A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered Goldman Sachs & Co. to pay approximately $2.5 million to Tracy Landow, a client who said she was sold an inappropriate investment in a private-equity fund.
Ms. Landow accused Goldman Sachs and her broker of making an unsuitable recommendation in the Goldman Sachs Special Opportunities Fund 2006, according to the FINRA ruling.
The FINRA arbitration panel found that the "very complex instrument is unsuitable" for Ms. Landow, an unsophisticated investor who had no prior investment experience and only a high school education. But that's not why they ruled against the broker-dealer unit of Goldman Sachs Group Inc. The FINRA panel determined that there were problems with the fund's subscription agreement, making it invalid. The firm was ordered to take back her investment in the fund and return approximately $2.5 million in principal, interest, and expert witness fees.
The panel further ruled that because Ms. Landow's broker didn't oversee the defective subscription agreement, he is not responsible for the fund or the investments that followed.
Not all three panelists felt the same. In a rare dissent, one FINRA arbitrator said that while the subscription agreement may be of concern, it's only a small factor in the case. She found the fund to be an appropriate investment for Ms. Landow and didn't think the firm should be required to take it back, according to the decision.
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