J.P. Morgan Securities, LLC (“J.P. Morgan”) employed San Francisco Financial Advisor Edward Turley (“Mr. Turley”) and his former New York City partner, Steven Foote (“Mr. Foote”), and is being sued for their alleged stockbroker fraud and stockbroker misconduct involving a highly speculative trading investment strategy in highly leveraged margin accounts1.
We represent a family (the “Claimants”) in the Southwest who built a successful manufacturing business and entrusted their savings to J.P. Morgan and its two financial advisors to manage by investing in “solid companies” and in a “careful” manner.
At the outset, it is important for our readers to know that our clients’ allegations have not yet been proven.
We are providing information about our clients’ allegations and seeking information from other investors who did business with J.P. Morgan, Mr. Turley, and/or Mr. Foote and had similar investments, a similar investment strategy, and a similar bad experience to help us win our clients’ case.
This case is about alleged misrepresentations and misleading statements relating to investments and an investment strategy that were not only allegedly unsuitable for the Claimants but allegedly mismanaged by J.P. Morgan investment advisors and stockbrokers, Mr. Foote and Mr. Turley.
Mr. Foote represented, in writing, the investment strategy only involved “solid companies with good income producing securities.”
Later, Mr. Foote represented, in writing, that Mr. Turley and he would only “carefully add leverage to the accounts to enhance returns.”
Notwithstanding the representations, Mr. Foote and Mr. Turley took control of Claimants’ accounts and engaged in a speculative, over-leveraged fixed income investment strategy involving excessive trading of high yield “junk” bonds, foreign bonds, preferred stocks, exchange traded funds (“ETFs”), master limited partnerships (“MLPs”), and foreign currencies.
In March 2019, Mr. Foote became too ill to manage Claimants’ accounts, and Mr. Turley took sole control of the portfolio.
Thereafter, Mr. Turley recklessly increased the risks (market, over-concentration, interest rate, leverage, commodities, and foreign currency) to which Claimants and their accounts were allegedly exposed.
The family’s portfolio became even more over-concentrated in the financial and energy sectors under Mr. Turley’s control. He made a multi-million dollar investment in unregistered Nine Energy Senior Notes rated by S&P B- (speculative) in Claimants’ accounts.
Mr. Turley also allegedly turned over the fixed income assets with new investments in “new issue” preferred stocks underwritten by J.P. Morgan, for which he allegedly received “seller concessions” paid at a much higher percentage than regular commissions on other securities transactions.
Over the next six months, the margin balances increased by millions of dollars, and the Claimants’ accounts became ticking time bombs ready to explode at any moment.
Indeed, they did explode in March 2020 when the market collapsed and Claimants realized substantial losses in their accounts.
THE RELEVANT FACTS
Our clients live on a ranch in a remote area in northern Texas. They regularly commute by private airplane to work and elsewhere for business and pleasure.
One of our clients is a member of the Citation Jet Pilot Owners Association (“CJP”), an organization of many wealthy business people who own Citation jets. This organization holds its meetings throughout the country. It so happened that Mr. Foote and Mr. Turley were also members of the CJP.
In the summer of 2016, Mr. Foote successfully solicited our clients at their ranch in Texas to manage their investment portfolio.
At that ranch meeting, Mr. Foote described an investment strategy that he and his partner, Mr. Turley, managed for all of their biggest and best clients.
According to Mr. Foote, they conservatively managed a fixed-income strategy that included investments in corporate bonds, notes, and preferred stocks.
At that meeting and repeatedly thereafter, Mr. Foote told our clients that Mr. Turley and he only invested in “solid companies with good income producing securities.”
Mr. Foote boasted that Mr. Turley and he were first in line for the best investment opportunities at J.P. Morgan because of their status at the firm.
Our clients were impressed by Mr. Foote and especially by what he told him about Mr. Turley. They appeared to share our clients’ passion for aviation and the CJP and, more importantly, their religious beliefs.
They agreed to transfer one-half of the investment portfolio to J.P. Morgan under Mr. Foote and Mr. Turley’s stewardship. The other half was managed by a UBS Financial Services, Inc. (“UBS”) financial advisor.
