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TD Ameritrade Escapes $1.7 In Damages But An Advisor Gets Slammed by FINRA Arbitrators
December 29, 2022
During a recent FINRA Arbitration, the evidence showed that a Respondent had ceased being a registered investment advisor in November 2014 but lied to the Claimant customer about the status of her registration from that point until at least December 31, 2016, when Claimant stopped allowing the advisor to make trades on her behalf. It doesn't take a genius to figure out that things are just not going to end well for that lying advisor. All the more so when you factor in that the customer's was worth over $700,000 but plummeted to about $26,000.
June 2018: FINRA Arbitration Statement of Claim
In a FINRA Arbitration Statement of Claim filed in June 2018, public customer Claimant Antczak asserted breach of fiduciary duty; aiding and abetting a breach of fiduciary duty; negligence; breach of contract; breach of the duty of good faith and fair dealing; violation of Section 10(B) of the Exchange Act and Rule 10B-5; and civil conspiracy. The FINRA Arbitration Award characterizes the causes of action as relating "to exchange-traded funds ("ETFs")." Claimant sought $660,000 in compensatory damages; punitive damages; interest, fees, expenses, and costs.
In the Matter of the Arbitration Between Marianne Antczak, Claimant, v. TD Ameritrade Clearing, Inc., TD Ameritrade, Inc., Bridget A. Fernandez, TD Ameritrade Investment Management, LLC and Ultimate Financial Investments, LLC, Respondent (FINRA Award 18-02342)
https://www.finra.org/sites/default/files/aao_documents/18-02342.pdfBound, Unbound, and Dismissed
Respondent Fernandez did not file an Answer but is bound by the Panel's determination.
Respondent Ultimate Financial did not file an Answer and the Panel made no determination with respect to claims filed against the company.
In response to Respondents TD Ameritrade's Motion to Dismiss at the conclusion of Claimant's case-in-chief, the Panel granted the motion.
FINRA Arbitration Award
The FINRA Arbitration Panel denied all Claimant's claims against Respondents TD Ameritrade Clearing, Inc., TD Ameritrade, Inc., and TD Ameritrade Investment Management, LLC.
The FINRA Arbitration Panel found Respondent Fernandez liable and ordered her to pay to Claimant Antczak:
- $687,944 in compensatory damages,
- $297,222 in monthly compounded pre-judgment interest,
- post-judgment interest;
- $500,000 in punitive damages,
- $3,155.16 in costs, and
- $174,337.50 in attorneys' fees
Explained Decision
The FINRA Arbitration Panel offered this "Explained Decision":
At the hearing, Claimant sought to add a cause of action for Elder Financial Exploitation, arguing that TD Ameritrade ("TD") should have recognized that the elderly Claimant was being taken advantage of by Ultimate Financial Investments, LLC ("UFI") and Bridget A. Fernandez ("Fernandez") and should have reported the alleged exploitation to the authorities.Fernandez, who was named as a respondent in Claimant's statement of Claim never participated in any way during the proceedings in this case and did not appear at the hearing. No explanation was given as to her absence.At the conclusion of the Claimant's case-in-chief, the TDA Respondents moved for a directed verdict in their favor on the basis that Claimant had not satisfied her burden of proving liability under the asserted causes of action. In arguing against the directed verdict motion, Claimant withdrew her claims against the TDA Respondents with respect to allegations of unsuitable trading or investments.After considerable discussion and after considering all the evidence presented by Claimant in a light most favorable to Claimant, the Panel unanimously decided to grant the Motion for a Directed Verdict and dismissed the TDA Respondents from the case. In making that decision, the Panel was particularly persuaded by the fact that Claimant had not presented any expert testimony to support her claims. Rather, Claimant called a number of TD employees, including one employed by parent company Charles Schwab as fact witness. The Panel determined that those witnesses supported the TDA Respondents' defenses. The facts showed that Claimant's accounts were managed by UFI and Fernandez until May 8, 2014, and self-directed thereafter. Based on the evidence presented by Claimant, the Panel found that TDA owed her no duty to supervise transactions or to ensure that assets for Claimant were suitable.Claimant did present adequate evidence for the Panel to conclude that the acts of Fernandez were sufficiently egregious and, in some cases, outrageous to find that Fernandez should be