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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Securities-Backed Lines of Credit can be More Dangerous Than Margin Accounts!

Securities-Backed Lines of Credit Can Be More Dangerous Than Margin Accounts! Many investors have heard of margin accounts and the horror stories of others who invested on margin and suffered substantial losses. But few investors understand that securities-backed lines of credit (SBL) accounts, which have been aggressively promoted by brokerage firms in the last decade, are just as dangerous as margin accounts. This is largely due to the fact that the equity and bond markets have been on an upward trend since 2009 and few investors (unless you are a Puerto Rico investor) have experienced market slides resulting margin calls due to the insufficient amount of collateral in the SBL accounts. It is only over the last several months of market volatility that investors have begun to feel the wrath of margin calls and understand the high risks associated with investing in SBL accounts. For investors considering your stockbroker’s offer of a line of credit (a loan at a variable or fixed rate of interest) to finance a residence, a boat, or to pay taxes or for your child’s college education, you may want to read a little more about the nature, mechanics, and risks of SBL accounts before you sign the collateral account agreement and pledge away your life savings to the brokerage firm in exchange for the same loan you could have obtained from another bank without all the risk associated with SBL accounts. First, it may be helpful to understand just why SBL accounts have become so popular over the last decade. It should be no surprise that the primary reason for your stockbroker’s offering of an SBL is that both the brokerage firm and he/she make money. Over many years, the source of revenues for brokerage firms have shifted from transaction based commissions to fee based investments, limited partnerships, real estate investment trusts (REITs), structured products, managed accounts, and income earned from lending money to clients in SBL and margin accounts. Many more investors seem to be aware of the danger of borrowing in margin accounts for the purposes of buying and selling securities, so the brokerage firms expanded their banking activities with their banking affiliates to expand the market and their profitability in the lending arena through SBL accounts. The typical sales pitch is that SBL accounts are an easy and inexpensive way access cash by borrowing against the assets in your investment portfolio without having to liquidate any securities you own so that you can continue to profit from your stockbroker’s supposedly successful and infallible investment strategy. Today the SBL lending business is perhaps one of the more profitable divisions at any brokerage firm and banking affiliate offering that product because the brokerage firm retains assets under management and the fees related thereto and the banking affiliate earns interest income from another market it did not otherwise have direct access to. For the benefit of the novice investor, let me explain the basics of just how an SBL account works. An SBL account allows you to borrow money using securities held in your investment accounts as collateral for the loan. Once the account is established and you received the loan proceeds, you can continue to buy and sell securities in that account, so long as the value of the securities in the account exceed the minimum collateral requirements of the banking affiliate, which can change just like the margin requirements at a brokerage firm. Assuming you meet those collateral requirements, you only make monthly interest-only payments and the loan remains outstanding until it is repaid. You can pay down the loan balance at any time, and borrow again and pay it down, and borrow again, so long as the SBL account has sufficient collateral and you make the monthly interest-only payments in your SBL account. In fact, the monthly interest-only payments can be paid by borrowing additional money from the bank to satisfy them until you reach a credit limit or the collateral in your account becomes insufficient at your brokerage firm and its banking affiliate’s discretion. We have heard some stockbrokers describe SBLs as equivalent to home equity lines, but they are not really the same. Yes, they are similar in the sense that the amount of equity in your SBL account, like your equity in your house, is collateral for a loan, but you will not lose your house without notice or a lengthy foreclosure process. On the other hand, you can lose all of your securities in your SBL account if the market goes south and the brokerage firm along with its banking affiliate sell, without prior notice, all of securities serving as collateral in the SBL account. You might ask how can that happen; that is, sell the securities in your SBL account, without notice? Well, when you open up an SBL account, the brokerage firm and its banking affiliate and you will execute a contract, a loan agreement that specifies the maximum amount the bank will agree to lend you in exchange for your agreement to pledge your investment account assets as collateral for the loan. You also agree in that contract that if the value of your securities declines to an amount that is no longer sufficient to secure your line of credit, you must agree to post additional collateral or repay the loan upon demand. Lines of credit are typically demand loans, meaning the banking affiliate can demand repayment in full at any time. Generally, you will receive a “maintenance call” from the brokerage firm and/or its banking affiliate notifying you that you must post additional collateral or repay the loan in 3 to 5 days or, if you are unable to do so, the brokerage firm will liquidate your securities and keep the cash necessary to satisfy the “maintenance call” or, in some cases, use the proceeds to pay off the entire loan. But I want to emphasize, the brokerage firm and its banking affiliate, under the terms of almost all SBL account agreements, are not...

