Claim Scenario: The client was an 78 year-old retiree who entered into an agreement for the registered representative to manage several investment accounts on a non-discretionary basis. The client had an IRA valued at approximately $120,000 and was 90% invested in Amazon stock. The client held another 500 shares of Amazon in another account. Within a few months, all the Amazon shares in the IRA were sold via a covered call. The client asserts that he never agreed to sell the Amazon shares.
The registered representative testified he told the client
that he was too concentrated in Amazon stock and recommended liquidating half
and reinvesting in more diversified investments. The registered representative felt that the
client understood and agreed and he received transaction confirmation slips to
which he never objected. There was no documentation of the client’s
authorization of the transactions.
Outcome: The case
was heard by a single FINRA arbitrator who awarded $50,000 to the client
without explanation. We suspect that the client’s age and lack of financial
sophistication caused the arbitrator to conclude that the customer did not
understand the transaction he was being asked to authorize. In addition, the
absence of documentation did not help the registered representative’s case.
Arbitrators do not place great weight on failure to object to confirmation
slips.
Estimated Claim Cost:
$93,000
Loss Prevention Tip:
Promptly document your conversation with the client regarding investment
requests and immediately place any trades.
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