October 10, 2011 / 10:22 PM / 6 years ago

FINRA panel finds for Aurum against SocGen

4 Min Read

* Societe General, Cowen liable for $126 million

* Societe General, Cowen to also pay $27 million in interest

* Panel deducted $92 million in payments already made

By Joseph A. Giannone and Suzanne Barlyn

NEW YORK, Oct 10 (Reuters) - An arbitration panel found Societe General SA (SOGN.PA) liable for $153 million in damages and interest stemming from a dispute with a fund manager over how to value a derivative instrument that matured during the 2008 financial crisis.

The ruling ranks as one of the largest ever awarded by a Financial Industry Regulatory Authority arbitration panel, securities lawyers said.

Societe General SA and three units, which include Cowen Group Inc (COWN.O), will end up paying total net damages of around $61 million, because of earlier payments made to the fund manager, Aurum STS Aggressive Trading LLC in Woodside, California, according to a FINRA arbitration award dated Oct. 7.

Aurum accused the French bank of breach of contract, unjust enrichment and failure to honor a guarantee surrounding certain warrants issued by SocGen to Aurum, which is based in San Jose, California.

Aurum alleged it was told by SocGen in October 2008, just weeks after Lehman Brothers collapsed and the U.S. government scrambled to bail out the nation's largest financial institutions, that the French bank would not settle the warrants for cash.

The value of the warrants was to be based on the net asset value of the Aurum Leveraged Fund S1, which was in turn linked to a basket of hedge funds.

Cowen Group is a New York investment bank that was at that time a unit of Societe Generale.

Societe Generale and Cowen were ordered to pay Aurum $125.9 million in general and compensatory damages, less previous payments of $91.9 million in payments. The bank and Cowen also must pay $27.0 million of interest on the total damages, as well as $40,650 in hearing fees.

The French bank denied the allegations.

"We believe the evidence showed that Societe Generale met all of its obligations in this transactions and therefore respectfully disagree" with the panel's decision, SocGen said in a statement. "The arbitrators rejected Aurum's demand for substantially greater damages, and the award will have no impact on our financial results."

The bank claimed that Aurum breached an April 2008 agreement to roll over some or all of the warrants into a new investment or transfer the hedge fund assets to another bank.

Aurum had requested at least $245 million in damages, according to the panel's ruling.

"We are pleased that the panel enforced Societe Generale's own contract and issued this award," said Michael Miller, a lawyer for Steptoe & Johnson LLP in New York who represented the fund manager. "This award goes a long way towards resolving how to value derivative instruments which mature in the midst of market turmoil," said Jonathan Harris, a lawyer for Harris, Cutler & Houghteling LLP, another lawyer for the fund manager.

As is typical in arbitration proceedings under FINRA, the panel did not explain its decision. (Reporting by Joseph A. Giannone and Suzanne Barlyn; Editing by Phil Berlowitz)

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