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Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How do You Recover Your Investment Losses?

If you are reading this article, we are guessing you had a bad experience recently in either a securities-backed line of credit (“SBL”) or margin account that suffered margin calls and was liquidated without notice, causing you to realize losses. Ordinarily, investors with margin calls receive 3 to 5 days to meet them; and if that happened, the value of the securities in your account might have increased within that period and the firm might have erased the margin call and might not have liquidated your account. If you are an investor who has experienced margin calls in the past, and that is your only complaint then, read no further because when you signed the account agreement with the brokerage firm you chose to do business with, you probably gave it the right to liquidate all of the securities in your account at any time without notice. On the other hand, if you are an investor with little experience or one with a modest financial condition who was talked into opening a securities-backed line of credit account without being advised of the true nature, mechanics, and/or risks of opening such an account, then you should call us now! Alternatively, if you are an investor who needed to withdraw money for a house or to pay for your taxes or child’s education but was talked into holding a risky or concentrated portfolio of stocks and/or junk bonds in a pledged collateral account for a credit-line or a margin account, then we can probably help you recover your investment losses as well. The key to a successful recovery of your investment loss is not to focus on the brokerage firm’s liquidation of the securities in your account without notice. Instead, the focus on your case should be on what you were told and whether the recommendation was suitable for you before you opened the account and suffered the liquidation. Should either one of those leveraged accounts have been recommended at all by a financial advisor in the first place? Should the broker-dealer have even allowed you to open one of those type of accounts based upon your investment profile and financial condition? Did the financial advisor misrepresent the nature, mechanics, and/or risks of the securities backed line of credit and/or margin account? Once the accounts were opened, did the financial advisor make unsuitable securities recommendations to purchase especially volatile securities in that account? Did the financial advisor recommend that you over-concentrate your investment portfolio in stocks in any particular sector (such as the oil and gas, hospitality, gaming, air travel, and/or cruise industry) in the leveraged account? Those are the facts and circumstances that probably caused losses but may give you an opportunity to recover all or some of your losses from your stockbrokerage firm. The leverage and liquidation to meet margin calls with or without notice probably only magnified and accelerated the inevitable losses. Your stockbroker had a duty to not only understand but explain the nature, mechanics and all of the risks associated with those investments before he/she sold them to you! Your stockbroker also had a duty to make sure they were suitable investments before they were recommended in light of your risk tolerance and financial condition and not over-concentrate investments in volatile emerging market stocks or any industry in your portfolio. Leveraged investments are not suitable for clients with conservative and moderate risk tolerance. All securities-backed lines of credit and margin accounts employ leverage, and leverage is a “speculative” investment strategy. Individuals close to retirement who are depending upon income from their investment portfolio cannot afford to speculate in leveraged accounts. If your financial advisor misrepresented the nature, mechanics, and/or risks of those accounts; or the investments or the risks were not fully explained; or you were over-concentrated (more than 10%) in any investment sector; or if it was not in your best interest (or unsuitable); and your investments were liquidated with or without notice due to margin calls, you may have the right to bring an arbitration claim against your financial advisor and/or the brokerage firm who employed him. One thing is certain, there is no way you will recover your losses in any SBL or margin account case without some legal action. At The Law Offices of Robert Wayne Pearce, P.A., we represent investors in investment disputes for misrepresented and unsuitable investments in FINRA arbitration and mediation proceedings. The claims we file are for fraud and misrepresentation, breach of fiduciary duty, failure to supervise, and unsuitable recommendations in violation of SEC and FINRA rules and industry standards. Attorney Pearce and his staff represent investors across the United States on a CONTINGENCY FEE basis which means you pay nothing – NO FEES-NO COSTS – unless we put money in your pocket after receiving a settlement or FINRA arbitration award. Se habla españolCONTACT US FOR A FREE INITIAL CONSULTATION WITH EXPERIENCED SBL AND MARGIN ACCOUNT INVESTMENT FINRA ARBITRATIONS ATTORNEYS The Law Offices of Robert Wayne Pearce, P.A. have highly experienced lawyers who have successfully handled many SBL and margin account “blow-out” cases and other securities law matters and investment disputes in FINRA arbitration proceedings, and who work tirelessly to secure the best possible result for you and your case. For dedicated representation by an attorney with over 40 years of experience and success in SBL and margin investment cases and all kinds of securities law and investment disputes, contact the firm by phone at 561-338-0037, toll free at 800-732-2889, or via e-mail.

