An ex-broker who was barred by the Financial Industry Regulatory Authority last week is at the center of a $55.6 million arbitration suit against his former firm, J.P. Morgan Securities.

Last week, Finra barred Edward L. Turley, a 76-year-old Texas broker who was working out of J.P. Morgan’s San Francisco office. Finra’s move came after some $110 million in arbitration claims were filed against J.P. Morgan from 2020 to 2022 alleging that the firm failed to oversee the former broker’s activities. The arbitrations so far have resulted in five settlements and one award, and there are three more arbitrations pending according to BrokerCheck.

One of the pending cases is the whopping $55.6 million claim made by a wealthy Texas entrepreneur who claims that Turley put him in a complicated investment strategy with fixed-income credit spreads that involved high-yield bonds, preferred securities, exchange-traded funds and master limited partnerships, largely in the oil and finance sectors.

Turley’s attorney has also weighed in on the matter, saying that the big Texas client had a good understanding of investment risk and was happy with Turley’s strategy until it fell apart during the Covid-19 upheaval.

“I will tell you Mr. Turley strongly denies any liability with regard to his sales practices,” said Andrew Harvin, an attorney with Doyle, Restrepo, Harvin and Robbins in Houston who is representing Turley. “In regard to the [$55.6 million] claim, we are going to fight that claim vigorously and I will run through a wall for the guy on that claim.”

Harvin said that the previous decisions to settle the Finra claims were J.P. Morgan’s decision, not his client’s (Harvin didn’t represent Turley in those cases). He argues that the Texas plaintiff in the $55.6 million case was a far more sophisticated investor.

Finra officially barred Turley for not appearing for testimony about the trading in his customer accounts. Harvin says Turley did not appear because it was impractical at this point.

“He’s 76 and he’s elected to retire from the industry, which is why he didn’t show up to cooperate with Finra. It doesn’t make sense for him to spend the money necessary to defend against a Finra investigation, so he gave up his license.”

He acknowledged that Turley’s investment scheme involved some high-yield and preferred securities, but said the allegations that they were unsuitable were “baloney.”

Big Texas Client
Robert W. Pearce, a plaintiff’s attorney in Boca Raton, Fla., who specializes in investment fraud, represents the client who has filed the $55.6 million arbitration against J.P. Morgan (Pearce was also involved in one of the settled cases, which he cannot discuss.) Pearce describes his client as a successful Texas entrepreneur who said Turley wooed him and other ultra-high-net-worth investors and even got them a lunch audience with Jamie Dimon, the bank's high-profile CEO.

Pearce said that Turley’s fixed-income credit spread investment strategy involved buying junk bonds, preferred stocks, ETFs and master limited partnerships with leverage. That leverage came with a twist, however, as Turley used short sales in foreign exchange to buy the securities.


“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,” Pearce said in a summary on his website. He argues that Turley “overleveraged and overconcentrated” his biggest clients’ accounts in the largely oil and finance securities he purchased “which are notoriously illiquid and subject to sharp price declines when the financial markets become stressed as they did in March 2020.”

“Turley’s strategy was a leverage credit spread strategy,” Pearce said in an interview with Financial Advisor, “the idea being that you could borrow funds—and not in a traditional sense using a margin account or line of credit.” Instead, he said, Turley did foreign currency transactions with yen and euros where he essentially sold them short and brought the capital into the account after the short sale. After raising capital in the foreign exchange in short sales, Turley would use the money to buy preferred stocks, preferred notes and junk bonds (largely in the finance and oil sector) seeking the yield spread between the securities he purchased and the currency.

In this manner, he promised investors equity-like return with bond-like safety.

In reality, this placed the strategy at the risk of margin calls if something went wrong. Pearce claims that before 2020, Turley and J.P. Morgan suppressed those margin calls to keep the clients in the dark.

“The firm allowed Turley or Turley persuaded the firm not to issue margin notices to clients when they got margin calls,” Pearce said. “He said ‘I’ll take care of it.’”

“The thing about this case and all these cases is he was managing the accounts without written discretionary authority, and that’s pretty much the allegation in every one of these cases that were filed.”

Turley’s attorney acknowledged that foreign currencies were used to finance the securities purchases. “They were cheaper than the dollar, so if you borrowed on margin on Libor plus 2% on a dollar basis you could possibly borrow Libor plus 1 on a Swiss franc basis. That’s just hypothetical.” He also says the client was aware of and approved the leverage aspect of the strategy.

Overall, Harvin claims that the Texas client, whom he describes as a wealthy oil and gas property owner with 12 different businesses, understood the risks.

“Because this gentleman has been a risk-taker all of his life, he was perfectly happy with the recommendations for about a decade,” Harvin says. “It was only when the energy markets collapsed with the onset of Covid that he sustained losses, and the losses pale in comparison to how much he’s worth.” 

According to BrokerCheck, J.P. Morgan discharged Turley in August of last year. There are nine customer disputes listed on the site since May 2020 in varying degrees of progress. The five settled cases involved more than $43 million going to plaintiffs, while another one involved a $4 million award. The damages asked for in the other two pending cases, aside from the $55.6 million claim, are $18 million and $5 million.

J.P. Morgan declined to comment on the case. According to both the plaintiff and defendant attorneys, the Texas client has filed against J.P. Morgan, but the firm added Turley as a third party for contribution if the plaintiff prevails. Turley is making a counterclaim against J.P. Morgan for indemnity.

“It’s our position that he is entitled to indemnity from J.P. Morgan because he was acting within the course and scope of employment and supervised by J.P. Morgan,” Harvin said.