J.P. Morgan Sued for Edward Turley and Steven Foote’s Alleged Margin Account Misconduct
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. INTRODUCTION 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...
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