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UBS Yield Enhanced Strategy Investors: How Do You Recover Your “UBS-YES” Investment Losses?

If you are reading this article, you probably invested in the UBS Yield Enhanced Strategy (“UBS-YES”) and were surprised to learn the UBS-YES program you invested in was not exactly a “market neutral” investment strategy during the recent COVID 19 market crash. Despite your UBS stockbroker’s representations about the UBS-YES managers ability to “manage risk” and “minimize losses” through its “iron condor” option strategy you still realized substantial losses. You are not alone because that is just what many other UBS-YES investors have told us about the pitch made to them to invest in the UBS-YES program and their recent experience. The sad fact is UBS and its financial advisors knew or should have known from the UBS-YES program’s recent history this could happen and still failed to adequately warn and protect investors this year. UBS-YES program investors had the same bad experience in December 2018 and the first few months of 2019 when the UBS-YES managers failed to warn investors and protect them from the market volatility. What exactly were those so-called investments in the UBS-YES program and why did this happen two years in a row? One explanation is that volatility in the market created by the unforeseeable virus caused the loss. Some say it was the extreme volatility that killed the “iron condor” option strategy; the success of that strategy was supposedly dependent upon the price of the S&P 500 Index future contracts staying within certain spreads the managers created in each separately managed account utilizing that strategy. Now UBS argues this risk was adequately disclosed in marketing materials, but that’s not how investors say the managed account program was generally represented by their financial advisors to them. After all, the high net worth investors – the so-called “smart money” investors – were not being promised huge returns for investing in the UBS-YES program. It was represented as a “low risk” strategy to enhance investors’ returns slightly above the yields in the fixed income market. We have heard 3% to 5% was the rate of return touted by many UBS financial advisors. Yet, in late 2018, and then again in February 2019, the UBS-YES strategy realized over 20% in losses. In March 2020, it has been estimated that investors still in the program suffered another 20% loss when the virus caused market panic and whipsawed the S&P 500 futures contract market. The low returns and high risk of the UBS-YES strategy really begs the question: Why would the “smart money” investors take that risk unless the UBS-YES strategy was misrepresented and/or managed differently than it had been managed in the past. The theory of mismanagement has been posited by the Economic PhDs at the Securities Litigation and Consulting Group. See, McCann, Meng and O’Neal, UBS’s Yield Enhancement Strategy (“YES”) Returns – and then the Losses – Were Caused by Equity Market Exposure (2020). They contend that the money managers were not executing a “market neutral” investment strategy. Rather, they believe the UBS-YES strategy involved “actively managed directional bets on the market” and that in late 2018 and early 2019, the managers made bad bets; that is, they bet against the market direction that followed. If the experts at SLCG are correct then UBSs’ representations in its marketing materials about the strategy as well as its financial advisors representations about the so-called “low risk” for an “enhanced return” investment strategy were false and misleading. The UBS-YES strategy was run by the team of Matthew Buchsbaum and Scott Rosenberg of Flatiron Partners in the UBS private wealth management division. At its peak in 2018, the team purportedly managed close to $5 billion for over 1000 of UBS’ wealthiest clients. You needed a minimum net worth of $5 million and to pay a management fee of 1.75% per annum to be admitted to this exclusive club. Interestingly, the fee was not based upon the amount of assets actually traded but the amount of collateral dedicated to the strategy. This was a huge incentive to the UBS financial advisors to recommend the strategy and get clients to commit all of the assets in their accounts as collateral (many clients pledged municipal bond portfolios) for the option strategy without fully understanding and accurately explaining to their biggest and best clients the nature, mechanics and risk of the UBS-YES strategy in managed accounts at the brokerage. Regardless of the reason for the cause of the loss (misrepresentation or mismanagement), there is no way you will recover your UBS-YES losses without some legal action. At The Law Offices of Robert Wayne Pearce, P.A., we represent investors who paid dearly for the UBS-YES strategy in FINRA arbitration and mediation