held liable for the losses sustained by Claimant. As Fernandez chose not to appear at the hearing and defend her actions, the Panel had no choice but to consider the evidence presented as fact.Fernandez held herself out as an expert financial advisor and convinced Claimant to give her complete control of Claimant's investments. In doing so, Fernandez invested Claimant's funds in grossly unsuitable and risky investments. When those investments decreased in value, Claimant confronted Fernandez and was assured that Fernandez would make sure Claimant was made whole, either from a recovery in the market for the invested securities, from insurance coverage that Fernandez allegedly procured to cover the losses, or, if necessary, from Fernandez's own personal funds.According to the evidence, the value of Claimant's two accounts at TD Ameritrade on December 31, 2012, the time Fernandez began making unsuitable investments in the accounts was $714,786. The evidence showed that Fernandez ceased being a registered investment advisor in November 2014 but lied to Claimant about the status of her registration from that point until at least December 31, 2016, when Claimant stopped allowing Fernandez to make trades on her behalf. As of December 31, 2016, the value of the securities in Claimant's accounts was $26,842. Thus, the Panel has determined that the amount of actual loss suffered by Claimant due to the inappropriate trading by Fernandez is $687,944.In addition to the actual losses sustained by Claimant, the Panel has considered the Claimant's demand for punitive damages. Punitive damages are not commonly awarded in FINRA arbitrations and are reserved for egregious, reckless conduct by a brokerage firm or financial advisor. Examples of egregious conduct include intentional misrepresentations, theft or misappropriation. The Panel has concluded that Fernandez's conduct was indeed egregious, and that Fernandez did make intentional misrepresentations to the Claimant to her detriment. In that light the Panel concluded that punitive damages are appropriate.
First off, compliments to the FINRA Arbitration Panel for penning a rationale that succinctly sets out the arbitrators' basis for granting the Motion for a Directed Verdict and dismissing the TDA Respondents. In a succinct fashion, the arbitrators explain in pertinent part that:
The facts showed that Claimant's accounts were managed by UFI and Fernandez until May 8, 2014, and self-directed thereafter. Based on the evidence presented by Claimant, the Panel found that TDA owed her no duty to supervise transactions or to ensure that assets for Claimant were suitable.
Unfortunately for Claimant Antczak, the deeper pockets for any payment of damages was with the TDA Respondents; and, notwithstanding the Panel's findings that Respondent Fernandez's misconduct was egregious, Claimant may find it tough going to fully collect on her Award as against her former advisor.
May 2018: Thwarted Federal Class Action
An interesting aspect of this case is found in the prelude to the FINRA Arbitration; namely:
Marianne Antczak, on behalf of herself and other similarly situated persons, Plaintiff, v. TD Ameritrade Clearing, Inc., TD Ameritrade, Inc., TD Ameritrade Investment Management, LLC, Ultimate Financial Investments, LLC, and Bridget A. Fernandez, Defendants (Opinion, United States District Court for the Eastern District of Pennsylvania ("EDPA"), 17-CV-4947 / May 21, 2018)https://brokeandbroker.com/PDF/AntczakEDPAOp180521.pdf
About a month before Antczak filed her FINRA Arbitration Statement of Claim, EDPA granted the the TD Ameritrade Defendants' Motion to Dismiss from the above Class Action. The Court found that Plaintiff Antczak had failed to state a §10(b)(5) unsuitability claim for violations of federal securities law and that the remaining state law claims were subject to FINRA Arbitration. In pertinent part the Court found that [Ed: Securities Litigation Uniform Standards Act of 1998 ("SLUSA"):
Antczak's causes of action do not fail for want of factual specificity. They fail because under the facts alleged in the complaint and the amendments that she proposes, she cannot state a cause of action that would not trigger SLUSA preclusion. See Travelers Indem. Co. v. Dammann & Co., 594 F.3d 238, 243 (3d Cir. 2010) (discussing legal futility).The TD Ameritrade defendants do not, despite Antczak's counsel's contentions to the contrary, owe Antczak any duty. Simply stated, there is no conceivable cause of action against the TD Ameritrade defendants that would not be in connection with the sale or purchase of securities. Consequently, it too would be precluded by SLUSA as a class action.
at Page 18 of the EDPA Opinion
Fillin' in the Blanks
When it comes to reading an Opinion or Decision about a lawsuit, I always want to know about the gathering of the storm. As to the loudness of the thunder, the brightness of the bolts of lightning, the power of the howling winds, and the buckets of falling rain, consider this weather report from the EDPA Opinion [Ed: footnotes omitted]:
On April 17, 2014, TD Ameritrade sent Antczak a letter informing her that it had terminated its relationship with UFI. The letter explained that she had thirty days to transfer her institutional accounts to another brokerage or her accounts would automatically be transferred to TD Ameritrade's retail platform. The letter further explained that if her accounts were transferred to the retail platform, they would be self-directed and "any cash management services or option approval you had on your advisor-managed account [on the institutional platform] will cease." In other words, TD Ameritrade informed Antczak that registered investment advisors, including Fernandez, were not permitted to operate within an account held on TD Ameritrade's retail platform.On May 8, 2014, after Antczak signed a Retail Client Agreement, her accounts were transferred to TD Ameritrade's retail platform. Antczak agreed that her accounts were now self-directed and TD Ameritrade had no responsibility for any trading or investment decisions. Nevertheless, despite having been notified that UFI was not authorized to have access to its retail platforms, Antczak authorized Fernandez to be her "agent[] and attorney[]-in-fact for the purchase and sale of securities" in her accounts on the retail platform. The authorization forms noted Fernandez was unemployed and made no mention of UFI. Neither Antczak nor Fernandez checked the boxes identifying Fernandez as "licensed or employed by a registered broker/dealer" or that she was, or was "employed by, a federal or state registered Investment Advisor." Remarkably, in her complaint, Antczak admits that she "decided to remain with Ms. Fernandez having discretion to trade in her accounts on TD Ameritrade's retail platform even though such an arrangement was not permitted by TD Ameritrade."Antczak contends that TD Ameritrade was aware that Fernandez was trading in her clients' retail accounts, including Antczak's. It sent a letter removing Fernandez's trading authority to her other clients, but according to Antczak, not to her. The letter, dated February 2, 2015, explained that advisors are not permitted to manage accounts on the retail platform because those accounts are self-directed. Specifically, TD Ameritrade informed Fernandez's other clients that:Our records indicate you may have given an advisor, Bridget Fernandez, online access or Limited Power of Attorney/trading authority, to act on your behalf within your brokerage account(s). TD Ameritrade does not allow advisors to operate on our Retail Platform. As a result, Limited Power of Attorney/trading authority for Bridget Fernandez has been removed from your account. This means Bridget Fernandez will no longer be able to manage your account or trade on your behalf. Bridget Fernandez has been notified of this decision.To ensure advisory activity cease immediately, your online access has been restricted. In order to remove the restriction, you must change your login credentials on all of your accounts by calling Client Services. We ask that you do not supply the updated credentials to Bridget Fernandez (or any unauthorized party) moving forward.You will not be required to remove your account(s) from TD Ameritrade provided the advisory relationship is fully dissolved; however, failure to discontinue the advisory relationship may cause TD Ameritrade to reevaluate our business relationship with you.
Antczak also claims that sometime after May, 2015, TD Ameritrade attempted to "supplant" Fernandez with its own TDAIM investment consultant, but she "decided to remain with Ms. Fernandez having discretion to trade in her accounts." Throughout 2015 and into 2016, Fernandez continued to make unsuitable trades within Antczak's accounts.From July 2012 through 2016, Fernandez, operating through UFI, overconcentrated Antczak's accounts in unsuitable exchange-traded funds (ETFs). By the end of 2016, she alleges that her accounts lost "96% of the money and securities [she] initially moved over to TD Ameritrade [in] July of 2012." She attributes these losses to the TD Ameritrade defendants' failure to monitor her accounts and to report Fernandez's unsuitable trading to regulators. She contends that TD Ameritrade had direct knowledge of Fernandez's "securities laws violations" and did nothing to prevent it.In addition to her claim against the TD Ameritrade defendants for violations of § 10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, Antczak brings state-law class action claims against the TD Ameritrade defendants for breach of contract, breach of fiduciary duty, negligence, conversion, and civil conspiracy.
at Pages 5 - 8 of the EDPA Opinion