Raymond James & Associates, Inc. and one of its brokers must buy back $925,000 in auction-rate securities from a Texas-based couple, a securities arbitration panel has ruled.
Rex and Sherese Glendenning, of the Celina area in Texas, originally sought $1.4 million in the case they filed in February 2009, against Raymond James & Associates, a unit of Raymond James Financial Inc. (RJF) and Larry Milton, a broker associated with the firm in Fort Worth, Texas. They alleged breach of fiduciary duty, misrepresentation and civil fraud, among other things, according to a ruling by a Financial Industry Regulatory Authority arbitration panel.
The Finra panel ordered Raymond James and Milton to pay the Glendennings $925,000 in a ruling dated Aug. 20. The Glendennings must then sign the securities over to Raymond James, according to the ruling.
One of the three arbitrators on that panel that heard the case disagreed with the size of the award. “I believe the award to the Glendennings should be $1,400,000 instead of $925,000,” he wrote. Arbitration rulings, however, are generally still effective, as long as two of the three arbitrators agree.
The panel found both Raymond James and Milton liable for the couple’s damages, but didn’t include a reason for the decision–a practice that’s typical of arbitration rulings.
“We’re glad that the panel found Raymond James and Mr. Milton liable, but wish the majority would have agreed with the dissenting arbitrator in terms of the money awarded,” says Howard Klatsky, a Dallas-based lawyer who represented the Glendennings. The couple, he says, opened a Raymond James account to consolidate funds in numerous certificates of deposit. An estate planner suggested the strategy to make their finances easier to manage, he said.
Milton, the broker, purchased the auction rate securities, consisting of sewer revenue bonds, on behalf of the Glendennings in January, 2008, according to Klatsky. The couple never discussed auction rate securities or sewer bonds with the broker and spoke only about their preference to invest their money in CDs, he says.
A Raymond James spokeswoman declined comment. Milton didn’t immediately return a call requesting comment.
The auction rate securities market froze in February, 2008, leaving many investors stuck with illiquid investments that they initially thought were cash-like.
It’s unusual, however, to find a broker liable in an auction rate case. The ruling against Milton could reflect possible actions that were revealed through testimony, he says.
The case marks the second time in slightly more than a month that Raymond James was ordered to buy back auction-rate securities. A Finra arbitration panel on July 19 ordered the firm to buy back $2.5 million in auction-rate securities from a customer who was acting as trustee for a revocable trust.