Unsuitable Annuities Case Resolved in FINRA Arbitration

This article describes how the firm of Shepherd Smith Edwards & Kantas LTD LLP was able to help a client obtain very favorable results in an FINRA arbitration against UBS PaineWebber which was heard by a panel of three FINRA arbitrators in Houston, Texas in June 2005.

The case involved a 70 year old retired investor who was sold an unsuitable annuity product. The investor had worked for the same manufacturing company for some 38 years, and was 66 years old and retired when he opened his first brokerage account. When he retired, he knew he needed professional financial advice and entrusted nearly all of his life savings to PaineWebber. Nevertheless, PaineWebber attempted to describe him as a "sophisticated" investor who wanted aggressive investments. Indeed, the client had signed an account opening document that stated a preference for aggressive income investments.

"This was a significant hurdle for us to overcome," said lead attorney Robert A. Kantas. "However, I think that by the end of the second day of testimony, it was obvious to everyone that our client was simply following the instruction and advice of the broker." "The arbitrators clearly did not buy PaineWebber’s story that the client was an aggressive investor," Kantas said, "and there was certainly nothing in this individual’s investment history that would have led them to believe that he was an aggressive investor."

"It was inexcusable for PaineWebber to sell this gentleman an annuity," Kantas said. "And it was reckless for them to invest the annuities’ sub-accounts into heavily technology-laden mutual funds. Our client was retired, expressed a need for immediate income, and already owned sufficient life insurance to meet his needs. To make matters worse, PaineWebber placed the annuity inside our client’s IRA account, thereby rendering the tax benefits of the annuity worthless." It became clear at the hearing that PaineWebber’s broker and supervisor had misrepresented the product, and had fit a square peg into a round hole when they sold the annuity to this retired investor. "These products are rarely suitable for elderly investors, but the brokerage firms are eager to sell them because of the large commissions they generate," explained Kantas.

The Panel carefully weighed the evidence, assessed the credibility of the parties, followed applicable securities laws, and awarded our client his damages, plus attorney’s fees, expenses of the case, and interest on the Award. The Panel specifically found the broker and his supervisor liable and awarded damages against each individually. The Panel also awarded a significant amount of attorney’s fees against PaineWebber, a rare occurrence which only happens in about 2% of the securities arbitration cases nationwide. Needless to say, we were very pleased with the result.

"My co-counsel Chris Tovar, securities paralegal Mike Arroyos, and our expert witness, Jerrod Summers, all did a tremendous job with the case, and I was delighted to have them as part of my team," Kantas said. "It was very much a team effort that resulted in such a nice recovery for our client."

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