proceedings. Among the claims we file are fraud and misrepresentation, breach of fiduciary duty, failure to supervise, and unsuitable recommendations in violation of FINRA rules and industry standards. Attorney Pearce and his staff represent investors across the United States on a CONTINGENCY FEE basis which means you pay nothing – NO FEES-NO COSTS – unless we put money in your pocket after receiving a settlement or FINRA arbitration award. Se habla español Contact Us For A Free Initial Consultation With Experienced UBS-YES Investment Attorneys In FINRA Arbitrations The Law Offices of Robert Wayne Pearce, P.A. have highly experienced lawyers who have successfully handled many managed account cases and other securities law matters and investment disputes in FINRA arbitration proceedings, and they will work tirelessly to secure the best possible result for you and your case. For dedicated representation by an attorney with over 40 years of experience and success in structured product cases and all kinds of securities law and investment disputes, contact the firm by phone at 561-338-0037, toll free at 800-732-2889 or via e-mail.

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UBS Financial Services, Inc. Sued for Florida and Ohio Advisor’s Alleged Misconduct Involving a Credit-Line Investment Strategy

UBS Financial Services, Inc, (“UBS”) employed a financial advisor (the “FA”) who has offices in Bonita Springs, Florida and Sylvania, Ohio. UBS held out the FA and other UBS employees on his team as investment advisers, investment managers, financial advisers, and financial planners with special skills and expertise in the management of securities portfolios and financial, estate, retirement, and tax planning matters. We represent an elderly widow investor who has sued UBS for the FA’s alleged misconduct as a stockbroker, investment adviser, investment portfolio manager, and financial planner. At the outset, it is important for our readers to know that our client’s allegations have not yet been proven. We are providing information about our client’s allegations and seeking information from other investors who did business with UBS and the FA to help us win our client’s case. Our client was a wealthy widow. Her husband managed the family investment portfolio before his death. She had not participated in any of the brokerage accounts until after her husband’s death. She then turned to and relied upon the FA, who was her husband’s primary financial adviser, to advise and manage her financial affairs. Shortly after her husband’s death, the FA allegedly explained and reassured our client that he and his team of stockbrokers, investment advisers, investment portfolio managers, and certified financial planners would take care of all her investment and finance related needs. For months after her husband’s death she was naturally despondent and no longer comfortable living in the same home they shared. An opportunity arose to purchase a new residence. She consulted with the FA about the purchase and sought his assistance to secure a conventional mortgage in connection with the purchase. At the time, the FA was working at Merrill Lynch and advised her not to seek a conventional mortgage from a bank, but to establish securities based lending (“SBL”) accounts at Merrill Lynch and UBS and use the assets in the two trusts’ brokerage accounts as collateral for loans to be issued by Merrill Lynch and UBS’ banking affiliates to fund the purchase and renovation of the new residence. The SBL at Merrill Lynch was known as a Loan Management Account (“LMA”), and the SBL at UBS was known as a Variable Credit Line.  According to our client, the FA stated the SBL account interest rates were lower than conventional mortgage rates, the financial advisers could continue to manage the Claimants’ assets in the accounts and earn more than the SBL account interest rate being charged, which would more than pay for the loan interest expenses, and she could use the difference in the return on the investment income produced by the investment advisers to pay down the principal and interest amounts of the SBL account loans. Our client relied upon the FA’s recommendation and, with his assistance, established SBL accounts at Merrill Lynch and UBS to help purchase and renovate her new residence. At the FA’s recommendation, she borrowed millions from the SBL accounts at UBS and Merrill Lynch with her securities accounts serving as collateral.  