Financial advisor Brian Doench may have been a bit too casual in his friendly text messages with his client.
Doench, 44, of Doench Wealth Management in Charlottesville, Va. is accused of recklessly managing his client David “Ryan” McCaigue's individual retirement account by trading in and out of penny stocks and violating his fiduciary duty to his client.
What made matters potentially worse was a series of text messages allegedly from Doench to the client that included language such as “lol” and “hahaha” when referring to the IRA. McCaigue listed a handful of these text messages in a suit filed by Attorney David Silver of Silver Miller in the U.S. District Court for the Southern District of Florida as evidence that the advisor knew he had mishandled the account.
Doench’s former client entrusted his individual retirement account to him in 2014. McCaigue had $345,511.55 in principal, but by April 2020 the account had deteriorated by about 55% to $147,194.70, according to the complaint.
Doench sent a text to McCaigue in April of 2018 that said “I honestly don’t feel like I’ve helped you that much, which I’m rather embarrassed about lol!”
Attorney Kalju Nekvasil, who reviewed the filing, said the messages show at the very least a reckless disregard for a client’s interest. “‘LOL’ is mostly used to indicate smiling or slight amusement. There’s nothing amusing about losing this significant amount of money from a fiduciary,” said Nekvasil of Goodman & Nekvasil in Clearwater, Fla.
“If my IRA was down in an upmarket, between 55-60%, I would be upset whether it’s the advisor’s fault or not. And I would consider a message like ‘LOL’ to be insulting,” Nekvasil said, referring to the S&P 500’s steady climb during the same period.
McCaigue claims Doench aggressively invested the client’s money in risky penny and marijuana stocks, like Aurora Cannabis, Ambler, eWell Healthcare Corporation, and KinerjaPay Corp. According to the court document, Doench would trade in and out of the stocks on a “near-daily basis.”
Mark Hubbard, a spokesperson for Doench Wealth Management, said “the complaint against Doench Wealth Management is completely without merit. Brian Doench intends to mount a vigorous defense in court.”
McCaigue and Doench had known each other for two years prior to 2014. They were initially neighbors in a condominium community in Miami-Date, Fla. McCaigue stated in the complaint that the two had formed an amicable relationship, asked neighborly favors of each other, and had exchanged phone numbers. McCaigue had even nicknamed the advisors as “Bman Doench” on his phone.
Their relationship had shifted to a professional one following McCaigue’s move to Hollywood, Fla., a city in Broward County, in January 2014. Around that time, McCaigue had confided in Doench his financial situation, and Doench then offered his advisory services and provided McCaigue with a brochure of Doench Wealth Management, according to the complaint.
Doench had just launched his RIA that year following a break away from Next Financial Group, a subsidiary of Atria Wealth Solutions, where, according to his Investment Advisor Public Disclosure profile, he was dually registered as a broker and investment advisor. According to the firm's most recent Form ADV, Doench Wealth Management has nine clients and $4.5 million in AUM.
McCaigue states that during their client meetings, he expressed to Doench that his IRA, totaling $223,246.68 in November 2014, was his retirement nest egg and that he wanted to preserve his principal while achieving modest growth.
According to the complaint, Doench texted McCaigue that he would honor his client’s risk tolerance: “Don’t worry, we won’t ever do 50/50! Gotta preserve your $$ as much as make more lol.”
In 2016, McCaigue noticed he hadn’t been billed for Doench’s advisory services in quite some time, according to the filing, so he enquired to Doench via text message. Doench responded, “Hahaha, thanks, man. We’ll see. I promised myself and you not to charge until we broke even—and I’m super embarrassed your holdings haven’t performed better over the past couple of years. No worries my friend, happy to help in any way I can!”
McCaigue’s complaint did not include the client’s text messages that prompted Doench’s responses.
Doench allegedly sent another text about his inability to increase McCaigue’s IRA assets in April 2018. “I honestly don’t feel like I’ve helped you that much, which I’m rather embarrassed about lol!”
Despite Doench’s admission, in May, McCaigue added $121,861.81 to the IRA from a separate retirement account. The client had expressed interest in PetIQ, a manufacturer of pet health products and services, some months before, and at his client’s request, the advisor invested $125,000 into PetIQ between July and August of that year. That investment, according to the complaint, was one of the few to yield a positive return.
McCaigue suffered a net loss of $192,536.11 along with fees of $1,204.50. Backing out the gain on PetIQ, according to the complaint, the trading losses in the IRA based on Doench's portfolio was $264,057.94, "a staggering seventy-five percent (75%) of Plaintiff’s IRA," according to the suit.
Florida securities litigators say the text messages will give the claimant’s attorney a leg to stand on when fighting for punitive damages.
“Those texts will haunt Doench in this case because it appears that he did agree to ‘preserve’ the client’s money,” said Jeff Sonn, an attorney at Sonn Law Group in Aventura, Fla., in an email. “[And those] text messages, to me, are an admission that he knew he mismanaged the portfolio. In an IRA, that kind of aggressive trading strategy appears to me to be inconsistent with the client’s objectives and risk tolerance.”
Adolfa Anzola, a partner at Sonn Law Group and a former regulator with New Jersey Securities Commission said, “I think most people understand that once you hit ‘send,’ it’s out there and one day it may come back to bite you, which is why most firms require that all client communications be through approved firm emails that are supervised by compliance officers.”
To regulatory attorney Bill Singer, these text messages are symptomatic of a greater issue. He says, “We have a lot of young [advisors] that haven’t quite grown up and they engage in foolish conduct that sometimes is sexist, sometimes it's racist, sometimes it's homophobic and sometimes it manifests itself in what we have today. If you lost someone’s retirement, or much of it—[This] would be as if Bernie Madoff sent his clients an email that said ‘LOL’ or had an emoji in it.”
Nekvasil says that most investment advisor agreements have arbitration clauses so the case may move into arbitration. If not, the case may be tried by a judge or a jury.