The Financial Industry Regulatory Authority has denied a $36 million arbitration claim against Raymond James by three of its former brokers who claim they were defamed when the firm terminated them over the sale of unit investment trusts.
Finra denied the claims sought by Lynn Cooper Faust, Michael Anthony Faust and Joe Tom King Jr., three advisors let go by Raymond James in 2018 because of their UIT sales. In the end, only King received an award: $500—out of the $3.75 million he sought.
The giant broker-dealer said that its three ex-brokers used numerous short-hold sales of unit investment trusts and reinvested the proceeds in other UITs to beef up their own compensation—without analyzing whether these securities were suitable for the clients. The three brokers said the trusts had been approved by the firm.
The Fausts work in Greenville, S.C., and have since moved on to Stifel Nicolaus; King works in Panama City, Fla., and is now with Ameriprise, according to his BrokerCheck profile.
Lynn Faust accused Raymond James of “burning her book” when it terminated her in its Form U5. She sought $6 million in damages for that, as well as $1 million in defamation damages and $1.8 million in lost deferred compensation.
Michael Faust sought, among other things, $22 million for his own burned book of business, $1 million for defamation and $400,000 for lost deferred compensation. King sought $2 million for his damaged book of business, as well as $1 million for defamation. All three sought to have their U5 termination forms expunged or modified. And all three sought damages for the loss of life, disability and long-term-care insurance.
Raymond James made a counterclaim that the three brokers should cover the remediation payments that the company had to make to clients—$685,805 for Lynn and Michael Faust’s clients and $114,480 for King’s clients. The counterclaim was settled between the Fausts and Raymond James. The counterclaim against King was denied.
Unit investment trusts hold a portfolio of securities like mutual funds but their holdings are not actively traded and are often unmanaged. Upon public offering, they offer investors “units” that are held until a specific termination date. Because they have only a specific number of units, they can also work like closed-end funds.
Critics say that their features mean they are not suitable for everybody. Indeed, Finra ordered Merrill Lynch, Pierce, Fenner & Smith to pay $8.4 million to 3,000 customers in June because the customers had seen jacked up sales charges related to early UIT rollovers.
“UITs,” Finra wrote at the time, “are generally intended as long-term investments and have sales charges based on their long-term nature, including an initial and deferred sales charge and a creation and development fee.