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The Law Offices of Robert Wayne Pearce has filed another case against J.P. Morgan Securities for alleged misrepresentations, misleading statements, unsuitable recommendations, and mismanagement of Claimants’ accounts continuing in fall 2019 and thereafter by Edward Turley (“Turley”), a former “Vice-Chairman” of J.P. Morgan.

At the outset, it is important for our readers to know that our clients’ allegations have not yet been proven.

IMPORTANT: We are providing information about our clients’ allegations and seeking information from other investors who did business with J.P. Morgan and Mr. Turley and had similar investments, a similar investment strategy, and a similar bad experience to help us win our clients’ case. Please contact us online via our contact form or by giving us a ring at (800) 732-2889.

Turley Allegedly Misrepresented And Misled Claimants About His Investment Strategy

The claims arise out of Turley’s “one-size-fits-all” fixed income credit spread investment strategy involving high-yield “junk” bonds, preferred stocks, exchange traded funds (“ETFs”), master limited partnerships (“MLPs”), and foreign bonds. Instead of purchasing those securities in ordinary margin accounts, Turley executed foreign currency transactions to raise capital and leverage clients’ accounts to earn undisclosed commissions.

Turley over-leveraged and over-concentrated his best and biggest clients’ accounts, including Claimants’ accounts, in junk bonds, preferred stocks, and MLPs in the financial and energy sectors, which are notoriously illiquid and subject to sharp price declines when the financial markets become stressed as they did in March 2020.

In the beginning and throughout the investment advisory relationship, Turley described his investment strategy to Claimants as one which would generate “equity returns with very low bond-type risk.” Turley and his partners also described the strategy to clients and prospects as one “which provided equity-like returns without equity-like risk.” J.P. Morgan supervisors even documented Turley’s description of the strategy as “creating portfolio with similar returns, but less volatility than an all-equity portfolio.”

Note: It appears that no J.P. Morgan supervisor ever checked to see if the representations were true and if anybody did, they would have known Turley was lying and have directly participated in the scheme.

The Claimants’ representative was also told Turley used leverage derived from selling foreign currencies, Yen and Euros, to get the “equity-like” returns he promised. Turley also told the investor not to be concerned because he “carefully” added leverage to enhance returns. According to Turley, the securities of the companies he invested in for clients “did not move up or down like the stock market,” so there was no need to worry about him using leverage in Claimants’ accounts and their cash would be available whenever it was needed.

The Claimants’ representative was not the only client who heard this from Turley; that is, he did not own volatile stocks and not to worry about leverage. Turley did not discuss the amount of leverage he used in clients’ accounts, which ranged from 1:1 to 3:1, nor did Turley discuss the risks currency transactions added to the portfolio, margin calls or forced liquidations as a result of his investment strategy. After all, Turley knew he could get away without disclosing those risks.

This was because J.P. Morgan suppressed any margin calls being sent to Turley’s clients and he liquidated securities on his own to meet those margin calls without alarming clients. 

This “one-size-fits-all” strategy was a recipe for disaster. J.P. Morgan and Turley have both admitted that Turley’s investment strategy was not suitable for any investor whose liquid net worth was fully invested in the strategy.

It was especially unsuitable for those customers like Claimants who had other plans for the funds in their J.P. Morgan accounts in fall 2019 and spring 2020. Unfortunately, Turley recommended and managed the “one-size-fits-all” strategy for his best clients and friends, including Claimants. Turley was Claimants’ investment advisor and portfolio manager and required under the law to serve them as a “fiduciary.”

He breached his “fiduciary” duties in making misrepresentations, misleading statements, unsuitable recommendations, and mismanagement of Claimants’ accounts. The most egregious breach was his failure to take any action to protect his clients at the end of February 2020, when J.P. Morgan raised the red flags about COVID-19 and recommended defensive action be taken in clients’ accounts.

Turley Allegedly Managed Claimants’ Accounts Without Written Discretionary Authority

Claimants’ representative hired Turley to manage his “dry powder,” the cash in Claimants’ accounts at J.P. Morgan, which he would need on short notice when business opportunities arose. At one point, Claimants had over $100 million on deposit with J.P. Morgan. It was not unusual for Claimants to deposit millions and make multi-million-dollar withdrawals of funds for different acquisitions and projects. Turley would then select the securities to buy with the cash deposited that suited his “one-size-fits-all” strategy.

He would also decide whether to sell securities and/or increase the leverage in the accounts to meet Claimants need for cash from the accounts. Turley regularly made multi-million-dollar purchases and sales in Claimants’ accounts without a word being spoken with his clients. 

