FINRA Weeds Through Brokerage Case With CU Ties
The Financial Industry Regulatory Authority may have a hard time deciding whether a defunct credit union-owned brokerage firm, the adviser who worked for it or a North Carolina credit union is at fault in a multimillion dollar claim involving the trust of a deceased investor.
The securities regulator was scheduled Feb. 21 to hear the matter between SECU Brokerage, an investment adviser who worked with XCU Capital Corp., and Investors Arbitration Specialists, the trust that claims its client Helen Cohen suffered losses after an alleged failed real estate investment.
According to Cohen's trust, she allegedly lost $700,000 through a failed real estate investment, and the trustee filed a claim in 2009 to recover that amount plus $2.6 million in damages. An investment adviser with XCU Capital suggested Cohen buy a real estate investment with a company that owned a Florida apartment complex.
The adviser worked with the defunct, credit union-owned broker dealer XCU Capital, which was based in San Diego and bought by LPL Financial in September 2007. The $21 billion State Employees' Credit Union in North Carolina acquired XCU's corporate brokerage shell in January 2008 after all accounts had been transferred to LPL. The brokerage charter was moved to North Carolina and renamed SECU Brokerage Services in May 2008.
According to an October 2010 notice to FINRA, SECU Brokerage Services Inc. and XCU Capital Corp., the CU-owned broker-dealer dismissed their third-party claim against LPL Financial. Arthur Leider, who represents Cohen's trust as president of Investors Arbitration Specialists, confirmed that LPL had indeed been dismissed.
"We were first added to this legal action by the SECU, not the investor, and as an additional respondent only. We have since been dismissed from this case, which more than speaks for itself, and we are pleased to put it behind us," said Michael Herley, an LPL Financial spokesperson.
SECU President Jim Blaine has said its due diligence found no existing complaints or liabilities associated with XCU Capital, noting Cohen's complaint was filed in May 2009.
"SECU, under California law, has been placed in the position to arbitrate/litigate this matter. A position which continues to amaze us. All parties currently characterize themselves as victims," Blaine recently told Credit Union Times.
Leider said SECU Brokerage is the successor to XCU Capital. Both are FINRA members.
"The claim was brought under the FINRA code of arbitration procedure, which all FINRA member firms are subject to," Leider noted.
In January, The New York Times reported SECU filed a counterclaim in June 2010 against Foster Thornton LLC, the firm that employed Cohen's trustee, saying it told Cohen that it had no concerns or reservations with the real estate investment. SECU asked the court if the trustee would be liable for Cohen's losses.
Blaine criticized the New York Times article for saying the investment adviser named in the matter worked for SECU Brokerage when he was employed with XCU Capital at the time he advised Cohen. The Times later ran a correction.
Meanwhile, FINRA is scheduled to hear seven more hearings Feb. 22 through 25, Feb. 28, and March 1 and 2, according to Leider. The regulator posts final decisions on its website.
"It's the long scheduled required mandatory arbitration session under FINRA, usually a panel of three, which hears each side of the argument and renders a binding decision," said Blaine, who wishes the sessions were open to the press and public.
"While the closed, secret sessions may initially appear to be important as a matter of privacy, the truth ends up being hidden and concealed," Blaine said. "Open arbitration might help better police the bad guys, who can now purchase confidentiality of their shortcomings if they have enough money to pay off-excuse me, settlement without admitting guilt-the attorneys."