On the one hand ---
Ameriprise Wins One
Pursuant to a FINRA Arbitration Statement of Claim filed in April 2010, Claimants sought $16,778.08 in compensatory damages, $2,500 in punitive damages, $5,525 in various costs in connection with the following causes of action:
* failure to disclose material facts of critical importance;
* failure to provide suitable investment advice;
* failure to prevent or correct the negligent management of accounts;
* failure to employ protective strategies to avoid negative tax ramifications;
* breach of duties;
* respondeat superior;
* material omissions; and
* unsuitable investment strategy.
In the Matter of the Arbitration Between Marrell R. and Wallis T. Greutman Trust and its Trustees Marrell Greutman and Terry Greutman, Claimants vs. Ameriprise Financial Services, Inc., Respondent (FINRA Arbitration 10-01661, October 29, 2010)
In light of the fairly prodigious number of causes of action and the attendant request for punitive damages, I was fully expecting a somewhat lurid set of facts. Instead, and I quote the sole FINRA Arbitrator verbatim, this is the whimper in lieu of the bang:
ARBITRATOR'S REPORT: The Claimants elected to transfer accounts to Respondent and follow the plan to replace certain holdings. The sales (and purchases) generated reportable income reflected in 2007 1099 Forms supplied to Claimants which Claimants neglected to provide to their tax advisor. The resulting underpayment of Claimants' 2007 taxes was not Respondent's fault.
. . .
1) Claimants' claims are denied in their entirety. 2) Claimants' request for punitive damages is denied. 3) Claimants' request for attorneys' fees is denied. 3) All other relief requests are denied. 4) FINRA Dispute Resolution shall retain the $425.00 filing fee previously deposited by Claimants. 5) Respondent is liable for and shall pay to Claimants costs in the amount of $212.50 to reimburse Claimants for one-half of the filing fee previously paid to FINRA Dispute Resolution.
On the other hand ---
H. Beck, Inc. Loses One
In a FINRA Arbitration Statement of Claim filed in April 2009, public customer Paula Eisenstein alleged that she had sustained damages as a result of tax liabilities that she incurred following an account liquidation and the unsuitable mutual funds in Claimant's account, including but not limited to the Putnam High Yield Advantage Fund.Claimant asserted various causes of action including breach of contract and fraud, and sought $800,000 in compensatory damages plus interest, fees, and costs; and a further $800,000 in punitive damages. Respondents generally denied the allegations, asserted various affirmative defenses, and request expungement of the matter from the Central Registration Depository (CRD) records. In the Matter of the Arbitration Between Paula Eisenstein, Claimant, versus Eric G. Meyers and H. Beck, Inc., Respondents (FINRA Arbitration 09-02175, November 2, 2010).
The FINRA Panel determined that Claimant signed a Proposal to Provide Investment Services ("PPIS") with Respondent H. Beck, Inc. on the recommendation of Respondent Meyers. The execution of the PPIS occurred after discussions between Claimant and Respondent Meyers, who was a registered investment advisor and President of H. Beck, Inc. in June 2006.
The FINRA Panel heard conflicting testimony regarding the circumstances surrounding the execution of the PPIS as to whether:
As a result of the liquidation of the portfolio, Claimant incurred a substantial one-time state and federal tax liability, including alternative minimum taxes (AMT).
The FINRA Arbitration Panel concluded that the decision to liquidate Claimant's portfolio, even if Claimant did not specifically understand the tax implications, was a necessary requirement for the fulfillment of the investment objectives detailed in the PPIS, which Claimant had approved. However, the Panel concluded that in the process of executing the PPIS, there was a failure to fully communicate and understand the tax implications of investing in the models proposed by Respondents H. Beck, Inc. and Meyers.
In making its decision, the FINRA Panel allowed for the fact that at no time did Respondents Meyers or H. Beck, Inc. hold themselves out to Claimant as tax planners or tax advisors. Also, the Panel distinguished between the actions and statements of Respondent Meyers and those of the member firm Respondent H. Beck, Inc., and, accordingly, the Panel found that the procedures and practices in place for supervising employees of Respondent H. Beck, Inc., particularly the President, were inadequate. The Panel strongly recommended that procedures and practices be put in place by Respondent H. Beck, Inc. for adequately supervising all of its employees.
Oh, and one last thing -- do with this bit of information what you will: Claimant is also a cousin of Respondent Meyers.
Also, see this recent article: FINRA Arbitration Panel Rejects Duty to Advise on Tax Consequences by Broker (October 6, 2010) at http://www.brokeandbroker.com/index.php?a=blog&id=578
Joseph D. Bonanno used the identity of a dead baby to become a registered stock broker and fiduciary investment advisor and got away with it for eight years. And yet again, the regulators failed to notice.
READ BILL SINGER'S "STREET SWEEPER" COLUMN ON FORBES.COM AT: