Help MY Client Please!

He is poor, move on to another prospect. 

Hey, you can only help some people.

Can’t, we’re related…

[quote=Ready2Jump]OK, I have a client that had left a company back in the dotcom days with stock options totalling $750,000.  He is a simple man, production supervisor, leaving a large contract manufacturer.  He takes his options to a VERY large firm, who doesn't get mentioned here much, not knowing what he had.  The broker sticks his $750,000 of one stock, very risky, into an account.
Client was not advised by the broker he had a tax burdon.  Never advised him to diversify.  Three years later he gets a call from the IRS that he owes $200k in taxes (he makes $50k a year).  The stock, oh it's now worth less than $50k. 
What recourse might this client have and how can I advise him?
[/quote]

The client should have some recourse. The advice that he was given was (as you describe it), basically criminally irresponsible.

The first thing they should do is file a complaint with the NASD.

You should encourage them to contact an attorney who specializes in suing brokers (there are MANY) and to get tax counsel (an "Enrolled Agent"), who can help them begin the process of negotiating with the IRS on the tax issue.

Finally, if you are fairly new to the business (which it sounds like you are), then you have to immediately separate yourself from the client. Explain to them that you work on commission, that you don't make a lot of money and that you are very sorry, but you don't have the time to help them out on this one. Otherwise, they will waste a great deal of your time, constantly calling you for advice as you are their "financial advisor".

If you only take one bit of advice, take the last bit.

Solectron or Flextronics?

Actually, your question isn't clear to me?  Were the options exercised and the stock never sold? What advisor in their right mind wouldn't try and get the client to diversify? For the clients' benefit (diversification) and the broker's benefit (production). Please clarify.  

[quote=Ready2Jump]OK, I have a client that had left a company back in the dotcom days with stock options totalling $750,000.  He is a simple man, production supervisor, leaving a large contract manufacturer.  He takes his options to a VERY large firm, who doesn't get mentioned here much, not knowing what he had.  The broker sticks his $750,000 of one stock, very risky, into an account.
Client was not advised by the broker he had a tax burdon.  Never advised him to diversify.  Three years later he gets a call from the IRS that he owes $200k in taxes (he makes $50k a year).  The stock, oh it's now worth less than $50k. 
What recourse might this client have and how can I advise him?
[/quote]

This doesn't make sense to me.  Why would any advisor sell someone one stock?  I doubt it theres no money in it.  B/D's don't provide tax advice it says that everywhere on the new account forms so good luck with that.  Finally,  what kind of option was it ISO or NQSO?

That sounds like the dreaded AMT trap on the exercise of stock options.  The client should have sold at least enough to take care of the tax issue, although it's possible that the stock price collapsed too fast to allow for that.

Given what's been described here, your client needs to take his paperwork to a securities attorney to determine if the actions of his former advisor are worthy of legal action (it sure sounds possible, given what you've disclosed).  The tax bill won't likely go away, and he's going to need some funds from somewhere to pay the piper...

Just keep in mind, you probably have only half of the story.

I’ve often wondered about whether they tried to have them sell it and
they refused.  I will follow most of this advise and tell Mom what
she should do.  No, I was not in the business at the time.



Oh, not one of those two companies but a third very similiar.

[quote=san fran broker]

[quote=Ready2Jump]OK, I have a client that had left a company back in the dotcom days with stock options totalling $750,000.  He is a simple man, production supervisor, leaving a large contract manufacturer.  He takes his options to a VERY large firm, who doesn't get mentioned here much, not knowing what he had.  The broker sticks his $750,000 of one stock, very risky, into an account.
Client was not advised by the broker he had a tax burdon.  Never advised him to diversify.  Three years later he gets a call from the IRS that he owes $200k in taxes (he makes $50k a year).  The stock, oh it's now worth less than $50k. 
What recourse might this client have and how can I advise him?
[/quote]

The client should have some recourse. The advice that he was given was (as you describe it), basically criminally irresponsible.

[/quote]

Giving advice--good or bad--rarely, if ever, is a criminal offense.

Brokers are not accountants or tax attorneys--there is no case for not giving advice and you can bet your bottom dollar that that is the defense--and it is an absolute defense.

The only way this guy has any recourse that is meaningful would be if there are documents or recordings of the bad advice being given. Then, perhaps, his B/D could be pursuaded to settle the case.

Absent that all a defense attorney has to do is remind the broker that he is not an accountant--and then without actually coaching him to lie suggest that it would be inappropriate for him to have given advice so he, the attorney, is confident that the broker did not give the advice.

As somebody mentioned, this is one side of the story.  Clients who lose are notorious for whining as they thrash about looking for somebody to blame.  More often than not they have nobody to blame but themselves.

Who among us would believe anybody who said (paraphrased) "I sold $750,000 worth of assets and am shocked to hear that I owe taxes on that transaction?"

I don't care how simple a man he is, he knows that taxes are due on windfalls in the stock market.

[quote=NASD Newbie][quote=san fran broker]

[quote=Ready2Jump]OK, I have a client that had left a company back in the dotcom days with stock options totalling $750,000.  He is a simple man, production supervisor, leaving a large contract manufacturer.  He takes his options to a VERY large firm, who doesn't get mentioned here much, not knowing what he had.  The broker sticks his $750,000 of one stock, very risky, into an account.
Client was not advised by the broker he had a tax burdon.  Never advised him to diversify.  Three years later he gets a call from the IRS that he owes $200k in taxes (he makes $50k a year).  The stock, oh it's now worth less than $50k. 
What recourse might this client have and how can I advise him?
[/quote]

The client should have some recourse. The advice that he was given was (as you describe it), basically criminally irresponsible.

[/quote]

Giving advice--good or bad--rarely, if ever, is a criminal offense.

Brokers are not accountants or tax attorneys--there is no case for not giving advice and you can bet your bottom dollar that that is the defense--and it is an absolute defense.

[/quote]

At least at my firm, there were several settlements during the dot-com bust where the clients charged that they had not been advised to the risks of maintaining concentrated equity positions or the availability of hedging tools.

I suppose that a great deal would hedge on whether the broker marked that ticket as "solicited"...