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Sample Case Descriptions

Oral Advisory Contract
An independent registered investment advisor sued a trust with which he had no formal advisory contract. The advisor was consulted by the trustees and understood that he would be formally engaged to manage the assets as soon as certain matters concerning the settlement of the trust were resolved. The trust subsequently hired other advisors to manage the assets. The former advisor sent an invoice for the time he had spent working on behalf of the trust. The trustees refused to pay the invoice and the advisor filed suit claiming quantum meruit and breach of oral contract. The issue to be decided was whether the advisor was entitled to be paid for services performed in anticipation of being hired as an asset manager.

Aiding and Abetting Fraud
A woman who had won a large lottery jackpot successfully sued her business manager in state court for fraud, embezzlement, breach of fiduciary duty, and other causes. She recovered a substantial part of her loss from this action. She subsequently filed a FINRA arbitration against her brokerage firm and its registered representative (RR) claiming they were complicit in abetting the fraudulent actions of the business manager. The issues to be decided included: whether the RR circumvented firm policy in order to aid the business manager in his malfeasance; whether the RR had misused the firm’s portfolio lending platform to provide liquidity for the business manager while still managing the assets used for the loan; whether some of the portfolio recommendations were unsuitable and whether there was a failure to supervise the RR’s activities.

Marital Fiduciary Duty
A woman sued her husband for divorce in Superior Court. One of her contentions was that, during the period prior to the divorce action, her husband had pilfered substantial amounts from their joint brokerage account and diverted the funds to other private investments in his name only. At the time of trial, his private investments were worthless. The issue to be decided was how much would the portfolio have been worth had it been left intact and what would have been the expected value of the portfolio using a hypothetical performance analysis for a well-managed account.


U5 Defamation
A registered representative left his brokerage firm to start an independent registered investment advisory firm. His old brokerage firm was very aggressive in its attempt to retain his clients. He filed a FINRA arbitration case claiming defamation, breach of contract, unfair business practices and intentional interference with prospective economic advantage. His contention was that, in attempting to retain his clients, the brokerage firm’s tactics violated the industry standard and besmirched his reputation to the point of damaging his ability to continue doing business. The issues to be decided were whether the actions of the brokerage firm constituted defamation and, if so, what was the extent of damages to the RR’s future earnings. These calculations required a study of the expected value of a client relationship, the growth trajectory of the RR’s business and the future earnings he might have expected if not for the actions of his old firm.

Trustee Breach of Duty 
A woman sued her brother in Superior Court—Probate Division. She claimed he breached his fiduciary duty while appointed as authorized agent with power of attorney (POA) for their mother’s trust. The brother assumed his status as authorized agent and POA shortly after the mother had been declared incompetent due to dementia. The brother and sister were equal beneficiaries of the trust. The issues to be decided were whether the brother’s choice of investments and overall asset allocation were suitable, whether he diverted trust assets for his own benefit and whether his actions constituted financial elder abuse. The issue of damages also had to be addressed.

Unauthorized Discretion & Suitability
A man filed a complaint with FINRA against his financial advisor and broker-dealer for unauthorized trading, misrepresentation, breach of fiduciary duty, recommending unsuitable investments and failure to supervise. The claimant had recently sold his business and was referred to respondent to help manage the proceeds. The questions to be decided included the following: whether the advisor had exercised unauthorized discretion in trading the account; whether the client qualified as a sophisticated investor for two Regulation D private placement investments recommended by the advisor and whether the advisor had misinformed the client as to the nature of a portfolio lending facility and misused the facility once it was in place. Also, in question was whether the management team at the broker-dealer failed to investigate and mitigate the alleged malfeasance. In addition, the matter of damages needed to be calculated and presented to the panel.

Private Placement Suitability
A woman sued her registered investment advisor (RIA) in Superior Court for breach of fiduciary duty, unsuitable investment recommendations and misrepresentation. The investment in contention was a Regulation D private placement. There were several questions to be decided. First was whether the RIA had performed sufficient due diligence on the investment being recommended. Second, whether the RIA had misrepresented the investment. Third, whether the client qualified as a sophisticated investor who could understand and undertake the risks involved in the recommended investment. Fourth, whether suitability is a relevant component in defining fiduciary duty. Finally, the determination and calculation of damages.

Employee Stock Options
A woman sued her brokerage firm and registered representative in FINRA for breach of fiduciary duty in failing to inform her of an impending employee stock option expiration date for in-the-money options. The brokerage firm served as the administrator of the option plan for her former employer. The brokerage firm had previously given substantial warning of such imminent expirations but had subsequently agreed with a request from the employer/option-issuer to no longer provide these warnings. The complaint claimed that the brokerage firm colluded with the issuing employer to make it more likely she would miss the deadline to exercise her options.

Concentration and Failure to Supervise 

A man sued his registered investment advisory firm in a JAMS arbitration claiming breach of fiduciary duty, failure to supervise, and gross negligence. The investment advisor representative used his discretionary authority and concentrated the portfolio in one industry and ultimately in just one security which went bankrupt leaving the portfolio worthless. The IAR testified that he had not been supervised during his tenure at the firm and the RIA could not produce a copy of their written supervisory procedures.

Yield Enhancement Strategy
A client sued his financial advisor and broker-dealer in FINRA for breach of fiduciary duty, unsuitable investment recommendation, misrepresentation and negligence stemming from an investment in an option overlay program known as a Yield Enhancement Strategy. Claimant maintained that the strategy was presented as a conservative, income-oriented strategy with very little risk to capital. Respondents asserted that the strategy was clearly defined in the prospectus and was entirely suitable for the client’s investment profile.

Overconcentration in Risky Assets

A client sued a registered investment advisory firm in an American Arbitration Association action for breach of fiduciary duty, overconcentration, gross negligence, and failure to supervise with regard to a discretionary account managed by the RIA. Claimant complained that there was a lack of diversity and overconcentration in risky holdings, which were contrary to the investment policy statement and ADV form. Claimant also asserted that there was little, or no, supervisory oversight in the relationship. The case required extensive analysis of the portfolio versus the investment policy statement and a complex damages model.

Beneficiary IRA
A family trust sued its financial advisor and broker-dealer for breach of fiduciary duty, misrepresentation, negligence, and failure to supervise. The family trust claimant was the beneficiary of an IRA account. Claimant asserted that the advisor informed them that their only option was to transfer the holdings from the IRA to a brokerage account and that he failed to tell them of the tax consequences of such a transfer. Respondents claim that, as per all account documents and firm policy, their advisors do not give tax advice. This case involved a complex damages analysis due to the required minimum distribution schedule for the four beneficiaries of the trust over a thirty-six-year distribution period.

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