Although Turley called and texted often, the communications with his clients were almost always about anything other than getting permission to buy or sell any securities in Claimants’ accounts. Turley’s reports about account activity were generally limited to the “Big Number;” that is, reporting the net equity in the accounts and whether it had gone up or down. Turley rarely consulted with Claimants’ representative about any transaction in Claimants’ accounts before they occurred. 

Turley exercised his discretion even though Claimants never executed any documents giving him written discretionary authority over Claimants’ accounts. There was not enough time in the day to speak with every client and do the volume of transactions on an individual basis, so Turley exercised discretion and entered large block orders in the same securities for many of his clients at the same time to generate millions in commissions and fees each year.

Note: Claimants did not think this was unusual because they hired Turley to manage their accounts, just as they hired others to manage other businesses. However, Turley knew better and hid the fact he was exercising his discretion in management of clients’ accounts because he was doing so in violation of FINRA’s rules and J.P. Morgan policies designed to protect investors.

Turley Allegedly Misled Claimants About The Performance Of The Accounts 

The only time Turley would review the activity in Claimants’ accounts in any detail was when he made visits (usually quarterly) to Claimants’ home in Texas. Turley would fly his own jet plane into the local airport and bring some wine along with a handful of booklets he said J.P. Morgan prepared for review of Claimants’ and family members’ accounts. Turley would wine, dine, and curry favor with Claimants’ representative and his family. The next day, they would go to the office and Turley would quickly run down the list of securities in the accounts and ended the meeting with a discussion about the “Big Number” (Net Equity) and “Cash on Cash” returns in the reports as if it were a true measure of account performance. 

Turley was always telling Claimants they were earning 10% plus “Cash on Cash” returns in Claimants’ accounts to mislead them into thinking he was a successful manager. Turley never told Claimants the “Cash on Cash” return figures did not account for declines in the accounts market value and that the more accurate performance measurement, “Total Return,” was much less. Incredibly, J.P. Morgan managers supposedly reviewed those reports and yet they allowed Turley to distribute them to clients with that misleading “Cash on Cash” return and other misleading so-called “time weighted” performance figures.

Turley Allegedly Misrepresented PFF As a Money Market Substitute 

One of the securities Turley liked to invest and accumulate in all his clients’ accounts, including Claimants’ accounts, was the iShares Preferred & Income Securities ETF (“PFF”). Turley described it as a “money market” investment that would not fluctuate in value and was a quick source of cash whenever they needed to withdraw funds for business opportunities and personal expenses. At one point, Turley purchased and held over $72 million worth of PFF in Claimants’ accounts. 

J.P. Morgan managers knew that Turley was misrepresenting PFF; they knew it could not possibly be considered a safe, low-risk “money market substitute” for clients. After all, PFF was currently yielding 5.7% when the current yield of virtually every money market fund was under 1% at the time; the annualized standard deviation (volatility risk measurement) of PFF for prior ten (10) years was close to 20%; and in 2008-2009, the annualized standard deviation of PFF was above 55% (without leverage). Unfortunately, J.P. Morgan did nothing to curb Turley’s appetite for PFF or reprimand him for misrepresenting the nature and risks of the exchange traded fund.

Turley’s misrepresentation of PFF as a “money market substitute” cost his clients tens of millions in losses. Claimants alone suffered more than $4.5 million in PFF capital losses during the same period money market fund holders had zero losses.

J.P. Morgan Knew All About Turley’s Misconduct And Did Nothing!

J.P. Morgan managers were aware of the nature, mechanics, and risks of Turley’s investment strategy that was being deployed in most of his clients’ accounts.

They suspected he was exercising discretion without written authority but did nothing to stop him because Turley was no ordinary investment adviser and stockbroker. He was one of the top producers of fees and commissions for one of the largest broker-dealers and investment advisory firms in the country.

At one point during the relevant period, Turley generated close to $30 million in revenues for the firm on $1.6 billion of assets under management (“AUM”) in his clients’ accounts. Consequently, he had the attention and support of management at the highest level, including Chairman and CEO Jamie Dimon, who praised Turley’s skills and success at lunches with clients, including lunches with both Turley and the Claimants’ representative in this arbitration.

Not only did Turley receive free lunches from management, but he also received free passes when it came to compliance with FINRA rules and the brokerage firm’s policies and procedures in place to protect J.P. Morgan customers from sales abuse and unreasonable losses.

Senior managers gave Turley carte blanche regarding clients’ accounts. And when lower echelon compliance supervisors and branch managers questioned Turley’s conduct, they either resigned or were terminated. On the other hand, Turley was not forced to resign and was not terminated until multiple clients filed written and verbal complaints about more than $100 million in losses suffered in accounts Turley managed without written discretionary authority or the firm’s approval, after FINRA and state regulators opened investigations, and Turley finally admitted he had lied to J.P. Morgan about managing client accounts without written authority or firm approval.

