Wall Street often looks and feels like a casino. Trades are bets. Traders talk about sure-things. Customers seek an edge at the table. Then ya got yer sore losers, who believe that dice were loaded, the cards marked, and the wheel engineered against them. Given what the House rakes in on each and every bet, there's a grudging acceptance on the Street that sometimes it's best to settle a lawsuit that may be garbage because the House is gonna make back the losses over time anyways so, what the hell, give her a short stack of chips and keep her quiet. On the other hand, not all customer complaints are nonsense, and when they're not, the firm should quickly pay out the bucks needed to keep things quiet and defend its reputation. In today's blog we consider what happens when a brokerage firm declines to cut its losses via settlement and goes all-in during an arbitration.
Terminally Ill Ameriprise Customer
In a FINRA Arbitration Statement of Claim filed in September 2019, public customer Claimant Loxton representing herself pro se asserted negligence, intentional misrepresentation, failure to respond to client communications, breach of fiduciary duty, and/or failure to accept responsibility. In the Matter of the FINRA Arbitration Between Sharon P. Loxton, Claimant, vs. Ameriprise Financial Services, Inc. and John Lynch, Respondents (FINRA Arbitration Decision 19-02636)
https://www.finra.org/sites/default/files/aao_documents/19-02636.pdf As alleged in part in the FINRA Arbitration Decision:
[C]laimant alleged that Lynch negligently failed to advise a terminally ill client that an
account had no beneficiary designation when the client and her estate administrator
contacted him for the specific purpose of confirming that all beneficiaries were in place
in preparation for the client's death. Claimant also alleged that Ameriprise failed to
investigate Claimant's allegations about what occurred.
Claimant sought $2,800 in legal fees paid to a probate lawyer; $450 in accounting fees for the preparation of the Trust's second tax return; and an additional $3,000 in compensation for time invested by the Claimant in investigating and handling various aspects of the estate/probate issues.
Respondents generally denied the allegations and asserted various affirmative defenses.
The sole FINRA Arbitrator found Respondents jointly and severally
liable and ordered them to pay to Claimant Loxton:
$3,000.00 in compensatory damages for
unnecessary delay in the distribution of funds;
$2,800.00 in compensatory damages for
unnecessary expenses incurred in probate to release funds due to conduct of
$450.00 in compensatory damages for unnecessary accounting
$325.00 to reimburse Claimant for the filing fee
previously paid to FINRA Office of Dispute Resolution.
Bill Singer's Comment
Online FINRA BrokerCheck records as of January 14, 2020, disclose that Respondent Lynch was first registered in 1988 with Ameriprise Financial Services, Inc. (and had also been registered from 1988 to July 2006 with IDS Life Insurance Company).
Under the heading "Customer Dispute - Settled," BrokerCheck discloses a 2002 complaint alleging that several American Express Financial Advisors had misled customers about purchases of life insurance policies, made unsuitable recommendations, and engaged in unauthorized funds' transfers. The matter settled in 2003 for $76,278 with no contribution from Lynch, whose "Broker Statement" asserts, in part, that he was not an advisor to any of the complaining customers but merely a manager of the cited advisors -- and he asserts that he had been dismissed in the matter.
Under the heading "Customer Dispute - Closed-No Action / Withdrawn / Dismissed / Denied," are four items dating from 2001 to 2005, and involving claims of $56,247, $91,442, $40,000, and $170,000. Three of the matters are denoted as "denied" and one as "closed/no action."
Under the heading "Customer Dispute - Pending" is the Loxton Arbitration, which resulted in an award against both Ameriprise and Lynch.
Given Lynch's 32-year history as a registered representative, his BrokerCheck record is not particularly onerous, notwithstanding the six disclosures: of which four did not result in any settlement payment or admission of wrongdoing. One of the matters did, indeed, settle but without contribution from Lynch and seems to have involved his being named for a managerial role rather than as the servicing representative. The only meaningful blot on Lynch's record would appear to be Loxton.
Did any adult at Ameriprse consider that the firm was going to war over something like $3,000 -- against a pro se Claimant, who was seeking damages on behalf of a deceased client and arguing that the terminally ill customer didn't get the very, very best advice that Ameriprise offers? Sure -- it could all have been a misunderstanding, and, sure, Lynch may truly have gotten caught up in a mess not purely of his own doing. That being said, I'm guessing that Ameriprise spent far more in legal and forum fees than was ever demanded by Claimant Loxton. In hindsight, not the best cost-benefits analysis that I've seen.
Litigation is a gamble. A Claimant's case has flaws. A Respondent's case has weaknesses. What you allege, you may not be able to prove. What you offer as defense, a trier of fact may reject. Sometimes, you need to exercise "business judgment," and take the hit, pay the bill, and turn the page. In retrospect, I'm sure that Respondent Lynch is wondering why his firm climbed into the ring rather than just pay the Claimant. When you sit down at the table, you need to know when to hold 'em, know when to fold 'em, know when to walk away, and know when to run . . .