The Prudential Securities case, in which an Ohio jury ruled that it should pay $261.7 million in damages, sure does bring home the mundane thought: Best follow regulatory and firm trading rules to the letter—even if you think you are doing the right thing for your clients.
The class-action suit claimed that broker Jeffrey Pickett sold his clients shares without authorization in 1998, causing them to lose out as the stocks’ value increased. Pickett thought that the market was going to crash. He wanted to protect his clients.
“Jeff has always admitted that he engaged in unauthorized trading; there was never a dispute about that,” says Mike Unger of the firm Ulmer & Berne, which represented Pickett. “He reallocated accounts not to more risky investments in which he would be paid a hefty commission. He reallocated the accounts out of stock market and into U.S. government money market funds, and didn’t make a penny doing it; he was concerned about the safety of his clients accounts.”
Prudential is going to ask the court to set aside the verdict, claiming there was no legal basis for the verdict, according to spokesperson Robert DeFillippo. On Friday, Prudential Securities was ordered to pay $261.7 million to resolve an unauthorized trading case.
According to plaintiffs’ attorney Tom Hargett of Maddox Hargett & Caruso of Indianapolis, “While Pickett was under the assumption that the market was going to crash and went on to liquidate the majority of his book, Prudential was very bullish on the market, and the market proceeded to run like a deer. My clients, who were sitting there in cash the whole time, weren’t interested in Pickett’s opinion. They were interested in what ‘The Rock’ was saying.”
One Pru broker contacted reacted to the verdict this way: “It is a surprising decision. It’s funny, but all we’re seeing these days is, ‘Hey, you put me into something too aggressive and I lost 46% of my portfolio.’ Not ‘Hey, you put me into a safe money market, preventing me from losing half my portfolio. I actually gained, just not enough.’ That’s kind of scary when you think about it.”