As summarized in the Tampa Tribune (7/3/12), a prominent family who hails from Citrus County, Florida suffered losses totaling $13 million after entrusting their investments to an independent stock broker. The discovery that stock broker Richard Kauffman was not carrying a license or any form of registration normally required by the securities industry at the time of those trades constituted, according to the stock broker arbitration lawsuit, stock broker fraud.
Kauffman had been affiliated with Raymond James Financial when he and the Gerald Nash family first crossed paths and Gerald, a semi-retired real estate developer and investor, opened a securities account with Kauffman.
Kauffman later moved to a subsequent brokerage firm, Brown & Co—an entity that would eventually be swallowed up by the online brokerage E-Trade. Nash followed Kauffman to Brown & Co. and stayed with him when Brown & Co. was folded into E-Trade.
It was there that Kauffman allegedly embarked on a run of "excessive" trading of the Nash family's assets, according to an arbitration case filed against him. It was alleged that he invested the family's assets in stock options at a time when, during 2007 and 2008, the market was poised for the major downturn that followed.
The plaintiffs in the stock fraud arbitration case subsequently discovered that Kauffman was unregistered and unlicensed since at least late 2003, and thus was not qualified to make such transactions. To the plaintiffs, the lack of required credentials amounted to stock fraud.
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E-Trade, according to the plaintiff's stock broker fraud lawyer, argued in its defense that as an independent stock broker, Kauffman was not beholden to E-Trade in the same way an employee might. Since Kauffman was not considered a direct employee of E-Trade, the latter could not be held accountable.
The Tribune reports that in May a stock broker arbitration panel under the auspices of the Financial Industry Regulatory Authority (FINRA) awarded the Nash family about $1.4 million. An attorney for E-Trade indicated to the Tribune that E-Trade planned to contest the financial award in court.