As a result of Turley’s misconduct and mismanagement and J.P. Morgan’s supervisory failures, clients, including Claimants, in March 2020 suffered mass liquidations of securities in their accounts at bargain-basement prices and realized multi-million-dollar losses. Prior thereto, J.P. Morgan had many opportunities to rein in Turley’s rogue broker behavior and protect clients, including Claimants, from his misconduct and mismanagement of their accounts but failed to do so until it was too late!

J.P. Morgan Fired Turley, Albeit Too Late To Protect Investors 

By July 2020, several Turley clients verbally complained and at least two arbitration claims were filed seeking over $30 million from J.P. Morgan for Turley’s misconduct and mismanagement of their accounts and its failure to supervise. During a recent arbitration hearing, Turley’s branch manager testified that he and Senior Compliance Officer met with Turley to discuss the allegations, as well as the sales practices of Turley and his team.

Once again, J.P. Morgan management wrongfully took Turley’s word as the gospel and proof of innocence. Both supervisors knew that the SEC and FINRA expected more from supervisors than to accept the accused’s word he did nothing wrong. Yet J.P. Morgan took no action, such as contacting clients who had not yet complained about whether Turley was telling the truth. 

It was not until August 2021, a year later, that J.P. Morgan managers took any action for Turley’s misconduct; they fired him! The J. P. Morgan branch manager testified that there was more to the firing than the laundry list of reasons in his recommendation: 

… So a lot of the other things that are listed here are what you include because you need to – when you terminate someone, you need to include anything that’s pending. You know, we gave him a policy reminder on this. We gave him this, we gave him — and, yes, there was this letter from the State of Oklahoma. But this isn’t fair to describe them all as the contributing factors.

The far and away number one contributing factor is his admission to me that he didn’t, in fact, speak to clients on every trade.

  1. And his admission to you that he lied to you then, right?
  2. ExactlyAnd that’s when I suggested that the only way to move forward was termination.
  3. Because you couldn’t trust Ed Turley to tell you the truth anymore, could you?
  4. Exactly.

Mr. Turley was one of J.P. Morgan’s biggest producers of retail revenues at the firm. The recommendation for Turley’s termination had to be approved at the highest level. Given the fact that Turley had been tapped with the title of Vice-Chairman and a frequent guest at Jamie Dimon’s lunch table, it is very likely Mr. Dimon needed to bless the termination for the same reasons Claimants filed their claims against J.P. Morgan in this arbitration. 

Claimants Are Seeking $55 Million In Compensatory Damages

Respondent’s alleged misrepresentations, omissions, breaches of fiduciary duty, negligence, gross negligence, breaches of contract, and other misconduct had devastating consequences for Claimants.

Accordingly, Claimants are requesting an award of compensatory damages in accordance with the “Benefit-of-the-Bargain” measure of damages from October 1, 2019 in the amount of $55,615,696.00, statutory interest (at the rate of 5% per annum), and punitive damages (treble compensatory damages), and attorney’s fees and costs as will be proven at the final arbitration hearing.

To date, there have been 5 arbitration claims filed for Turley’s alleged misconduct which have resulted in Arbitration Awards or Settlements of $4 million, $12.1 million, $8.2 million, $6.1 million, and $5 million so far. There are 3 pending claims for the same type of alleged misconduct.

Free Initial Consultation With Securities, Commodities and Investment Dispute Lawyers Serving Investors Nationwide

The Law Offices of Robert Wayne Pearce, P.A. understands what is at stake in securities and commodities law matters and investment disputes, particularly disputes with J.P. Morgan involving Edward Turley, and works tirelessly to secure the best possible result for you and your case.

Mr. Pearce provides a complete case review, identifies the strengths and weaknesses of your case, and fully explains all your legal options. The entire law firm works to ensure that you completely understand the ins and outs of the legal process to give you complete peace of mind knowing that you have chosen the best possible representation for your case.

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Robert Wayne Pearce

Robert Wayne Pearce of The Law Offices of Robert Wayne Pearce, P.A. has been a trial attorney for more than 40 years and has helped recover over $160 million dollars for his clients. During that time, he developed a well-respected and highly accomplished legal career representing investors and brokers in disputes with one another and the government and industry regulators. To speak with Attorney Pearce, call (800) 732-2889 or Contact Us online for a FREE INITIAL CONSULTATION with Attorney Pearce about your case.

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