In the beginning, Mr. Foote was the primary manager of the relationship with Claimants.
All of the investments in the Claimants’ accounts were either allegedly “solicited” by Mr. Foote or executed by Mr. Foote and Mr. Turley’s use of “de facto” discretion because, on information and belief, none of the Claimants ever executed any documents giving either Mr. Foote, Mr. Turley, or any other person at J.P Morgan written discretionary authority over the Claimants’ accounts.
The Claimants did not think this was unusual because they had a special relationship with Mr. Foote, whom they placed their trust and confidence in to manage their accounts as their investment adviser and portfolio manager.
By the spring of 2017, Mr. Foote and Mr. Turley had fully invested Claimants’ accounts, so they injected leverage into their speculative investment strategy to make more commissions.
Mr. Foote allegedly told our clients they also “carefully” managed a fixed-income strategy that would profit primarily from the difference in the high interest paid on corporate bonds, notes, and preferred stocks and the low margin interest rates.
Mr. Foote allegedly assured Claimants that the strategy was safe and was used all of the time by banks and institutional and other wealthy clients to make money when interest rates were low to take advantage of the spread in interest rates.
In fact, at that time, Mr. Foote misrepresented, in writing, that “we will keep pursuing solid companies with good income producing securities and we will continue to carefully add leverage to the accounts to enhance returns.”
To the contrary, Mr. Foote and Mr. Turley quickly and recklessly ratcheted up the margin balances to over $7.1 million by the end of August 2017.
It appears that none of these representations were true. The Claimants’ accounts and, on information and belief, other investors’ accounts were filled to the brim with speculative, non-investment grade, or non-rated securities.
It is clear that Mr. Foote and Mr. Turley recklessly exposed not just Claimants to leverage but other clients as well. And not only did they employ margin, but they also added a layer of complexity and risk to those margin accounts – foreign currency transactions beginning in November 2018!
Mr. Foote and Mr. Turley’s investment strategy was unsuitable and clearly not in the “best interest” of our clients. Rather, it was only in the “best interest” of J.P. Morgan and its employees who generated large commissions by excessively trading and excessively leveraging Claimants’ accounts.
By March 2019, Mr. Foote’s battle with cancer took a turn for the worse, so he was no longer able to manage the Claimants’ accounts.
At the end of the month, Mr. Turley announced he was now the “go to guy until Steve is back on his feet,” and Mr. Turley not only took sole control of Claimants’ accounts but traded them as if they were his own speculative accounts.
Mr. Turley was not satisfied with only half of the investable assets the family had at J.P. Morgan; he wanted their entire portfolio. When Mr. Turley learned that the UBS financial advisor was leaving UBS to form his own investment advisory firm, he persuaded Claimants to move the rest of the family savings to J.P. Morgan.
Mr. Turley claimed he could manage the assets better and for less money than the “other guy.” But Mr. Turley said nothing about what he planned to do with those assets once they were received or the “conflicts of interest” that were about to materialize at J.P. Morgan in the management of Claimants’ accounts.
In June 2019, the assets from the Claimants’ UBS accounts were received by J.P. Morgan, and Mr. Turley immediately liquidated the majority of the assets of the well-diversified UBS portfolio.
Mr. Turley sold approximately $12 million of the securities transferred and held in Claimants’ accounts in the last week of that month with no reasonable basis for selling other than to generate commissions.
He immediately started purchasing highly speculative securities in not so “solid companies,” including $4.2 million of unregistered Nine Energy Senior Notes rated by S&P at B-; i.e., they were speculative grade or “junk” when they were purchased.
In the next few months, Mr. Turley allegedly went shopping again and bought more of the speculative Nine Energy Notes and more speculative grade securities that J.P. Morgan was selling as a member of syndicates.
Mr. Turley was allegedly compensated at much higher commission rates when he sold those new issue bonds, notes, and preferred stocks than he could receive trading securities in the secondary market. On top of this, Mr. Turley allegedly increased the leverage through even more foreign currency transactions.
