Thursday, April 17, 2014
An arbitral award in March 2014 by Financial Industry Regulatory Authority (FINRA) ordered Signator Investors, Inc., a firm aligned with the John Hancock Financial Network, to pay an older couple and their elderly mother's estate $1.2 million for losses arising from failed retirement investments inappropriately marketed to them by a Signator broker. The award to the claimants included "compensatory" damages plus interest, and ordered rescission of all the claimant's investments in Colonial Tidewater Realty Partners. The award also granted Signator's cross-claim against its former broker, James Robert Glover, for breach of contract, fraud and negligence as potential indemnification on the damage award.
As is true with most arbitration awards, the ruling on Docket No. 13-00579 (available via search at the FINRA website) is "bare bones," providing little in the way of explanation about which legal theories support the outcome. A detailed explanation is unnecessary for FINRA arbitration rulings, which cannot be appealed.
The claimants, a husband and wife (both 70+) and the husband's mother (who died in 2012 at the age of 103), reportedly invested their entire retirement savings through Glover, who put them into securities not held or offered by Glover's brokerage company. This practice is sometimes described as "selling away." Signator's defense that Glover's actions were therefore outside the scope of his authority with their company and not subject to their control or responsibility to supervise was implicitly rejected by the FINRA arbitrators. News reports indicate some 40 other pending complaints connected to Glover's actions. Glover was sanctioned personally by FINRA in March 2013.
FINRA, created in 2007, is the successor to NASD, the National Association of Securities Dealers, the former enforcement operation for member brokerage firms and exchange markets regulated by the Securities and Exchange Commission. A single arbitral award of $1+ million through FINRA is interesting by itself. For example, for the entire year of 2013, FINRA ordered a total of $9.5 million in restitution to harmed investors.
But what caught my attention was the additional award of $453,970 in attorneys' fees for the claimants against Signator, "pursuant to California elder abuse statutes." The amount of the fees appears to be roughly 40% of the damage award. Most securities claims are handled by attorneys on a contingency fee arrangement and a fee of 40% of the award is not unusual in this challenging field. Thus, even a successful claimant before FINRA may not be made whole, absent a contractual or statutory basis to claim attorneys' fees. So the award of compensatory damages and interest, plus attorneys fees' is significant.
Unlike many states, California has a comprehensive provision for attorneys' fees connected to civil actions for abuse of elderly or dependent adults, at Cal. Welfare & Institutions Code Sections 15657-15657.8, including Section 15657.5 providing for attorneys' fees where it is proven by a preponderance of the evidence that a defendant is liable for "financial abuse."