Another Small IBD Folds Due to a $200K Arbitration Award
Back in April 2011, Harrison Douglas was hit with an adverse Financial Industry Regulatory Authority (FINRA) arbitration award for $200,000. That was the beginning of the end for the small independent broker dealer out of Aurora, CO, according to an article in Investment News. It has since shuttered its doors because the firm couldn't pay the entire amount to the Claimant when it became due. The firm's president, Douglas Schriner, asked the broker, DeLao, to contribute and he refused. A compromise was offered and the Claimant turned down the partial offer. Schriner fired DeLao and shut the firm down, putting 27 colleagues out of work. Subsequently, FINRA suspended DeLao and Schriner on June 21, 2011 for failing to comply with the payment of the award. This means that they are prohibited from being associated with any financial industry firm until the award is paid off. Mr. Schriner said that $200,000 may not seem like a lot of money, but "no small firm keeps that kind of money as capital" and " the rep should have stepped up and paid some but walked away completely leaving us not only fully responsible for the settlement but all of the defense costs. We were spent financially, emotionally and intellectually." He said that he could not justify continuing to fight the battles and it made the decision easy for him to get out of the business.
The original FINRA claim filed by an elderly client who was 72 years old, Rosemary Gilbert alleged that the Harrison Douglas representative, Charles DeLao, put 82% of her investible assets into illiquid private placements, including Medical Capital and Provident Royalties that went bust. Her other investments included illiquid real estate deals from United Development Funding, Desert Capital and ETR Pasco. Ms. Gilbert's daughters, Robin Thomas and Laurie Knapp, alleged DeLao placed them in the same illiquid private placements, when "they wanted fixed income and preservation of capital", according to the claim. The damages requested were $2.29 million. The arbitration panel concluded that Harrison Douglas, Schriner and DeLao were jointly and severally liable to Robin Thomas for $200,000 in compensatory damages. Interestingly, the attorneys for all parties withdrew as counsel prior to the evidentiary hearing, so everyone was unrepresented. (FINRA# 09-06647: Rosemary Gilbert et al vs. Harrison Douglas, Inc., Stephen Hrynik, Doulas Schriner and Charles DeLao).
Mr. DeLao said that they presented evidence that Ms. Gilbert wanted the private placements as alternative investments to being in the stock market. He further stated that Robin Thomas sold her business in 2007 and came to him with $500,000 to be used to generate income for her father during his retirement. According to her account application which was obtained by Registered Rep, her investment objective was capital preservation, growth and income. Ms. Thomas claimed DeLao invested $350,000 in Medical Capital and Provident Royalties and the other $150,000 into a BMW partnership. Laurie Knapp alleged DeLao placed $145,000 of her money in Provident Royalties and illiquid UDF and Desert Capital funds. Obviously, DeLao said all of the investments were suitable, met the needs of the clients and were accepted by them as evidenced by documents and emails. To the contrary, the firm now handling Ms. Gilbert's portfolio said that "no right, sane person with any knowledge of our industry would agree that what they did was suitable."