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In addition to out-of-pocket losses, an investor is often awarded damages based on the profits he would have made had the wrongful act not occurred. These lost profits are proved through the use of a computer program that performs an alternative investment analysis or interest calculation. In the event that there are difficulties establishing the residual value of the investment, the arbitrators can award rescission and require the investor to return or assign the improper investment to the broker in exchange for a return of the full purchase price and any ancillary damages.
Arbitrators have the power to award punitive damages(1) and will do so where the facts warrant them and the arbitrators are satisfied that there is an adequate basis in law to do so. Since punitive damages are not available for a claim under Rule 10b-5, the availability of punitive damages is generally determined by Section 3294 of the Civil Code, which applies to the state law claims.
Arbitrators may also award attorneys' fees in an appropriate case. The most common basis for an award of fees is an attorneys' fee provision in the investor's account agreement. However, it should be noted that the Ninth Circuit has specifically upheld an award by arbitrators of attorneys' fees where there was no fee agreement based on federal common law that allows the award of such fees for improper defense tactics.(2)
Finally, since the arbitrators can grant any remedy that could be granted by a court, in a proper case arbitrators may impose constructive trusts, direct that specific property be turned over, or enjoin future misbehavior.(3)
Most of the time, when an investor loses money he has no alternative but to chalk the loss up to experience. However, where the loss results from misbehavior by the investor's broker, the investor may have a practical and often successful means of recovery through an industry sponsored arbitration. In our experience, where cases are selected carefully, recoveries of between 50 percent and 400 percent of the investor's out-of-pocket losses have been obtained. Since these cases are often handled on a contingency fee basis, an investor who believes that he is the victim of misconduct would be well advised to seek counsel to evaluate his claim, regardless of whether he is able to pay hourly fees.
1. Baker v. Sadick, 162 Cal.App.3d 618, 627, 208 Cal.Rptr. 676, 682 (1984); Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d 1056, 1063 (9th Cir. 1991).
2. Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d 1056, 1064-1065 (9th Cir. 1991).
3. See, e.g., Pacific Investment Co. v. Townsend, 58 Cal.App.3d 1, 10, 129 Cal.Rptr. 489, 493 (1976).
DISCLAIMER: Vincent DiCarlo, who
authored and maintained this site, has entered
government service and, as of September 1, 2008, is no longer engaged
in the private practice of law. Therefore, this site is no longer
being maintained, may not be accurate, and should not be relied
upon. It is not now and was not ever intended as legal
advice. It is being provided for historical purposes, and for the
benefit of those lawyers who are capable of independently verifying the
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Copyright © 1998-2008 Vincent DiCarlo