Significant Award Against RBC Capital Markets, LLC

FINRA arbitrators recently issued a substantial award against RBC Capital Markets, LLC, finding for the Claimant for almost $1,000,000 including $250,000 of punitive damages.  The Claimants were complaining that they were recommended investments in several securities, including Lehman Brothers preferred stock, Alpine Dynamic Dividend Fund (ADVDX), Alpine Total Dynamic Dividend Fund (AOD), and PowerShares Financial Preferred closed end fund (PGF). 

Investments in securities issued by Lehman Brothers, including common stock, preferred stock, principal protected notes (PPNs), and others, were unsuitable for many investors in and around 2008.  At the time, the securities industry was well aware that there were huge red flags about Lehman Brothers’ financial health, and as a result, significant question marks about whether or not the company was going to survive at all.  That meant that any security whose value was dependent upon Lehman Brothers’ ability to pay, including the preferred stock complained of in this case, were very speculative investments, appropriate only for the most high risk, wealthy investors.  Claimants in this case complained that they were not these types of investors, but that RBC recommended the purchase to them anyway; the Panel awarded the damages that resulted from that investment.

Alpine Dynamic Dividend Fund is a fund that is supposed to seek a high current dividend income primarily through investing in equities, or common stock.  Currently it has roughly 50% of its assets invested in common stock of US companies, and roughly 50% in the common stock of international companies.  However, it has been a clear underperformer.  It is rated a single star by Morningstar because the fund is significantly higher risk than other funds in its category, and yet underperforms the same category by a huge margin.  Roughly put, the fund returned just better than half of its category average over the last three years, despite the fact that the fund is higher risk.  Moreover, the fund is down roughly 67% from its value in 2008; while the rest of the market recovered, this fund has not.  In this case, the Claimants claimed that this investment recommendation by RBC was unsuitable and/or inappropriate; the Panel awarded the damages that resulted from that investment.

Alpine Total Dynamic Dividend Fund is a fund that seeks a “level dividend distribution” each month to its shareholders.  It is supposed to generate these dividends through the purchase of common stocks in companies that typically pay dividends.  Currently it has roughly 50% of its assets invested in common stock of US companies, and roughly 50% in the common stock of international companies, just as the other Alpine fund.  It has also significantly underperformed.  It is rated one star by Morningstar, being slightly higher risk than its category average, yet losing almost 7% of its value over the last 5 years, whereas the sector average actually gained value.  It has also fallen in share price almost 75% since 2008.  While the rest of the market recovered, this fund has not.  In this case, once again the Claimants claimed that this investment recommendation by RBC was unsuitable and/or inappropriate; the Panel awarded the damages that resulted from the investment.

PowerShares Financial Preferred fund is an exchange traded fund (ETF) that invests almost all of its assets in preferred stock issued by financial institutions only.  The fund shares many of the potential problems that Lehman Brothers investments did in the 2008 period of time.  All of the securities that this fund was supposed to hold were incredibly volatile and high risk at the time due to failures in those banks and other institution’s holdings.  As such, an investment in this fund would only have been appropriate for very high risk individuals who could afford to lose the entire investment and were fully appraised of that risk.  As a result of the market conditions, this fund fell 70% between September 2008 and March 2009.  The Claimants in this case against RBC claimed that this investment was unsuitable or inappropriate for them, and the Panel ultimately determined that RBC was responsible for the losses that resulted. 

The most telling part of this case is the award of punitive damages.  The panel here found that RBC was guilty of intentional misconduct and/or gross negligence with regard to the supervision and sales for these securities.  Specifically, the Panel found that RBC falsified customer profile information concerning the level of risk that the customer was willing to accept, as well as misrepresenting that the U.S. government would never allow Lehman Brothers to fail.  As a result, the Panel awarded an additional $250,000 in punitive damages.
If you lost money in any of these investments that you purchased at the recommendation of a financial advisor, whether at RBC or with another brokerage firm, contract the law firm Shepherd, Smith, Edwards & Kantas LLP for a free consultation and evaluation of a potential claim to attempt to recover some or all of your losses.

The full award described in this article can be found at:

http://finraawardsonline.finra.org/viewdocument.aspx?DocNB=60953

Contact Us
Free Consultation: (800) 259-9010