BD Must Arbitrate Consequential Damages in ARS Settlement
The SEC recently announced another Auction Rate Securities settlement that includes the right of investors to seek consequential damages in a special FINRA arbitration procedure. FINRA defines “consequential damages” as the harm suffered from ARS transactions including “opportunity costs or losses that resulted from investors’ ability to access their funds because their ARS assets were frozen.” The Respondent BD must also offer rescission and compensation for losses.
OUR TAKE: Historically, offering rescission has been the most significant penalty on securities firms for misleading sales practices. Allowing aggrieved investors to collect consequential damages significantly increases potential liability. We wonder if this remedy will remain specific to ARS cases or represents the brave new world in securities enforcement.