FINRA Arbitration Panel Rejects Duty to Advise on Tax Consequences by Broker

October 6, 2010

In a Statement of Claim filed in October 2009, Claimant Susan Hamovitch (appearing without legal counsel - "pro se") alleged that Merill Lynch and Peter Inserra had been negligent and breached their fiduciary duty to her in connection with advising her about the tax consequences of certain securities transactions.  Hamovitch sought sought $32,326.00 in compensatory damages plus interest and filing fees. (In the Matter of the Arbitration Between Susan Hamovitch, Claimant vs. Merrill Lynch Pierce Fenner & Smith, Inc. and Peter Inserra, Respondents (FINRA Arbitration 09-05858, September 30, 2010). Respondents Merrill Lynch and Inserra denied the allegations made in the Statement of Claim and asserted various affirmative defenses. Respondents requested dismissal of the Statement of Claim, expungement of Respondent Inserra's Central Registration Depository (CRD) records,  and that the FINRA Arbitrator award Merrill Lynch costs, expenses, and reasonable attorneys' fees, and such other and further relief as is just and proper.


The sole FINRA Arbitrator hearing the case denied Claimant's claims. Moreover, the Arbitrator recommended the expungement of all reference to the above captioned arbitration from Respondent Inserra's CRD records.

Pursuant to Rules 2080 and 12805 of the Code, the arbitrator affirmatively found that Claimant's allegation that Respondent Inserra had a duty to advise Claimant of the tax consequences of the sale of Claimant's securities is false. Claimant failed to provide any statutory, regulatory or policy basis imposing such a duty on Inserra.

Inserra's testified that he provided Claimant with general tax information regarding such sale and advised Claimant to consult with her tax advisor was found to be credible and consistent with Respondent Merrill Lynch's tax disclaimers contained in Claimant's account statements and Merrill Lynch's website and the firm's Great Neck, NY branch office Compliance Policy Manual.

The Arbitrator's recommended expungement is made with the understanding that pursuant to Notice to Members 04-16, Respondent Inserra must obtain confirmation from a court of competent jurisdiction before the CRD will execute the expungement directive.Unless specifically waived in writing by FINRA, parties seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents.

Bill Singer's Comment:  A Practice-Pointer here is that brokerage firms and their brokers should confirm the existence of tax-advice disclaimers in

  • new account documentation,
  • account statements,
  • the firm's websites,
  • business-related emails, and
  • relevant manuals addressing sales practices.

Time and time again as a lawyer I find myself admonishing my own clients that I do NOT provide any tax advice and that they should direct such queries to a CPA or qualified tax lawyer.  Tax law is a very specialized practice and those who would dabble in that area are only courting malpractice disaster. 

Registered representatives must be wary about tossing in their own two cents when it comes to discussing the tax aspects of their clients' portfolios.  Sure -- there are certain fairly basic tax issues that it's okay for industry professionals to opine about; for example, it may be acceptable to offer some basic observations about the Schedule D, or the need to file capital gains, or even the possible impact of certain contemplated sales on capital gains.  However, it is always smart, sensible, intelligent, prudent, and advisable to direct clients with tax issues to qualified, tax professionals AND to pointedly inform your clients that you are not qualified to give them tax advice.  For starters, you might want to give them a copy of this article to underscore the limits of your advice.  Of course, different considerations come into play depending upon whether you are merely a Registered Rep, a Registered Investment Advisor, a CFP, etc., but the gist is that you need to be careful when commenting about the tax consequences of securities transactions.


Robert Ingram held himself out as the director of an investment program that would enable investors to share in the proceeds of an alleged $23 billion "note" underwritten by the Federal Reserve. My, you say, that sounds impressive -- you know, the Federal Reserve is a pretty august body and when you're talking about a multi-billion dollar note that the Fed has underwritten, well, geez, that's pretty sophisticated stuff. This Ingram fellow must be a pretty savvy guy to be the director of a multi-billion dollar Federal Reserve Note investment program -- maybe they refer to that as the FRNIP? I mean, you know, they always have acronyms for such important things.

So -- Robert Ingram was the Director of a FRNIP.

Or so you would think. Or so you were supposed to think.

Next -- enter one Olivia Jeanne Bowen. Bowen was a facilitator for Ingram's FRNIP.

What's a FRNIP facilitator? Well, if you're going to show your ignorance by asking such a stupid question, then maybe this just isn't the right investment opportunity for you. After all, everyone who wants to invest in a FRNIP gains entry to the program via the good offices of a professional facilitator. Waddya, some kinda idiot? Imagine wasting my valuable time with such a question.