November 25, 2011 Raymond James Financial Services (Raymond James) pays $1,791,547 to Hurshel Tyler, an 87 year old Texas man after unsuccessfully appealing the largest arbitration award ever against the firm. The firms arbitration record, available for immediate download at www.brokercheck.finra.org reflects 68 Final Arbitration Awards. The second largest award was back in May 2004 at $715,802 (Disclosure #13). Though are required to report the sum of all relief awarded by the arbitration panel, Raymond James underreported the amount awarded to Mr. Tyler at $1,497,065. Raymond James failed to report the Panels award of 5% interest on that sum from December 1, 2006 to the date of the Award May 10, 2011, an additional $250,786.
appealed the arbitration award on June 8, 2011. Tracy Pride Stoneman, the Texas licensed lawyer who represented Mr. Tyler, says that appeals of arbitration awards are extremely rare; in her 20 years of representing investors against brokerage firms, she has never had an arbitration award appealed. What made this appeal surprising was the fact that her client Mr. Tyler was so advanced in age and not in the best health (Mr. Tylers wife of 67 years died during the proceeding). And the grounds for the appeal were very weak, according to Stoneman, with the firm arguing that New York, not Texas, law should have applied to the case and that would have prevented the from providing certain remedies. But Raymond James never raised that argument during the 5 days the case was arbitrated in Dallas in March 2011. Nor did the firm ever object to Stoneman's presentation of the case under Texas law. At oral argument on the appeal, Dallas, Texas District Judge Tobolowsky, seemingly incredulous herself, asked Raymond James counsel: There was no briefing, no argument, no objection to the testimony regarding attorneys fees? The Judge dismissed the appeal and confirmed the arbitration Award on October 12, 2011. Raymond James had 30 days to pay the Award and the firm made good on it on November 25, 2011, paying an additional $43,696 in interest, bringing Raymond James total payment to $1,791,547.
The focus of the case was a Raymond James Branch Office Manager Paul Davis in the firms Amarillo, Texas office who upon assuming the role of the Tylers new stockbroker recommended that the Tylers liquidate their municipal bond portfolio and load up on high commission paying variable annuities and life insurance. Unbeknownst to the Tylers, Mr. Davis then switched the Tylers from one variable annuity to another variable annuity, costing the Tylers a large surrender fee and another large commission. What Stoneman discovered during the case is that by making Mr. Tylers son the annuitant of the new annuity, Mr. Davis and Raymond James reaped for themselves more than double the commission they would have made if Mr. Tyler were made the annuitant. Typically, the owner of an annuity and the annuitant are the same person, but the insurance company provided a 3.25% commission for annuitants who are 81 plus years old (Mr. Tyler was 81 years old at the time of the annuity switch) and a 7.5% commission for annuitants who are between the ages of 0 and 80.
says that if brokerage firms allow such huge financial incentives in commission structure to exist, then they must supervise to a tee any situations that are unusual. Additionally, the churning of variable annuities and life insurance is a big red flag for supervision. Firms need to document the reasons for the activity and contact the client to make sure the client is an agreement with the activity and understands the fees. Raymond James failed to do any of that in this case.
The three-person all-public arbitration panel found that Raymond James made unsuitable investments for the Tylers, failed to supervise, breached its contract with the Tylers and violated , the rules regarding suitability and supervision.