WASHINGTON — A tech start-up employee who claimed that Sands Brothers & Co. failed to arrange a hedge against a concentrated stock position and engaged in unauthorized trading in his account has won $3.1 million in arbitration against the firm, including $1 million in punitive damages.
The investor, Jay Hoge, claimed in a New York Stock Exchange arbitration case released this week that Sands Brothers failed to hedge the roughly 85,000 shares he received in Finisar Corp. (FNSR), a Sunnyvale, Calif., telecom company that purchased a small start-up company he worked at. Hoge, who opened an account with Sands in 2000, claimed the company pitched him the idea of hedging the large position through a prepaid forward contract when he deposited the Finisar shares in December 2000.
As Finisar shares began a sustained decline the next month, Hoge repeatedly inquired about the hedge but never heard a definitive answer about it.
Hoge, who was living in Palos Verdes, Calif., at the time but traveling extensively, now lives in Latvia and is involved in starting up another technology-related business, said his attorney.
Richard Roth, the New York attorney who represented Sands Brothers, said Hoge never made it clear that he was interested in a hedge, and that in any case, Sands Brothers merely refers hedging clients to another institution to complete such a transaction – in this case, Bank of America Corp. (BAC). Another Finisar holder who clearly indicated an interest in the hedging strategy around the same time as Hoge was able to have his hedge processed through Bank of America without delay, said Roth.
Roth said Sands Brothers is likely to go to court to have the ruling vacated on a number of reasons, including that the NYSE panel scheduled hearings in a way that prevented witnesses from testifying. One hearing, he said, was arranged during a key Sands Brothers broker’s honeymoon.
Roth said he believes the way hearings were scheduled, and the panel’s ultimate decision, were “outrageous.”
“There are some serious flaws with this decision, and the panel clearly exceeded its power, manifestly disregarded the law and rendered a decision that is totally irrational,” Roth said