Raymond James Cries Uncle
From the Stoneman Law Firm, Tracy Pride Stoneman, Securities Lawyer and Author
November 29, 2011, Dallas, Texas Raymond James Financial Services, Inc. pays $1,791,547 to Hurshel Tyler, an 87 year old Texas man after unsuccessfully appealing the largest arbitration award ever against the firm which was rendered on May 10, 2011 (FINRA Case #10-02162). Raymond James appealed the arbitration award on June 8, 2011. Mrs. Stoneman, a Colorado based and Texas licensed lawyer who represented Mr. Tyler in the in Dallas, Texas arbitration, 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 is the fact that her client Mr. Tyler is so elderly and not in the best health (tragically, Mr. Tylers wife of 67 years died during the proceeding and will never know the successful results of this monumental decision and historic proceeding). The Judge dismissed the appeal and confirmed the arbitration Award on October 12, 2011 (Cause # DC117127, 298thJudicial District Court, Dallas, Texas).
The firms arbitration record reflects 68 Final Arbitration Awards. The second largest award was back in May 2004 at $715,802. In Stonemans opinion, the grounds for the appeal were very weak, with the firm arguing that Florida law, not Texas law should have applied to the case and that would have prevented the arbitrators from providing certain remedies. But Raymond James never raised that argument during the 5 days the case was arbitrated in March 2011. Nor did the firm ever object to Stonemans presentation of the case under Texas law. At oral argument on the appeal, Dallas, Texas District Judge Emily Tobolowsky, seemingly incredulous herself, asked Raymond James counsel: There was no briefing, no argument, no objection to the testimony regarding attorneys fees? (p.7 of oral argument transcript). Raymond James had 30 days to pay the Award and the firm made good on it today, 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.
Stoneman 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 for the Tylers, failed to supervise, breached its contract with the Tylers and violated FINRA Rules 2310 and 3010, the rules regarding suitability and supervision.