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Activist investor awarded $2 million in FINRA arbitration

In a number of our posts, we have highlighted how consumer investors can be compensated after being wronged by unscrupulous and irresponsible brokers and brokerage firms. While consumer confidence is an important part of the investment market, it is also possible for institutional investors to be harmed by improper decisions.

Such was the case of a director of a healthcare information systems company who had initiated a margin loan and lost more than $20 million when the brokerage firm UBS AG called in his loan while his company’s stock was rapidly falling. The margin call also crippled his efforts in trying to change the company’s culture because he was essentially unable to maintain his standing in his ongoing proxy contest. 

Six years ago, the director was worth an estimated $400 million and had a margin account with UBS where he was able to borrow up to 50 percent of the shares he placed with the company as collateral. As the company’s stock rose, the director was able to borrow more than $45 million against his margin account. When the company’s stock began to fall in 2012, UBS sold some of its shares in order to cover its margin requirements; which caused the director to lose a substantial amount of money.

The director claimed that the transactions were unauthorized and brought a complaint to recoup his losses. The company disagreed, claiming that the margin loan agreement allowed it to make the transactions. Fortunately for the director, a FINRA panel disagreed, and ordered UBS to compensate the director  for the losses he suffered. 

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