By NEIL HARTNELL
Tribune Business Editor
Ansbacher (Bahamas) has been ordered to pay $317,000 in lost profits to a UK investor over a bungled Netflix share trade he claims cost him his townhouse.
Justice Indra Charles, in a June 22, 2020, verdict, found that the financial services provider guilty of "gross negligence" in failing to properly investigate what had happened to Steven Chromik's 4,000 Netflix shares after being alerted to potential problems with the transaction.
She ruled that Ansbacher (Bahamas), whose parent is the AF Holdings (formerly Colina) financial group, "fell markedly below the standard expected of a professional and competent bank" by failing to perform its own checks after UBS (Bahamas) informed it just 50 percent of Mr Chromik's holding had been sold.
All 4,000 were supposed to have been disposed of on August 26, 2011, but Mr Chromik was only informed he was still the beneficial owner of 2,000 more than one month later as Ansbacher and UBS blamed each other for the error.
The self-employed property analyst and investor was only able to liquidate his remaining Netflix holdings almost nine months later in early May 2012, by which time the share price had crashed from $232.94 to $74.25 - a decline that cost him $316,681.
Justice Charles' judgment reveals that Mr Chromik and Ansbacher (Bahamas) spent much time agonising over whether to include UBS (Bahamas) as a defendant or third-party to the action, with the latter variously described as having performed the role of "broker", "agent and custodian" and "independent contractor".
Ansbacher (Bahamas) initially blamed UBS' "negligence" for the UK investor's trading loss, which the latter denied, but it ultimately abandoned its attempt to add the Swiss-owned bank's Bahamian subsidiary as a "third party" so it would be "indemnified" if it was held liable for the loss.
Philip Davis QC, the opposition's leader and Mr Chromik's attorney, said the decision not to add UBS (Bahamas) meant Ansbacher (Bahamas) had effectively "abandoned its shield" and left itself "defenseless" as only it could be held liable for his client's loss if the judge found in their favour.
Justice Charles recorded that Mr Chromik established his account and trading relationship with Ansbacher (Bahamas) on July 1, 2011, with the 4,000 Netflix shares and other stocks/assets deposited into it.
The Netflix trading bungle was sparked when, "unbeknown" to the UK investor, Ansbacher (Bahamas) instructed UBS on August 15, 2011, to sell 2,000 of the Netflix shares.
These were purchased by the investment house, Jeffries & Co, before Ansbacher (Bahamas) instructed UBS (Bahamas) to cancel the sale instruction. However, this happened after the trade had already cleared and settled, which forced Ansbacher (Bahamas) to order that they be repurchased.
"Therefore, Ansbacher, a prudent banker, ought to have been aware that there were 4000 shares," Justice Charles found. "On 26 August, 2011, Mr. Chromik gave written instructions to Ansbacher to liquidate all securities held to his credit in the account.
"Although he did not specify the exact number of shares, it is common ground between the parties that Mr Chromik had 4,000 shares in Netflix which was held by Ansbacher. Pursuant to his instructions, Ansbacher, on the same day, instructed UBS to sell the securities held to its credit..... which included the 4,000 Netflix shares."
Upon receiving the e-mailed instruction from Ansbacher (Bahamas), UBS replied that "the only discrepancy is that we calculated the long position of Netflix as 2,000 rather than 4,000".
Justice Charles added: "Without making any checks of its own records and, within 12 minutes, Ansbacher replied 'thank you George'" in reference to UBS (Bahamas) George Maillis.
"Shortly thereafter, 2,000 shares were sold at a price of $465,176.05 ($232.9425 per share). It is indisputable that, as of that date, 4,000 Netflix shares were available for sale and should have been sold," Justice Charles found.
No Netflix shares were shown as being held when UBS sent Ansbacher (Bahamas) the August 2011 portfolio statement for Mr Chromik's account, with the share sale proceeds credited to the investor.
