” said his lawyer, Eric Ross, associate at Fischbein Badillo Wagner Harding in New York. “In terms of getting paid, it’s not clear, though Roger intends to enforce this as best he can.”
Muniz’s claims are the latest to surface concerning alleged bad practices at Duke & Co. For almost two years, the brokerage has been under investigation by the Securities and Exchange Commission for possible trading abuses in Renaissance Entertainment Corp. (FAIR), a small, Boulder, Col.-based theme-fair company whose initial public offering Duke underwrote in 1995.
The SEC is also reviewing the firm’s trading in another IPO it underwrote, Paravant Computer Systems Inc. (PVAT) and the NASD’s regulatory arm is investigating trading in another Duke IPO, Sel-Leb Marketing Inc. (SELB), according to Duke’s attorneys.
The New York state attorney general’s office has also launched an investigation into Duke’s practices, according to Andrew Kandel, head of the investor protection and securities division of the New York state attorney general’s office. The division has sent 4,000 letters to Duke customers asking for details of their relationship with the brokerage, Kandel said. Duke has denied any wrongdoing.
Duke was taken over in 1993 by Victor Wang, 33, and Gregg Thaler, 32, both of whom had connections to Stratton Oakmont Inc., a now-defunct Lake Success, N.Y., brokerage that was closed by regulators in 1996. Many of the brokers who worked at Duke after the takeover were from Stratton.
The “Stratton two-step” that Duke allegedly used to hook customers over the telephone: the initial recommendation of a blue-chip stock followed quickly by a recommended switch into a house-underwritten issue.
Though not illegal, the practice often raises issues of whether the recommended investments are suitable for all investors.
In an interview earlier this year, Victor Wang, Duke’s chairman, maintained that “there is no typical investment strategy – a blanket investment strategy – for all clients at the firm.”
In recent years, Duke has sought to transform itself from a brokerage that specializes in trading shares in small-capitalization companies into a more mainstream investment bank.
It formed fixed-income and equity research departments and, in the past year, has “terminated or forced to resign several dozen brokers who we didn’t want associated with the firm,” Len Ridini, Duke’s counsel, said earlier this year.
But the brokerage also faces arbitration claims filed with the NASD by former clients that allege Duke’s wrongful behavior caused at least $2.3 million in losses in small-cap stocks.