FINRA Rules for SECU in Estate Case
After hearing both sides, a Financial Industry Regulatory Authority panel recently denied all claims made by the estate that was seeking more than $2 million against an investment adviser that worked for a broker-dealer acquired by SECU Brokerage Services Inc.
In a convoluted case, the securities regulator heard the matter at an arbitration hearing held in San Diego Feb. 21-24. The dispute involved 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 in September 2005. Cohen died in 2008.
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.
During the FINRA hearing, IAS made several claims against SECU Brokerage and the investment adviser, including a breach of fiduciary duty. SECU Brokerage denied the allegations.
The FINRA panel wrote, "After considering the pleadings, the testimony and evidence presented at the hearing, the panel has decided in full and final resolution of the issues submitted for determination [the] claimants’ claims are denied in their entirety, [and] claimants’ motion for sanctions is denied." The panel also denied a request for punitive damages.
All along, Arthur Leider, who represents Cohen’s trust as president of Investors Arbitration Specialists, questioned the timing of the advice given on the real estate transaction and who had purview. He said Foster Thornton LLC, the firm that employed Cohen’s trustee, should have never been considered since it did not have any contact with Cohen at the time the investment in dispute was recommended and transacted in late 2006.
"The arbitrators’ decision in this matter was outrageous and puzzling. The panel ignored the facts and the law," Leider said. "The decision is a clear example of why investors should be allowed the option of bringing an action in court rather than being compelled into FINRA arbitration."
"We wanted to do the right thing," said Bill Umphlett, senior vice president for financial advisory services for SECU and president of SECU Brokerage. "We were the corporate successor in the trail of liability. SECU Brokerage was named because we bought XCU Capital. SECU Brokerage didn’t exist in 2005 when the claim was named."
Umphlett said he is glad the yearlong ordeal has been resolved.
"We wanted to defend our good name," said Umphlett.