Customer Complaint / Arbitration vs. me and prior firm. Advice needed

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Jul 26, 2010 7:27 pm

I recently moved to a new firm in April of this year. In Nov one of my former clients tried to back out of a VA he had bought early 2008, in which my firm said it was suitable and they considered it closed. Got paperwork from FINRA today that he is trying to take me and my prior firm to arbitration for $110k in damages + atty / court fees. He is asking for the difference from his income benefit amount and the surrender value. He is stating he didnt realize the annuity income benefit was different from market "cash" value, 2 years later after signing disclosures, getting 2 contracts, and at least 8 quarterly statements.

Contract Value = $486k   /   initial premium $490k    /    surrender value $455k   /   IB Value $567k....asking for difference between IB value and surrender value.

When something like this happens and your prior firm is put in the filing what happens?

Do I get my own attorney, does my new firm have to use theirs, does my old firm represent me? Does my old firm just try to settle to get it closed and if so what happens to me? I have had one minor ding in the past 12 months that cost me $5k by the state for admin fees, so I am nervous what can happen since I am still new to my firm.

Any help / advice is appreciated.

Jul 27, 2010 1:00 am

[quote=YankeeNole]

I recently moved to a new firm in April of this year. In Nov one of my former clients tried to back out of a VA he had bought early 2008, in which my firm said it was suitable and they considered it closed. Got paperwork from FINRA today that he is trying to take me and my prior firm to arbitration for $110k in damages + atty / court fees. He is asking for the difference from his income benefit amount and the surrender value. He is stating he didnt realize the annuity income benefit was different from market "cash" value, 2 years later after signing disclosures, getting 2 contracts, and at least 8 quarterly statements.

Contract Value = $486k   /   initial premium $490k    /    surrender value $455k   /   IB Value $567k....asking for difference between IB value and surrender value.

When something like this happens and your prior firm is put in the filing what happens?

Do I get my own attorney, does my new firm have to use theirs, does my old firm represent me? Does my old firm just try to settle to get it closed and if so what happens to me? I have had one minor ding in the past 12 months that cost me $5k by the state for admin fees, so I am nervous what can happen since I am still new to my firm.

Any help / advice is appreciated.

[/quote]

If you feel you should ask this question then you should already know your answer. Hire a lawyer.

Jul 27, 2010 11:31 am

I'd suggest you go and check out the Finra awards online, and study similar cases, using key phrases. I've looked at cases like these, and typically, the client is just trying to shake down, and the arbs see that. It takes real, meaningful omissions and deception to create a winning case for the client. Ask yourself... was the product suitable, paperwork in good order with supporting documentation, and adequately disclosed? If so, you have "less" to worry about.

Your old firm though, might settle the case, but at your expense. Your good name is NOT a priority of theirs. Your old firm doesn't want to lose either, so they'll defend themselves and you most likely. Obviously, you need to contact your current firm ASAP, and have them tell you what to do next. Don't do anything stupid now, that might hurt your reputation with the new firm. It is not uncommon for a client to try this, and you leaving only bolstered the motivation, so...you're not alone. I had one like this back in 1996, got summarily dismissed because it was totally bogus. 

Depending upon the response you get from your new and old firm, getting some advice from an attorney on the side, nobody knows about, is probably in your best interests.

You asked for some advice, well, there it is. But my advice should not be construed as legal advice, yada, yada....

Jul 27, 2010 1:01 pm

I appreciate the advice. I talked to my attorney this morning who is calling my old firm to find out what their plans are first. He believes the client is just hoping it settles so he gets money, and figures since I already had a ding on my record that it makes it easier, which the clients attorney pointed out in the filing and even attached my CRD to the filing. Client is stating in the filing that he never signed either of the 2 annuity agreement forms, which I find amazing since the signature is clearly his, and who in their right mind would give someone $490k without signing something for it? By disputing his signature, he is using that to claim he had no idea of CDSC, term, annuity fees, etc...

Thank you for your thoughts though. It's nice to have someone other than my wife give me and opinion, as she is at the point now she wants me to just give up being an advisor and do something else as she feels we have no protection against frivilous complaints.

Jul 27, 2010 2:13 pm

[quote=YankeeNole]

I appreciate the advice. I talked to my attorney this morning who is calling my old firm to find out what their plans are first. He believes the client is just hoping it settles so he gets money, and figures since I already had a ding on my record that it makes it easier, which the clients attorney pointed out in the filing and even attached my CRD to the filing. Client is stating in the filing that he never signed either of the 2 annuity agreement forms, which I find amazing since the signature is clearly his, and who in their right mind would give someone $490k without signing something for it? By disputing his signature, he is using that to claim he had no idea of CDSC, term, annuity fees, etc...

Thank you for your thoughts though. It's nice to have someone other than my wife give me and opinion, as she is at the point now she wants me to just give up being an advisor and do something else as she feels we have no protection against frivilous complaints.

[/quote]

Sounds like the client bypassed the old firm's compliance department. I'd expect that you'll be asked to make a written response to the complaint. So, right now, you may as well get started in your defense. Start a document, and keep tinkering with it, based upon memory. As you said, pretty likely that every dot/i was covered, and if so, you are really just looking at a big nuisance. I know it's hard, but you owe it to yourself to compartmentalize that away from what you are doing right now. I'm personally involved in a matter right now myself, in a dispute with my prior firm. It is distracting as you let it be, and I have my moments when I'm very frustrated with that situation.

Hey, looking at the numbers you posted, worst case scenario the loss is only like 6k? From original investment to current value? There is NO WAY this piker would get what they are asking for, no way. You'd be in a different situation if there was some huge difference between fair market value, original investment, and the investment was clearly unsuitable or obviously misrepresented.

I've been in this biz for nearly 20 yrs, and seen my fair share. Your issue is a minor one in my opinion, although a nuisance for sure. Good luck to you, don't let it sidetrack you. 

Jul 27, 2010 7:03 pm

The old firm will probably be more proactive than you think as they, the manager, will almost without exception be sued for failure to supervise as well. There is more than your good name at stake, even though we all know your name means nothing to them. They are the ones with the deep pockets. Kind of a bummer they know you have retained a lawyer as they now probably feel like you are on your own for sure now. I have a complaint against me as well and they are paying for the lawyer. My complaint is total BS like yours appears to be from what you right.