The FA and his team subsequently transferred employment to the UBS offices located in Sylvania, Ohio and Bonita Springs, Florida branch office. At the FA’s request, our client transferred all of her accounts from Merrill Lynch to UBS, including the LMAs. At UBS, the FA allegedly made the same representations about the nature and mechanics of the UBS Variable Credit Lines as he previously made to induce her to open the LMA accounts. According to the FA, these were the same type of UBS Variable Credit Line accounts he persuaded her to previously open with UBS. Our client agreed, and the Merrill Lynch LMA loan balances were transferred to UBS and became UBS Variable Credit Lines. Thereafter, the broker dealer, investment advisory, and SBL relationship at UBS with respect to Claimants’ accounts were managed by the FA. The amount of debt drawn down on the credit-line grew and grew over the years. In 2018, our client allegedly told the FA she planned on selling her residence to pay down the credit-line. Notwithstanding, in July 2019, the FA allegedly persuaded our client to convert the variable credit lines to a fixed interest rate credit line, which had become available to UBS’ high net worth customers. The FA supposedly explained the benefits of switching, including the amount of savings in annual interest expenses. But according to our client, the FA never explained the detriment of switching to the fixed interest rate credit line or his conflict; particularly the fact that when she sold her residence or paid down the loan balance with the sales proceeds, she would be penalized for doing so. Our client has alleged that he recommendation to utilize the fixed interest rate credit line as part of the investment strategy was not only misleading by omission but also a personal conflict of the FA with her best interest and an unsuitable investment strategy recommendation in light of her well known desire to sell the residence to reduce the huge debt and interest expenses. The unsuccessful effort to sell the residence continued into December 2019, and both the FA and our client were frustrated. The FA had allegedly been urging her to reduce the real estate listing price to under $3 million, which meant our client would realize a loss if and when the property sold; a loss our client told the FA she was absolutely unwilling to accept if it could even be sold at that price. There were simply no buyers for an expensive residence like hers in the Naples market at that time. Our client was uncomfortable with the amount of debt she had accumulated at UBS allegedly at the FA’s recommendation and the huge amount of interest she was accumulating on those loan balances. She reminded the FA of his promise to reduce the debt with the profits in the accounts. The FA claimed he had been reducing the debt, but our client did not believe he...

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FINRA Arbitration: What To Expect And Why You Should Choose Our Law Firm

If you are reading this article, you are probably an investor who has lost a substantial amount of money, Googled “Securities Arbitration Attorney,” clicked on a number of attorney websites, and maybe even spoken with a so-called “Securities Arbitration Lawyer” who told you after a five minute telephone call that “you have a great case;” “you need to sign a retainer agreement on a ‘contingency fee’ basis;” and “you need to act now because the statute of limitations is going to run.” You may want to ask yourself whether that attorney is as bad as the stockbrokers you were concerned about in the first place. Some attorneys will rush you to hire them before you speak to anyone else and not tell you about the clause in their contract that allows them to drop you as a client later on if they cannot get a quick settlement. They will solicit you without a real case evaluation and/or without any explanation of Financial Industry Regulatory Authority (“FINRA”) proceedings. The scenario above is not the way for attorneys to properly serve clients, and it is not the way we do business at The Law Offices of Robert Wayne Pearce, P.A. If you are planning on speaking or meeting with us or any other attorney, let us introduce you to the FINRA arbitration proceeding by giving you some information in advance to help you understand the different stages of FINRA arbitration, what you should expect from skilled and experienced FINRA securities arbitration lawyers, and what you should expect to personally do in order to have the best outcome: 1. CASE REVIEW Before we accept any case, our attorneys conduct a thorough interview of you to understand: the nature of your relationship with your broker; the level of your financial sophistication; the representations or promises made to you in connection with any investment recommendation; and your personal investment experience, investment objectives, and financial condition at the time of any recommendation or relevant time period. We will review your account records, including, but not limited to: account statements; confirmations; new account opening documents; contracts; correspondence; emails; presentations; and marketing materials that you may have received in connection with your accounts and the investments made therein, etc. Investors rarely contact our office without knowing