A Bloomington veterinarian is entitled to $5.6 million in damages and interest from RBC Financial for investing her inheritance a decade ago in since-bankrupt WorldCom and Level 3 Communications -- two high-flying companies that crashed when the technology bubble burst in 2001-2002.

The amount represents one of the larger arbitration awards on behalf of a Minnesotan ever made by the Financial Industry Regulatory Authority and is also interesting for another reason: The woman's broker was her husband.

According to documents and people familiar with the case, Dr. Katherine Knutson received more than $5 million from her father in 1999-2000. About 90 percent of the funds were invested in WorldCom and Level 3, then selling at astronomical prices thanks to the euphoria over the Internet and telecommunications.

Dan Knutson, the former broker, supervised his wife's account. The couple since has divorced.

Dan Knutson left what was then RBC Dain Rauscher in 2002 and also has left the industry. Minneapolis-based Dain Rauscher was acquired by Canada's RBC Financial in 2001. The company declined to comment on the case Thursday. A three-person arbitration panel reached the decision earlier this week.

According to the decision, Katherine Knutson's father, Marion, was a construction worker in Kansas City whose company was paid partly in stock in predecessor companies to Level 3 and WorldCom. They were laying broadband cable throughout the country to accompany the Internet gold rush. Marion Knutson apparently was given some bonuses in the stock of those companies and bought more on his own.

After unsuccessful negotiations over the losses with the brokerage, Katherine Knutson, 45, filed the arbitration claim in 2007 against RBC on grounds that her former husband, the broker, was not properly supervised and RBC did not protect her interests by selling some of the telecommunications holdings and diversifying into other, safer securities.

Moreover, Dan Knutson, according to the case summary, had her borrow against the telecom portfolio through a "margin account" to raise money to pay gift taxes, which further increased her liability.

"This is not an indictment of the firm, it's just one incident," said Katherine Knutson's lawyer, Joe Anthony of Anthony Ostlund Baer & Louwagie. "The panel in this case, three experienced business professionals, had to sift through a substantial amount of conflicting documents and testimony in arriving at this decision. In awarding [the] damages, the panel apparently concluded that Dr. Knutson's interests had not been adequately protected."

In 2000, Anthony, a veteran securities litigator, won a $16 million arbitration award against RBC predecessor Dain Bosworth over Dain's tactics in hiring a bunch of brokers from the former John G. Kinnard & Co. The amount was the highest award ever in a firm-jumping case.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com