IBM's Acquisition. Wachovia's Widow Loss.

May 24, 2010


Once IBM starts buying up smaller companies, it'll go up further.

With Marc Lowlicht and Bill Singer.





Seventy-nine-year-old widow Lois Pillen alleged that in 2007, various securities were purchased in her Wachovia Securities LLC account without her authorization.  Pillen complained that Wachovia "reconstructed " her securities portfolio in a manner that was unsuitable for her. As a result of the allegedly unsuitable portfolio, Pillen claimed that she incurred a substantial tax liability and significant account losses of at least $95,000.00 in compensatory damages.


Pillen filed an arbitration complaint against Wachovia, in which she asserted claims for


         Violation of the Nebraska Securities Act,

         Violations of the Financial Industry Regulatory Authority (FINRA) Rules of supervision and suitability;

         Negligent Supervision;

         Respondeat Superior;

         Misrepresentations; and

         Breach of Contract.

In the Matter of the Arbitration Between Lois Pillen, Claimant, vs. Wachovia Securities, LLC., Respondent (FINRA Arbitration 09-01827, May 18, 2010). Respondent Wachovia generally denied the allegations and asserted various affirmative defenses.


The FINRA Arbitrator found Respondent Wachovia liable for $26,000.00 in compensatory damages plus interest; and ordered Wachovia to pay Pillen $225 in costs.


Bill Singer's Comment:  In discussions with clients -- particularly those who sandbag me with last minute revelations about weaknesses in their cases -- I often find myself remarking that "I don't know what I don't know."  In reviewing many FINRA arbitration decisions, I find myself telling myself the same thing (which is troubling because at my age, talking to myself isn't exactly an encouraging development).


Why did I publish this case?  Well, for one thing, it's something of a classic.  Ya got yer iconic septuagenarian widow claiming to have been victimized by unauthorized/unsuitable trading in her account at a nationally known brokerage firm.  We veteran Wall Street lawyers often talk about "widows and orphans cases." They are very difficult to defend because, well, gee, like that's a tough one to figure out?  On the flip side, they are also often somewhat hard to prosecute as a Claimant's lawyer because you frequently have a stubborn, charming, angry, its-a-matter-of-principle client who comes to your office with a shopping bag filled with scraps of papers, magazine articles, recipes, and family photos (not to mention a damages calculation that is a multiple of whatever you have computed).  You also find yourself asked whether you're single and if you would like to meet a beautiful, bubbly, intelligent daughter, who married some bum, who should rot in hell. Oh, so you're married?  Is that working out? Oh, it is -- well, do you know anyone?


Why did Wachovia try this case rather than settle? Who knows -- that insight is not provided in the FINRA Decision.  Maybe some in-house lawyer kept adding up all of the alleged damages and kept coming up with a fraction of the $95,000 sought by Claimant Pillen.  Maybe Wachovia offered Pillen what it thought was a fair settlement and she wanted "all or none."  Whatever the case, Pillen walked away with about a quarter of what she sought, which, for all we know, may have been her dollar-for-dollar losses.  Of course, the publicity from this widow case is likely far more damaging to Wachovia than the $70,000 savings it incurred by going through a fully contested hearing.


As I often say, not every case has a winner or a loser.  Sometimes it's a murky, gray outcome. Pillen is just such a case.