Prudential to Pay $2M

A stock arbitration panel awarded almost $2 million to a 91-year-old Broward County man and his wife in case against Prudential.

BY HARRIET JOHNSON BRACKEY

Prudential has been ordered to pay almost $2 million because of ”negligent supervision” to the account of 91-year-old Earl Weingarden and wife Shirley. During the tech stock market bubble of 2000, the couple, then in their late 80s, managed to turn an $8 million investment into more than $100 million.

Much of their buying was fueled by $60 million in margin loans from the brokerage. At one time, the Highland Beach couple held $5 million in QualComm and $20 million in Compaq Computer stock, among others.

When tech stocks fell apart starting in September 2000, Weingarden lost $5 million of his initial investment.

Last Friday, a panel of National Association of Securities Dealers arbitrators sided with the Weingardens in their case against Prudential and broker Mark Burns.

The NASD panel ordered Prudential to pay the couple $1,720,685. The arbitrators didn’t explain their reasoning. Prudential was also assessed $150,000 to cover the Weingardens’ costs.

The award is unusually large. Only 56 of the more than 2,400 decisions last year by NASD arbitrators were awards of more than $1 million, according to an NASD spokeswoman.

It’s also unusual in that Weingarden was a sophisticated investor who understood stocks but, according to his attorney Darren Blum of Fort Lauderdale, Weingarden was not warned by his broker about taking on big risks.

Weingarden himself picked most of the investments, according to his claim.

His broker Burns provided research and spoke to Weingarden often, but Weingarden actively searched for stock picks in Value Line, an investment publication, and made choices without Prudential’s recommendations or advice. He also bought many of his stocks through another broker.

”This is a case where everyone agreed that Weingarden was very experienced, he had bought stocks elsewhere besides Prudential, he spoke to his broker every day and got weekly detailed reports,” Blum said.

Blum said he thinks the panel found for Weingarden because no one called Weingarden when the market began to collapse, even as Weingarden’s portfolio was losing $1 million a day in stock market value in the fall of 2000.

Blum also argued that the brokerage should have advised Weingarden that his portfolio was not diversified and excessively concentrated in risky tech stocks.

Prudential spokesman Jim Gorman said the firm will abide by the terms of the award.

Burns remains with the firm. In 2003, Prudential moved its brokerage operation into a joint venture with

Wachovia Securities. A Wachovia spokesman said that Burns is still employed in its Bloomfield Hills, Mich., office.

The Weingardens live part of the year in Michigan and the rest of the year in Broward County.

He retired in 1992 and sold his real estate holding company, including a shopping center and some apartments.

Earl Weingarden enjoyed picking stocks, but he said he and his wife never let their portfolio’s value on paper affect them.

”No, we didn’t change our lifestyle, ” he said.

Weingarden sought $424 million in damages — triple his maximum loss on paper.

He said he was hoping for a bigger award. He planned to leave his fortune to his three children and five grandchildren.

The experience has chastened him, and tech stocks are no longer among his picks.

“I invest for income now, in real estate investment trusts,” he said.