whether they have suffered investment losses, but sometimes that occurs because the particular investor does not have all their records and/or is unsophisticated, inexperienced, and unable to decipher the account records they retained. If you retained your account statements and provide them, we should be able to at least estimate (under the different measures of damages) the amount you may be able to recover if you win your arbitration proceeding. If you do not have those records, we will help you retrieve them without any obligation so that all of us are fully aware of the amount we may possibly recover for you if we are successful in arbitration. In addition, we will spend the time necessary to get to know you and the facts of your dispute to have a good chance of success in proving your case. After all, it does not benefit either you or our law firm to file an arbitration claim that, months or years later, we discover has little chance of success. Ultimately, we want to know, and so should you, whether or not you have a claim with merit and are likely to recover damages if we go through a full arbitration proceeding. The fact is Attorney Pearce does not take cases unless he and his team believe you suffered an injustice and are likely to succeed at the final arbitration hearing. 2. THE STATEMENT OF CLAIM Many of these young and/or inexperienced attorneys with flashy websites and Google Ad Word advertisements (to get them to the top of the page) are more interested in marketing and signing up cases to settle early than they are in going all the way and winning your case at a final arbitration hearing for a just result. Oftentimes, they will insert your name in a form pleading, one that they use in every case, which states little more than if you (the “Claimant”) were an investor with brokerage firm ABC and stockbroker XYZ (the “Respondent(s)”) made misrepresentations, failed to disclose facts, made unsuitable recommendations, and violated laws 123, you are entitled to damages. They are unwilling and/or fail to take the time necessary to study the strengths and weaknesses of your case and write a detailed Statement of Claim (also referred to as the “Complaint”) with all of the relevant facts necessary to inform the arbitrators what happened and why you are entitled to recover your damages. That is not the way Attorney Pearce, with over 40 years of experience with investment disputes, files a Statement of Claim, the first and sometimes the only document that the arbitrators will read before the final arbitration hearing. 3. THE ANSWER After we file the Statement of Claim and it is served, the brokerage firm and/or stockbroker will have forty-five (45) days to file the Answer to your allegations. Oftentimes, the Respondent(s) will ask for an extension of time to file the Answer and we will give it to them provided no other deadline is extended, particularly the deadlines associated with the selection of arbitrators and scheduling of the initial pre-hearing conference, where all of the other important deadlines and dates of the final arbitration hearing are scheduled. Some clients have asked why would you give them extra time to file their best Answer? Well, we believe after 40 years of doing these FINRA arbitrations, that it is better to know the story they intend to tell the arbitrators early on and lock them in so we can come up with the best strategy and all the case law necessary to overcome their best defenses and win your arbitration. In other words, we would rather know about the defense early on than be surprised at the final hearing. Besides, Respondent(s) can always try to file...

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Kazma Citigroup Arbitration Award

AWARD FINRA DISPUTE RESOLUTION In the Matter of the Arbitration Between: Names of the Claimants Case Number: 09-02697 Gerald J. Kazma Revocable Trust Amzak Capital Management, LLC Names of the Respondents Hearing Site: Boca Raton, Florida Citigroup Global Markets, Inc. f/k/a Citicorp Investment Services Citigroup Alternative Investments, LLC Nature of the Dispute: Customer vs. Member and Non-Member. REPRESENTATION OF PARTIES For Gerald J. Kazma Revocable Trust (“Kazma”) and Amzak Capital Management, LLC (“ACM”), hereinafter collectively referred to as “Claimants”: Robert Wayne Pearce, Esq., Robert Wayne Pearce, P.A., Boca Raton, Florida. For Citigroup Global Markets, Inc. f/k/a Citicorp Investment Services (“CGM”) and Citigroup Alternative Investments, LLC (“CAI”), hereinafter collectively referred to as “Respondents”: Jason M. Fedo, Esq., Greenberg Traurig, P.A., West Palm Beach, Florida. CASE INFORMATION Statement of Claim filed on or about: May 11, 2009. Claimant Kazma signed the Submission Agreement: May 29, 2009. Claimant ACM signed the Submission Agreement: May 29, 2009. Statement of Answer filed by Respondents on or about: August 5, 2009. Respondent