NASD: Prime Broker Should Have Caught Bogus Trades

May 9 2007 | 12:02pm ET

Prime brokers may be checking those trades twice after an NASD arbitration panel found one liable for failing to catch unauthorized trades. The regulator found that Banc of America Securities should have alerted hedge fund Circle T Family of Funds to trades made by former Circle T staffer Ethan Kass without permission in 2005. The short ruling did not enumerate the panel’s reasons for finding in Circle T’s favor.

The panel ordered BofA to pay less than $1 million in compensatory damages and rejected Circle T’s claim for punitive damages. The hedge fund had sought $8.4 million in compensatory damages and $25.2 million in punitive damages.

Circle T general partner Seth Tobias celebrated the “unprecedented decision,” saying in a statement, “Although the amount of the award fell short of our expectations, this proves our assertion prime brokers are not totally immune from liability and do have responsibility to monitor clients’ accounts and act accordingly.”

BofA also claimed victory, tendentiously claiming in a statement, “the minimal amount of the award, less than 2% of what Circle T was seeking, clearly shows that the panel rejected its claims, and placed responsibility for the unauthorized trading where it belongs—with Circle T.”


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