By the end of September 2019, Mr. Turley had purchased another $2 million of Nine Energy Senior Notes and held a total of more than $6.2 million of the speculative Nine Energy Senior Notes in Claimants’ accounts.
He purchased more than $13.8 million in various speculative bonds, notes, and preferred stocks with the sales proceeds between July and September 2019.
Thereafter, Mr. Turley allegedly continued to flip securities in the Claimants’ accounts that fall and winter like they were pancakes on a hot griddle.
Just like Mr. Foote, Mr. Turley allegedly executed almost all of the investments in the Claimants’ accounts by his use of “de facto” discretion because, on information and belief, none of the Claimants ever executed any documents giving him or any other person at J.P Morgan written discretionary authority over the Claimants’ accounts.
The few transactions which Mr. Turley did not exercise discretion were allegedly “solicited” by him. Once again, the Claimants’ representatives did not think this was unusual because they had a special relationship with Mr. Turley in whom they placed their trust and confidence to manage their accounts as their investment advisor and portfolio manager.
By the end of 2019, Mr. Turley had packed Claimants’ accounts tight with speculative securities on margin – like dynamite in a barrel with a short fuse and ready to explode.
The combined value of the securities held in the Claimants’ accounts was over $34 million and the margin balances were over $15 million. The accounts were not only over-leveraged, but these accounts were over-concentrated in securities of Mr. Turley’s selection in just a few sectors: Financial $21.4 million (80.7%); Energy $8.7 million (32.9%); Industrial $4.3 million (16.4%); Consumer/Cyclical $3.3 million; and others $1.8 million.
The Claimants’ holdings were not investments in “solid companies with good income producing securities” as had been represented all along to the Claimants; only 27% were investment grade; 50.1% were speculative grade or “junk”; and 22.9% were not even rated! It was only a matter of time before the fuse was lit and the Claimants’ accounts exploded.
The Claimants’ accounts blew up in March 2020 after the market suffered a massive selloff due to COVID-19 concerns.
The financial and energy sectors in which Mr. Turley allegedly over-concentrated Claimants’ over-leveraged accounts were crushed.
For example, according to the J.P. Morgan account statements, the $6.2 million of the Nine Energy Senior Notes themselves dropped 75% in market value, and there was no assurance the notes could be sold at that matrix derived price.
It appears that Mr. Turley sold over $12 million of the securities held in Claimants’ accounts during the last week of that month and realized over $5.1 million in losses.
In July 2020, the Claimants had enough of J.P. Morgan and Mr. Turley’s alleged lies, broken promises, and other misconduct.
They all closed their accounts and left Mr. Turley and J.P. Morgan in July 2020 with over $12.7 million in capital losses; over $8.2 million in net-out-of-pocket losses; and over $11.3 million to $16.1 million market adjusted losses when measured against the Vanguard Total Bond Fund and Vanguard S&P 500 Index Fund indices, respectively.
THE ALLEGED VIOLATIONS OF LAW
The Claimants have alleged that J.P. Morgan violated, aided and abetted, and/or is vicariously liable for its employees’ and agents’ violations of Section 12 of the Securities Act of 1933; Tex.Rev.Cir.Stat.Art. 581-33; 71 Okl. St. §1-509; and violations of the FINRA Code of Conduct in breach of its contracts with FINRA and Claimants.
J.P. Morgan and its representatives’ alleged misconduct and other acts and omissions also constituted common law fraud, constructive fraud, negligent misrepresentation, breach of fiduciary duty, negligent management, negligent supervision, and fraudulent concealment.
We need your help in proving a pattern of alleged misrepresentations, misleading statements, and unsuitable recommendations by J.P. Morgan, Mr. Turley, and Mr. Foote to induce clients, particularly other members of the Citation Jet Pilot Owners Association, to manage their accounts.
If you have heard similar representations, received similar recommendations, or had a similar experience with J.P. Morgan, Mr. Turley, and/or Mr. Foote, please call our office.
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1Mr. Foote is deceased. J.P. Morgan is being sued for Mr. Foote’s misconduct prior to his passing in 2019.