Raymond James Financial Services Inc. has paid an estimated $1.8 million arbitration award to an 87-year-old former client and his deceased wife's estate, whom the brokerage contends earned profits of more than $800,000 while they were clients of the firm. RJFS lost its appeal of an original arbitration award in a Texas district court last month.

St. Petersburg, Fla.-based Raymond James yesterday paid Hurshel Tyler and the estate of his wife, Mildred Tyler, an additional $43,696 in interest, bringing Raymond James' total payment to $1,791,547. Judge Emily Tobolowsky of the 298th Judicial District Court in Dallas on Oct. 12 dismissed Raymond James' appeal, confirming the arbitration award and denying the firm's motion to vacate the payment. 

Raymond James' legal counsel steadfastly disagreed with the appeal court's decision. "Raymond James continues to believe that the award in this matter is a miscarriage of justice," said Robert M. Rudnicki, vice president and director of litigation for Raymond James Financial.

Rudnicki contends that the Tylers made a profit in excess of $800,000 during the period of time that the Tylers maintained accounts with Raymond James and suffered losses when they transferred their accounts to another broker-dealer. "Raymond James believes the [arbitration] panel erroneously held Raymond James responsible for those losses,"' Rudnicki said. "Notwithstanding that fact, Raymond James has determined, after reviewing the anticipated time and resources necessary to continue to fight what we still believe to be an erroneous award, to put the matter behind us and move forward."

Tracy Pride Stoneman, a Westcliffe, Colo.-based, Texas-licensed lawyer who represented the Tylers in the arbitration, said Raymond James' grounds for the appeal were weak because she said the firm argued that New York law and not Texas law should have applied to the case, and that would have prevented the arbitrators from providing certain remedies.

The panel also found that a broker working for Raymond James' Amarillo, Texas, branch improperly encouraged the elderly couple to invest a big chunk of their $3.5 million in savings into unsuitable investments, specifically variable life insurance and variable annuities. This resulted in substantial difficulties for the couple, both in their eighties.

Stoneman claimed that in 2006 the broker switched the funds from one variable annuity to another without informing the Tylers, triggering hefty surrender charges and another commission.

In its appeal, Raymond James asserted that the Tylers should have returned the annuities, which had increased in value to $958,000. The Tylers initially considered returning the money, but were instead awarded compensatory damages and were not instructed to return the annuities.

Raymond James' lawyers also claimed that the $250,000 it was supposed to pay the Tylers in attorneys' fees ought to be vacated because laws in Florida -- where Raymond James is based -- don't allow for such awards.

However, Stoneman asserted that Raymond James never brought up that argument in the arbitration discussions in March this year, nor did it ever object to her presentation of the case under Texas law.

The original arbitration award against Raymond James was rendered by the Financial Industry Regulatory Authority (Finra) panel that on May 10 ordered Raymond James to pay Tyler and the estate of his deceased wife -- who had passed away during the proceedings -- $1.7 million, plus interest. The panel had found that Raymond James made unsuitable investments for the Tylers, failed to supervise, breached its contract with the Tylers and violated Finra rules regarding suitability and supervision.

The Tyler's funds, before being advised by Raymond James, had been invested in various bond funds. The award included attorney's fees, IRS penalties incurred by the couple, interest and $1.13 million in compensatory damages to offset losses. The panel also found that Raymond James failed to provide adequate supervision to its broker, a branch manager in its Amarillo office.

Ironically, about five years ago Raymond James became the first independent broker-dealer to impose strict limits on the commissions its reps could earn on variable annuities.

-Jim McConville