The Arbitrator noted that the Underlying Claim was filed by the Customer against Respondent and that Respondent filed a third party claim against Claimant and Mr. S, the Customer's accountant and financial adviser with Respondent. The Arbitrator also noted that Respondent dropped the third party claim when the insurance carrier stepped in to cover Respondent, Claimant and Mr. S.. . .The Arbitrator noted that Claimant's errors and omissions insurance ("E&O") carrier contributed $42,500.00 to the total settlement amount of $85,000.00. The Arbitrator also noted that, in covering Claimant, the E&O carrier found that Claimant committed no wrongdoing. Given the E&O carrier's finding, the Arbitrator determined that expungement is still appropriate.
Claimant was employed by Respondent as a registered broker from July 1998 to April 2017. The Customer was a client of Respondent at all relevant times during that period.The Customer invested in an AIG SunAmerica Polaris Choice II Variable Annuity ("Annuity") on the recommendation of Claimant. The Customer had a nondiscretionary account which requires instructions from the Customer to make any changes in any account. The type of investment was known to the Customer because her husband recommended annuities in his investment adviser practice and she had worked in his office. The Customer had 15 years of investment experience, received a written explanation of the benefit and risks of the Annuity, signed a Variable Annuity Disclosure Form acknowledging that she was buying a variable annuity as an investment in a tax-qualified retirement plan due to the guaranteed income benefit (and not because of the tax accrual feature), and that she understood she acknowledged receipt of a list of investment objectives which were income and long-term gain, in that order, with a speculative exposure. Customer invested additional amounts in the Annuity in May 2007. Because the Customer's stated investment objectives were income and long-term gain, Claimant did not make a recommendation for an investment with tax benefits.In 2007, as a result of not being able to sell her house and the stock market's collapse, the Customer's financial situation changed. She required more monthly income, and consequently, doubled her monthly annuity payment which caused her to exceed the permissible limits of distribution of her annuity payments and resulted in the voiding of the guaranteed income component of the investment.In June 2008, after selling her house, the Customer also invested in a SEI Private Trust fund portfolio recommended by Claimant. By this time, the Customer's risk tolerance had changed to moderate with investment objectives of tax advantages and growth.The Annuity and the SEI investments were made after the Customer consulted her accountant.All suitability determinations regarding the Annuity occurred in 2005 and 2006 based on the Customer's stated investment objectives at that time. The suitability determination regarding the SEI investments was made in 2008, before the collapse of the stock market. At the time of the SEI investments, the Customer's income needs were met by the Annuity.In October 2009, the Customer filed a FINRA arbitration case against Respondent alleging breach of contract, breach of fiduciary duty, unsuitability, failure to supervise, negligence and gross negligence, misrepresentations and violations of FINRA rules and securities law. Respondent filed a third party claim against Claimant and Mr. S. Respondent withdrew its claims against Claimant and Mr. S and the Customer settled the arbitration with Respondent.At the expungement hearing, Claimant testified that he advised the Customer that she was not getting tax benefits from the Annuity investment. There was no evidence presented that Claimant made any material misrepresentation to the Customer or that the investments were not suitable. There was also no evidence presented of breach of contract, breach of fiduciary duty, failure to supervise, negligence and gross negligence or of violations of FINRA rules and securities laws on the part of Claimant. Instead, the account was non-discretionary which negates these claims.
Bill Singer's Comment
A snowball's chance in hell indeed!
Compliments to FINRA Arbitrator Mary Margaret Bush for a superb Decision. Hard to imagine how anyone could do a better job -- and that's rare praise from an industry critic such as me.
Some of the aspects of the history of the underlying customer complaint may not be readily apparent; so, let me underscore a few points. The public customer filed a FINRA Arbitration Statement of Claim against only Ameritas. Respondent Ameritas filed a third-party claim, however, against Dachtler and the customer's accountant. After Ameritas was informed that its E&O policy would be deemed in effect for the underlying claims, the FINRA member firm dropped its third-party claims. Notwithstanding that the E&O policy paid $42,500.00 towards the $85,000.00 settlement, the carrier "found that Claimant committed no wrongdoing." Dachtler's online FINRA BrokerCheck records as of October 22, 2018, disclose under the heading "Customer Dispute - Settled" that in October 2009, Ameritas received the customer's complaint seeking $350,000 and settled that claim in March 2012 for $85,000 without contribution from Dachtler.
It is also important to reiterate the FINRA Arbitrator's observations that:
The Customer had a nondiscretionary account which requires instructions from the Customer to make any changes in any account. The type of investment was known to the Customer because her husband recommended annuities in his investment adviser practice and she had worked in his office. The Customer had 15 years of investment experience, received a written explanation of the benefit and risks of the Annuity . . .
Notably, the customer had 15-years of investing experience and her husband was apparently an investment adviser, and the customer had "worked in his office." That background is relevant to deliberations pertaining to suitability in terms of the customer's background and ability to comprehend a given recommendation. On top of those factors, the FINRA Arbitrator took into account the E&O payout and further weighed the customer's changed financial situation against the circumstances that existed pre- and post-Great Recession.
Online FINRA BrokerCheck records as of October 22, 2018, disclose that Dachtler was first registered in 1985, and was employed by Ameritas for nearly two decades from 1998 to 2017.