Two investors were awarded $2.57 million from Lone Star National Bank, an affiliate of LPL Financial. Quite unusually, this is the second time these claimants have been successful in receiving an award for damages against LPL. Lightning never strikes twice. LPL Financial might disagree.
Juan Angel Ibarra Rodriguez and Myriam Rodriguez Gonzalez, who sought damages of $3.4 million against LPL, have been awarded $2.57 million at an arbitration hearing in Houston, according to the Financial Industry Regulatory Authority (FINRA) communication. Other defendants included one broker affiliated with LPL, another broker who has moved to Securities America and an affiliated South Carolina-based registered investment advisory firm.
If invested with Lone Star National bank, please call our investment fraud attorneys for a free consultation at 1-888-902-6872.
Earlier dispute
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In the earlier dispute, the duo had sought approximately $13.9 million from LPL and McAllen, Texas-based Lone Star National bank, an affiliate of LPL. In that claim, filed in 2017, the claimants had received an award of $1.55 million, only against LPL. The split award had been issued by two members of a three-member FINRA arbitration panel in November 2019.
Contending that the investors had “offered evidence” that demonstrated that employees of LPL and representatives had breached the policies of the firm but not caused any injury to the claimants, the third arbitrator dissented. (In April 2019, the arbitrators granted a joint motion filed by Lone Star and the investors to dismiss the company from the litigation.)
Only LPL was held liable by the two concurring arbitrators, and ordered to pay:
- $864,839 in compensatory damages
- $350,000 for damages under Texas state law
- $340,000 in attorneys’ fees
Lone Star was not held liable.
The request of LPL to expunge the records of three brokers who had not been named as defendants was denied by the panel.
Texas Consumer Codes violations, unjust enrichment, breach of contract, and negligent supervision, among others, had been alleged by the investors. This was based on unsuitable investment recommendations offered by LPL and its affiliates, in non-traded REITS and offshore investments. These recommendations either “did not fit” their investment objectives or were investments in which Ibarra Rodriguez was ineligible to participate. (The allegations were denied by LPL.)
Rodriguez’s and Gonzalez’s efforts at adding the two brokers to their claim had been denied by the arbitrators on the grounds that doing so was likely to delay the proceedings. Senior U.S. District Judge Nancy Atlas issued the ruling in February 2021 in federal court in Houston, after a petition had been filed in her court by LPL to confirm the arbitration award of 2019. The petition had also sought to prevent the two investors to pursue the second claim for arbitration, which was denied by the federal court. The complaint was filed with FINRA a month later, in November 2020.
The recent case
The ruling issued on the 14th of July jointly held LPL and the affiliated Financial Resources Group (FRG), based in Fort Mill, South Carolina, liable, and awarded to Ibarra Rodriguez and Gonzalez:
- $1,654,526 in compensatory damages
- $68,943 in costs
- $849,875 in attorneys’ fees
The investors had contended breach of fiduciary duty, unauthorized accounts, and trading, civil conspiracy, breach of contract, and fraud in their claim. They had also levied allegations against a former representative of LPL of having altered, without authorization, investment, and account-related documents, as well as trades that were unauthorized.
(According to the award, the allegations were denied by LPL, FRG, as well as the two brokers.)
On the basis of his testimony that “his duties were as a sales manager for the bank and that he had no role in the supervision of the account in question,” expunging of the complaint from the record of the broker who moved to Securities America was recommended by the panel, in the award.
The other broker named by the investors in the November 2020 complaint was Edward B. Miller. According to his BrokerCheck record, Miller is the CEO and a partner in FRG. He was not held individually liable for the damages by the panel.
Responses
“Categorically” denying the investors’ allegations, Miller noted on his CRD record that the transactions pertained to 2011-2012, barred by the statute of limitations and subject to mandatory arbitration. A 33-year veteran of the industry, Miller, in an email, declined to comment on the recent FINRA award.
Requests for comments on the story were not responded by LPL spokespersons.
Stock Broker Fraud
When a stockbroker engages in fraudulent activities, you should seek legal recourse. Such violations can range from “selling away” activities to misrepresenting the nature and risks of an investment. Some brokers even sell nonexistent investments. In such a scenario, the investor has the right to seek recovery. The following are some of the main types of stock broker fraud. You can seek recovery by contacting a state securities regulator. Listed below are the most common forms of stock broker fraud.
Misrepresenting the nature and risks of an investment
A stockbroker may be in violation of the law when they misrepresent the nature and risks of an investment, omitting important facts that can impact an investor’s decision. Investment fraud may also involve a stock broker promoting investments that are harmful to investors. Whether the stock broker is promoting investments that are unsuitable for an investor is up to the individual and their personal circumstances.
Despite the seriousness of this violation, many investors have found a way to pursue justice. In Marks Investment Advisors, a broker violated Standard I(C) by advising clients to move their equity investments into bank-sponsored accounts that offer a guarantee of principal up to a certain limit, but not the interest. Ultimately, this misrepresentation of the risks and nature of investment can cause negative consequences for other investors.
By law, a broker must provide accurate information about the risks and rewards of any investment. In addition, he must make a fair description of investments. The broker may also be held liable for any misrepresentation of the nature or risks of an investment if the investor makes an investment and loses money. An experienced misrepresentation attorney can help an investor fight for their right to seek compensation.
Unauthorized trading
When your stock broker buys or sells securities on your behalf without asking for your permission, you may be the victim of unauthorized trading by stock broker fraud. By law, you must give your broker permission to trade your securities before he or she makes any trades. In addition to violating your rights as an investor, this type of behavior may also constitute broker misconduct. The following are the signs that your broker may be committing unauthorized trading:
Review your account statements and confirmations regularly. If you notice an increase in confirmations, it may be a sign of unauthorized trading. Make sure that these transactions were completed within three business days. If they were not, contact your broker and investment firm. If you find that your broker has made unauthorized transactions, it’s important to contact the Securities and Exchange Commission. This is an important first step to protecting your investment.
Many brokers engage in unauthorized trading as part of their account churning scam. This means that the broker makes several trades without your consent to boost his commissions. Unauthorized trading is unethical and illegal. It also violates FINRA Rule 2010 which requires members to adhere to “high standards of commercial honor.”
Churning
Stockbrokers may churn a client’s brokerage account by engaging in an excessive amount of trading to generate commissions. To prove to churn, the customer must establish three elements: the broker has control over the account, the trading is excessive and the broker acted with scienter. Churning can occur in several different ways, and the process will vary depending on the broker’s level of expertise and the extent of the client’s financial knowledge.
A brokerage firm that engages in churning may set the investment objective of the client’s brokerage account to “speculation” with “high” risk tolerance. This is a common ploy employed by brokers to disguise their actions. However, such behavior violates securities laws. Brokers may churn accounts in several ways, and the client should consider all the available evidence when making a decision about his or her financial future.
One way to protect yourself from churning is to set up an account with a flat fee and allow your broker discretion to make changes. This type of arrangement is known as a “wrap” account and requires the client to approve any changes. It is difficult to prove churning in these circumstances, but investors should pay attention to their portfolio and request a discussion of transactions before the broker makes any decisions. This can be done when you open an account.