CGM signed the Submission Agreement: June 18, 2009. Respondent CAI signed the Submission Agreement: July 19, 2010. Respondents’ Motion for Remedial Action Based on Claimants’ Spoliation of Evidence (“Motion for Remedial Action”) filed on or about: July 1, 2010. CASE SUMMARY Claimants asserted the following causes of action: 1) breach of fiduciary duty; 2) common law fraud; 3) negligent misrepresentation; 4) negligent management; 5) negligent supervision; and, 6) breach of contract. The causes of action relate to the purchase in Claimants’ accounts of ASTA Three Series 2006‑1 and ASTA Five Series 2007‑1A. Unless specifically admitted in their Answer, Respondents denied the allegations made in the Statement of Claim and asserted various affirmative defenses. RELIEF REQUESTED Claimants requested: 1) compensatory damages in excess of $4,000,000,00; 2) interest at the legal rate; 3) costs of this proceeding; 4) punitive damages; and, 5) such other relief as the undersigned arbitrators (the “Panel”) deemed just and proper. Respondents requested that the Statement of Claim be dismissed, with prejudice, and that the costs associated with this arbitration be assessed against Claimants. OTHER ISSUES CONSIDERED AND DECIDED The arbitrators acknowledge that they have read the pleadings and other materials filed by the parties. During the evidentiary hearing, the Panel heard argument on Respondents’ Motion for Remedial Action. The Panel denied the motion. During the evidentiary hearing and at the close of Claimants’ case-in-chief, Respondents moved to dismiss the Statement of Claim on the grounds that Claimants failed to prove their case. Claimants opposed the motion. Following the argument of counsel, the Panel denied the motion. The parties have agreed that the Award in this matter may be executed in coun1hrpart copies or that a handwritten, signed Award may be entered. AWARD After considering the pleadings, the testimony and evidence presented at the hearing, the Panel has decided in full and final resolution of the issues submitted for determination as follows: Respondents are liable, jointly and severally, for negligent management and negligent supervision and shall pay to Claimant Kazma compensatory damages in the sum of $908,648.00, pre-judgment interest specifically denied. Respondents are liable, jointly and severally, for negligent management and negligent supervision and shall pay to Claimant ACM compensatory damages in the sum of $908,648,00, pre-judgment interest specifically denied. Any and all claims for relief not specifically addressed herein, including Claimants’ request for punitive damages, are denied. FEES Pursuant to the Code of Arbitration Procedure, the following fees are assessed: FILING FEES FINRA Dispute Resolution assessed a filing fee* for each claim: initial claim filing fee = $1,800.00 *The filing fee is made up of a non-refundable and a refundable portion. MEMBER FEES Member fees are assessed to each member firm that is a party in these proceedings or to the member firm(s) that employed the associated person(s) at the time of the events) giving rise to the dispute. Accordingly, as a party and member firm, Respondent CGM is assessed the following: Member surcharge = $2,800.00 Pre-hearing process fee = $ 750.00 Hearing process fee = $5,000.00 HEARING SESSION FEES AND ASSESSMENTS The Panel has assessed hearing session fees for each session conducted. A session is any meeting between the parties and the arbitrators, including a pre-hearing conference with the arbitrators, which lasts four (4) hours or less. Fees associated with these proceedings are: One (1) Pre-hearing session with a single arbitrator @ $450.00/session = $ 450.00 Pre-hearing conference: June 2, 2010 1 session One (1) Pre-hearing session with the Panel @ $1,200.00/session = $1,200.00 Pre-hearing conference: September 14, 2009 1 session Eleven (11) Hearing sessions @ $1,200.00/session = $13,200.00 Hearing Dates: July 12, 2010 2 sessions July 13, 2010 2 sessions July 14, 2010 2 sessions July 15, 2010 3 sessions July 16, 2010 2 sessions Total Hearing Session Fees = $14,850.00 The Panel has assessed $7,425.00 of the hearing session fees jointly and severally to Claimants. The Panel has assessed $7,425.00 of the hearing session fees jointly and severally to Respondents. All balances are payable to FINRA Dispute Resolution and are due upon receipt. ARBITRATION PANEL Myron E. Levenson – Public Arbitrator, Presiding Chairperson Joseph Benalt – Public Arbitrator Donald R. McGahan – Non-Public Arbitrator CONCURRING ARBITRATORS’ SIGNATURES /s/ Myron E. Levenson Signature Date Public Arbitrator, Presiding Chairperson /s/ Joseph Benalt Signature Date Public Arbitrator /s/ Donald R. McGahan Signature Date Non-Public Arbitrator August 3, 2010 Date of Service (For FINRA Dispute Resolution use only)

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