by Brian Mahany
We have been seeing a number of large arbitration awards these days by the Financial Industry Regulatory Authority (FINRA). Claims against stockbrokers and investment advisors are usually sent to arbitration. Some believe that process is biased against the customer and in favor of the industry. Don’t try to tell that to First Republic Securities, however. The company was just ordered to pay a customer $870,630 after losing an arbitration case.
First Republic’s customer claimed that the brokerage firm made unsuitable recommendations to him. Stockbrokers’ have a duty to only recommend suitable investments for their clients. (Investment advisors have an even higher duty.) Suitability is determined by the customer’s stated investment objectives, risk tolerance, sophistication, net wealth and timeline before the money may be needed.
What’s really unusual about this case is that the customer was a pretty sophisticated and financially savvy guy. This wasn’t a 82 year old retiree with no education. The victim in this case was a former executive at a multibillion dollar bank.
We have warned several times that too many brokers are peddling sophisticated derivatives and other investments so complex that even brokers can’t understand them, much less explain them.
It is unknown if First Republic will attempt to appeal the award, although such appeals are rarely successful. The arbitration rules are designed to give investors and easy and quick process to resolve claims. Although there is no right to a jury of one’s peers in an arbitration case, FINRA does provide panel members who understand the industry and understand the difference between good and bad marketing practices.
This case involved collateralized bond obligations (CBO’s). (We warned our readers about similar products back in January of this year.)
If you lost money in an unsuitable investment or one in which the risks were never properly explained, you may have a case. For more information, contact attorney Brian Mahany at (414)704-6731 (direct) or by email at All inquiries are kept in strict confidence.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in many jurisdictions.