The Financial Industry Regulatory Authority may have a hard timedeciding whether a defunct credit union-owned brokerage firm, theadviser who worked for it or a North Carolina credit union is atfault in a multimillion dollar claim involving the trust of adeceased investor.

The securities regulator was scheduled Feb. 21 to hear thematter between SECU Brokerage, an investment adviser who workedwith XCU Capital Corp., and Investors Arbitration Specialists, thetrust that claims its client Helen Cohen suffered losses after analleged failed real estate investment.

According to Cohen's trust, she allegedly lost $700,000 througha failed real estate investment, and the trustee filed a claim in2009 to recover that amount plus $2.6 million in damages. Aninvestment adviser with XCU Capital suggested Cohen buy a realestate investment with a company that owned a Florida apartmentcomplex.

The adviser worked with the defunct, credit union-owned brokerdealer XCU Capital, which was based in San Diego and bought by LPLFinancial in September 2007. The $21 billion State Employees'Credit Union in North Carolina acquired XCU's corporate brokerageshell in January 2008 after all accounts had been transferred toLPL. The brokerage charter was moved to North Carolina and renamedSECU Brokerage Services in May 2008.

According to an October 2010 notice to FINRA, SECU BrokerageServices Inc. and XCU Capital Corp., the CU-owned broker-dealerdismissed their third-party claim against LPL Financial. ArthurLeider, who represents Cohen's trust as president of InvestorsArbitration Specialists, confirmed that LPL had indeed beendismissed.

“We were first added to this legal action by the SECU, not theinvestor, and as an additional respondent only. We have since beendismissed from this case, which more than speaks for itself, and weare pleased to put it behind us,” said Michael Herley, an LPLFinancial spokesperson.

SECU President Jim Blaine has said its due diligence found noexisting 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 toarbitrate/litigate this matter. A position which continues to amazeus. All parties currently characterize themselves as victims,”Blaine recently told Credit Union Times.

Leider said SECU Brokerage is the successor to XCU Capital. Bothare FINRA members.

“The claim was brought under the FINRA code of arbitrationprocedure, which all FINRA member firms are subject to,” Leidernoted.

In January, The New York Times reported SECUfiled a counterclaim in June 2010 against Foster Thornton LLC, thefirm that employed Cohen's trustee, saying it told Cohen that ithad no concerns or reservations with the real estate investment.SECU asked the court if the trustee would be liable for Cohen'slosses.

Blaine criticized the New York Times article for sayingthe investment adviser named in the matter worked for SECUBrokerage when he was employed with XCU Capital at the time headvised 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. Theregulator posts final decisions on its website.

“It's the long scheduled required mandatory arbitration sessionunder FINRA, usually a panel of three, which hears each side of theargument and renders a binding decision,” said Blaine, who wishesthe sessions were open to the press and public.

“While the closed, secret sessions may initially appear to beimportant as a matter of privacy, the truth ends up being hiddenand concealed,” Blaine said. “Open arbitration might help betterpolice the bad guys, who can now purchase confidentiality of theirshortcomings if they have enough money to pay off-excuse me,settlement without admitting guilt-the attorneys.”