Defined Benefit Pension Plan Dispute Taxes Stockbrokers and Brokerage Firms

January 30, 2018

Tax season is upon us. Added into that already volatile mix of rules, regulations, laws, and opinions is a lot of uncertainty about the Trump administration's tax reform plans. Public customers should be meeting with their tax professionals and ensuring that any contemplated asset sales or purchases make tax sense. As often develops during this time of year, certain assets are in a highly depreciated or appreciated state and the sale of such an asset could produce an undesirable capital event. All of which prompts a lot of discussion between customers and stockbrokers about tax shelters and transfers of assets and deferring recognition of proceeds and the like. Of course, later on, when the tax bill comes and it turns out that the customer misunderstood the advice or the stockbroker was misinformed, well then it's time to hire an expensive lawyer and likely spend more money on a lawsuit then the damages that you will be awarded but at least you will make the lawyer happy.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2016 and as amended thereunder, Claimants assert that all five Respondents were negligent, incompetent, and provided defective advice.  Further, Claimants asserted that Respondent Beatty and Respondent Soscia had advised them to form defined benefit pension plans in order to obtain tax deferrals and substantial benefits, and to then have the pension plans make loans to a new entity that would purchase raw land for development as a commercial property. Claimants sought at least $100,000 in compensatory damages; interest; costs; and attorneys' fee.

The matter apparently was initiated in Nevada state court but ordered to arbitration in response to a Motion to Compel Arbitration filed by Respondent LPL.

In the Matter of the FINRA Arbitration Between Petra Latch; Criterion Group Inc. f/k/a The Randall Company; The Randall Company Defined Benefit Pension Plan and Trust; Peve, LLC Defined Benefit Pension Plan and Trust; and Peve, LLC, Claimants, vs. Steven James Beatty; Christine Marie Soscia; and LPL Independent Advisor Services Group, Respondents (FINRA Arbitration 16-00812, January 25, 2018).


Respondents generally denied the allegations and asserted various affirmative defenses. Respondent Soscia moved for an expungement of the matter from his records, which Claimants opposed. Respondent Beatty subsequently joined Respondent Soscia's expungement motion.


The FINRA Arbitration apparently settled in December 2017.

Expungement Hearing 

At the expungement hearing, Claimant's counsel appeared, withdrew his clients' opposition, and did not oppose the expungement requests. The FINRA Arbitration Panel noted that Beatty and Soscia did not personally contribute to the financial settlement.  In recommending the expungement of the Central Registration Depository records ("CRD") of Respondent Beatty and Respondent Soscia, the arbitrators found pursuant to FINRA Rule 2080 that the claim, allegation, or information is false. As more fully set forth in the arbitrators' rationale: 

Beatty and Soscia credibly denied that they ever gave tax advice to Claimants and there was no evidence or testimony presented supporting the claim that they had provided tax advice, which was the basis of the claim. The Panel determined that Beatty and Soscia provided investment recommendations for Claimants' assets, but not tax advice.

Bill Singer's Comment

It's subtle but the FINRA Arbitration Panel made an important point -- one that should be learned by both registered persons and public customer: There was no evidence that the stockbrokers had provided tax advice to the customers. Why is that "subtle?" Great question.

The FINRA arbitration involved a pissing contest between public customers who alleged that they had received erroneous tax advice and suffered a financial detriment as a result. The respondents defended by arguing that they only presented investment ideas but never crossed the line into giv'ing tax advice. Now . . . how ya gonna prove either side of the lawsuit?

Missing from the body of evidence before the arbitrators was what they called "evidence or testimony presented supporting the claim that they had provided tax advice." In essence, there was nothing in writing that set forth the alleged tax advice -- no email, no fax, no letter, no notes, no nuthin'. 

Public customers should be aware that the default policy in the securities industry is to NOT provide tax counseling as part of the standard package of brokerage services. Consequently, you may be relying upon "amateur hour" tax counsel from your stockbroker when it comes to his or her opinion about the tax consequences of a contemplated action. Also, if you are given tax advice by your stockbroker and it blows up in your face, the brokerage firm (likely the deeper pocket) may well assert that its written disclosures specifically admonish customers that the firm and its employees/agents do not provide tax advice and no such advice should be relied upon. As such, public customers should always insist and demand that if you're getting tax advice from your stockbroker that he or she put it in writing that sets forth all the assurances you were given. Keep copies and back-ups of such communications. 

Registered representatives should ensure that you do NOT provide tax advice as part of your brokerage services. Yes, there are those among you who are CPAs and even a smattering of tax lawyers; notwithstanding, such specialized counseling should be provided through your professional firms and not through your broker-dealer. Also, make sure that your brokerage firm has authorized you to provide such outside services to your clients. Your brokerage firm likely has enunciated it's no-tax-advice-policy in your customer's account-opening documentation and in any number of ongoing communications from your firm. As such, be mindful that you should exercise extreme care before you put anything in writing that could come back to haunt you. If you're going to send out your own tax-advice-disclaimer to a customer, you should probably run that by your immediate supervisor. Do-it-yourself communications involving legal issues may inadvertently dilute the more expansive protections you had under your broker-dealer's standard disclaimer or, worse, you could make a statement that exposes you to personal liability and compromise any defenses.

Also See:

The Customer Settles And The Stockbroker Wins An Expungement ( Blog, July 13, 2017

  • FINRA Rule 2080: Obtaining Customer Dispute Expungement
  • FINRA Rule 2081: Prohibited Conditions Relating to Expungement of Customer Dispute
  • FINRA Rules 12805 and 13805: Expunging Customer-Dispute Information Under Rule 2080