Merrill, Brokers Off the Hook for Foreign Investors' Losses: FINRA Panel 

While the account was open, the claimants made all investment decisions on their own, and "neither sought nor did they receive advice" from Wasserman on what to invest in or how to manage their portfolio, the panel said.

Claimants also "used margin almost immediately [and] they continued doing this throughout the time the account was open," the panel said, adding "there was evidence showing that at least at one period in the account where the Claimants made about $1 million dollars in profit and yet, did not pay off the margin account."

But, within six months from the opening of the account, the portfolio had "lost value triggering the first of many margin calls," the panel noted.

The claimants responded by depositing additional funds into the account or the investments reversed and increased in value to cover the margin deficit, according to the panel; often, "shares had to be sold to meet the margin calls in accordance with the terms of the margin agreement."

The claimants said they didn't receive written disclosures and that Wasserman never adequately informed them about how a margin account worked and said they believed a margin account was similar to a European bank loan where stock held by the bank would not be liquidated to cover diminishing equity, according to the panel.

However, the record was "replete with disclosures describing margin and how it worked," the panel said, adding the evidence didn't show Wasserman violated any laws or obligations to his clients or that he was a threat for future violations.

Dissenting View

Most of the arbitrators ruled in favor of expunging all references to the arbitration from Wasserman's FINRA registration record.

A dissenting arbitrator said that the broker didn't seem to do enough to "ensure that ample disclosures" of the risks of investing in certain transactions and strategies involving speculation and margin trading were being received by the clients — despite the fact that they were apparently traveling in Europe and rarely went to New York to get their mail.

It was "unclear why he did not take the additional step of copying them electronically on all compliance management letters issued for the margin account rather than just once in an email," the dissenting arbitrator said.

The claimants lost about $2.3 million, according to Lee Holland, an attorney at the Investment Advocates in Concord, Massachusetts,  who has been representing them. His clients "live in Germany, but have resided in several European countries," he said Dec. 20, noting "the case will be appealed." Merrill Lynch did not immediately provide a comment to ThinkAdvisor.

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