However, the September 2011 "statement of account" showed that 2,000 Netflix shares remained. Ansbacher (Bahamas) demanded an explanation from UBS, which said the earlier sale to Jeffries & Co had been reversed but not recorded in its system until September 2 - days after the August portfolio statement was sent.
Ansbacher (Bahamas) demanded that Mr Chromik's account be credited with $465,306 in cash from what it thought was the proceeds of 4,000 Netflix shares, but UBS responded that it was still holding 2,000 shares and awaiting instructions on whether to liquidate or hold them.
The UK investor was only informed of what had occurred in late September 2011, with the reversal of the anticipated $465,306 cash injection into his account - due to the fact only 2,000 shares were sold - resulting in it becoming $34,292 overdrawn - which Ansbacher (Bahamas) demanded be "settled immediately".
After a month-long series of requests in April and May 2012 for the remaining shares to be sold, the final 2,000 "were sold at a substantially diminished value of $148,495.35 ($74.25 per share)".
"Between August 2011 and May 2012, the price of the Netflix shares fell, and the loss occasioned by the failure to sell the additional 2,000 Netflix shares in August 2011 is $316,680.70; the sum which is being claimed by Mr Chromik," Justice Charles noted.
"Mr Chromik insisted that Ansbacher was not only negligent in failing to sell the shares but it exacerbated the problem by failing to disburse funds due and owing to him, which caused him to lose his townhouse and $316,680.70 since the remainder of the shares were sold at a significant undervalue."
Carlton Mortier, Ansbacher (Bahamas) former managing director, testified that "there was not much" it could have done in the 12 minutes between instructing that the 4,000 Netflix shares be sold - and UBS (Bahamas) reporting the discrepancy with its records - to launch an investigation.
While acknowledging that Mr Chromik should be compensated for his trading losses, he argued that UBS (Bahamas) should be held liable and not Ansbacher (Bahamas).
Luther McDonald, Ansbacher's attorney, argued that Mr Chromik's "day trading" activity resulted in many more trades being conducted on the account than anticipated by the parties' relationship, but Justice Charles said this had no bearing on the claim.
"Ansbacher was under a duty to ensure that the 4,000 Netflix shares were sold. When the discrepancy was raised by UBS, one would have expected a professional banker like Ansbacher to embark on an immediate investigation of the matter with a view to resolving the discrepancy instead of submissively responding 'thank you George'," she found.
"The starting point should have been for Ansbacher to carry out an investigation of its own records rather than relying exclusively on the representation from UBS. It was clear that Ansbacher did not conduct any searches of its own records. It could not have done so, in twelve minutes, according to Mr Mortier.
"Therefore, the first omission on the part of Ansbacher is that it failed to carry out its own internal searches and/or contact Mr Chromik to obtain further instructions. This is not the standard expected of a bank of the ilk of Ansbacher."
Justice Charles found that Ansbacher (Bahamas) should have been alerted when it received the month-end August statement, which did not reflect its instructions, and only reacted when this was brought to its attention by UBS.
"It is clear that the conduct of Ansbacher was a very marked departure from the standards of responsible and competent people, as it knew or ought to have known, recalling the material in its possession, that there was a failure to carry out the instructions given by Mr Chromik before October 2011 when it stated that it became aware of the failed sale," Justice Charles ruled.
"In my considered opinion, it is not sufficient for Ansbacher to simply say that it discharged its obligations to Mr Chromik by simply relaying the sell instructions to UBS. Ansbacher's primary obligation, in my view, was to ensure that Mr Chromik's sell instructions were carried out accordingly and as soon as possible......
"In my opinion, the failure of Ansbacher to resolve the discrepancy conclusively and promptly against its own records - and even to obtain further instructions from Mr Chromik - fell markedly below the standard expected of a professional and competent bank. In fact, the problem started with Ansbacher not checking its own records but took the representation by UBS as conclusive."
With interest added to the $316,680 award, Ansbacher (Bahamas) will likely have to pay Mr Chromik close to $400,000.