RayJay Liable for $3.2 Mln over Broker’s Oil-Gas MLP Sales–Arbitrators
A Financial Industry Regulatory Authority arbitration panel ordered Raymond James & Associates to pay almost $3.2 million to 27 customers over a Louisiana broker’s unauthorized concentration of their accounts in oil-and-gas investments, but permitted his branch manager to expunge their claims from his record.
The investors sued RayJay and its Shreveport branch manager Thomas W. O’Brien, seeking $8.9 million in damages for trades in Linn Energy, Memorial Production Partners, Cushing MLP Funds, and other oil-and-gas master limited partnerships and UITs, according to the arbitration decision posted Monday by Finra.
All of the vehicles went bust, and most of the customers—including a Baptist church, a charity and several trust and individual accounts—were not aware that their accounts were non-discretionary, according to Kim Breese, their Jackson, Miss.-based lawyer.
RayJay was ordered to pay $3.17 million to the customers plus $165,000 of their expert witness costs and Breese’s travel and lodging expenses, but the arbitrators granted O’Brien expungement of the claims from his regulatory record.
“The tools available to him as a manager were insufficient for him to note the excessive levels of concentration in Claimants’ accounts and he justifiably relied upon his operations manager under delegated authority and Claimants to bring matters to his attention,” the three “public” arbitrators wrote in the award decision.
As manager of a branch with over 11,000 accounts, O’Brien also had “no meaningful and direct contact” with customers about their investments and had informed “his brokers to be mindful of over-concentration in the oil and gas sector,” they wrote.
Breese said he plans to cite the insufficient-monitoring tools comment in an additional arbitration that he has filed against Raymond James on behalf of Lyons’ clients. Asked why he did not name the broker as a respondent, Breese said: “Raymond James is the one with the money.”
Raymond James spokespeople did not respond to requests for comment on the arbitration findings or on Breese’s remarks.
O’Brien, who worked for 20 years at Morgan Keegan before it was sold to Raymond James, also did not return a request for comment.
Nine additional customers of Breese who were part of the original claim but had smaller accounts dropped out and settled for $269,000 in mediation, according to Breese and to Lyons’ and O’Brien’s BrokerCheck reports. They had sought $5 million.
Prior to buying Morgan Keegan, Raymond James was indemnified by the Tennessee-based firm’s previous owner, Regions Financial Corp, from litigation awards before the deal’s closing. (The bank has paid hundreds of millions of dollars to settle bond fund mismanagement class-action lawsuits.) Breese filed the claims against RayJay and the branch manager in November 2017 and said he cited trades made after the purchase.
Customers were granted awards ranging from $742,994 to members of an extended family with several accounts to $11,119 to a customer with two IRA accounts.
The arbitrators also held Raymond James liable for the customers’ expert witness costs of $140,000, Breese’s travel and related expenses of $25,000 and the customers’ $750 claim filing fee. But they denied the customers’ requests for punitive damages and attorney’s fees.
“We’re pleased with the amount, and with the fact that every single investor is getting an award,” Breese said, noting that the customers varied in terms of their investment experience and their direct contact with Lyons.