In addition, Rydell was suspended for 10 business days in all supervisory capacities. Sigma has reimbursed the elderly couple for the $110,000 in attorney fees and costs they incurred in defending themselves for three years. NASD also ordered Sigma to certify annually, for a period of two years, that it has fully complied with the NASD Code of Arbitration Procedure in connection with any customer disputes. Sigma must also notify NASD prior to taking any legal action against customers in federal or state court.
The settlement resolves an NASD complaint filed against Sigma and Rydell in December 2003.
“This firm used the courts to carry out a campaign of harassment against two elderly customers because of an arbitration award it did not like – in clear violation of NASD rules and the firm’s own agreement with its customers,” said NASD Vice Chairman Mary L. Schapiro. “This kind of conduct will not be tolerated. “
As described in detail in an NASD News Release earlier this year, the couple filed an arbitration claim in July 1999 after losing money in investments they had made through the firm. In April 2001, following seven days of hearings, an NASD arbitration panel awarded the customers $318,096, including attorney fees and costs. Unhappy with that result, Sigma, acting through Rydell, filed two lawsuits against the customers in Michigan Circuit Court later that same month.
The first lawsuit was an attempt to vacate the arbitration award. In the second lawsuit, Sigma claimed, for the first time, that it was entitled to damages as a third-party beneficiary to agreements the customers had signed with the issuer of the investments they had purchased through Sigma. Sigma did not seek to arbitrate this claim, despite NASD rules and its own agreement to arbitrate any controversy and waive its right to seek remedies in court.
The Michigan Circuit Court confirmed the arbitration award, dismissed Sigma’s second lawsuit and sanctioned the firm $500 for filing a frivolous claim. Nevertheless, Sigma continued to litigate against the elderly customers. On February 19, 2004, the Michigan Court of Appeals upheld the Circuit Court's confirmation of the arbitration award, dismissal of the third-party beneficiary lawsuit, and imposition of monetary sanctions.
Still not satisfied, Sigma, through Rydell, then filed an appeal with the Michigan Supreme Court. Sigma took this action more than three months after NASD had instituted these enforcement proceedings against Sigma and Rydell, and nearly three years after the customers had received their Award. The firm withdrew the appeal to the Supreme Court in connection with this settlement.
In settling these charges, Sigma and Rydell neither admitted nor denied the charges. Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2003, members of the public used this service to conduct more than 2.8 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.
