Swap Gone Wrong
Yoon said she once thought the money she and her husband were living off of came from profits generated by MLPs but that she later learned they were spending their capital. Their complaint filed with the court also describes other drags on their finances. In some years, they paid more than $400,000 in interest on the JPMorgan loans and at times more than $250,000 in advisory fees to the bank and Chickasaw.
Representatives for Chickasaw, which managed the MLPs, didn’t respond to messages seeking comment.
In 2016, Baker introduced Peter to an adviser at JPMorgan who worked on foreign currencies. She offered Peter a way to potentially minimize his monthly interest payments through a transaction swapping his debt for debt in euros. JPMorgan was the dealer for the swap, and the counterparty—taking the opposite side. The bank has said it explicitly disclosed that it wasn’t acting as a fiduciary in the transaction. Peter had successfully entered into a swap before, but this bet soon turned against him. By the time he terminated it several months later, he owed JPMorgan more than $1 million, according to the couple’s complaint.
After a rebound in 2016, the MLPs tumbled further. When the portfolio came close to a margin call in 2017, JPMorgan advised the Doelgers to transfer all the funds in their savings—about $1.5 million—to a money-market account at the bank so it could be used as collateral, according to their complaint. At the end of the year, the MLPs were down 17%. JPMorgan predicted there was potential for strong returns in 2018.
Baker said in his court declaration that he periodically urged the Doelgers to pay down their debt and reduce their MLPs. But in early 2018, employees at the firm worried Peter might actually do it, and internal communications show they sought to head it off. That May, his loans were due to reprice after a series of Federal Reserve interest rate hikes.
“The client currently has almost $14MM outstanding and we do not want to change pricing and risk the client paying down the entirety of the line,” a bank employee wrote in an internal document filed with the court. The bank left his rate unchanged, and he kept the loan. The document doesn’t indicate that Baker was involved.
Meanwhile, Peter’s mental health was deteriorating. Yoon recalled a time when her husband seemed to annoy Baker by repeatedly asking the same question during a phone call, even after Baker already answered it. Yoon said she apologized, telling Baker her husband was having trouble remembering things. From then on, Yoon said her husband mostly listened while she conferred with Baker on a speaker phone. The couple withdrew from socializing, mostly staying home. They put their Palm Beach mansion on the market.
“I didn’t want to volunteer to people that my husband has dementia,” Yoon said in the interview. “We don’t want to talk about it.”
Baker said in his declaration that the first time he learned of Peter’s cognitive troubles was when the family moved to sue.
Panicked Sale
By the end of 2019, Yoon was added as a co-owner of the account and the MLP portfolio was worth $20 million. The balance on the Doelgers’ loans was almost $10 million. The year-end report from JPMorgan said the MLP investments “remain solid with stable and growing cash flows, healthy balance sheets, visible growth opportunities.”
By then, Peter’s dementia had been progressing for half a decade, according to a psychiatrist hired by the Doelgers. By the latter half of 2019, at the very latest, his condition would have been apparent to JPMorgan’s representatives. “By this time, Peter was exhibiting signs including memory loss, poor judgment, difficulty with abstract thinking, and confusion, among others,” the doctor, Dale Panzer, wrote.
Yoon grew alarmed when the Covid-19 pandemic hit in 2020 and sent oil prices into a dive. The portfolio’s value dropped to $16 million in the first two months of the year. When she turned to Baker for advice on whether to sell or take other steps, he reiterated the advisers’ recommendation that they stay in, according to the couple’s complaint. On March 9, the Doelgers’ MLP investments lost 24% in a single day and Baker informed them there would be a margin call. He allegedly suggested selling $7.1 million to pay down their debt, which they did. The portfolio was now down to $4.1 million. According to the complaint, the bank recommended staying in the market, with Baker suggesting the portfolio could still generate $550,000 in annual income.
Days later, with the oil market still tumbling, Yoon panicked. She sold the remaining assets to pay off their loans.
That left them with $400,000 from their MLPs and $1.1 million in another account. Had they stayed in the market, they would’ve lost another $500,000, triggering a margin call, Yoon said.
‘I Trust You’
Finra, the brokerage regulator, doesn’t have an age limit for what it considers sophisticated investors. Its rules broadly require firms to be vigilant in watching for signs that any customers may be vulnerable. Companies such as JPMorgan adopt policies, including systems for flagging concerns about clients’ cognition. There’s no indication that authorities are examining how JPMorgan or its employees handled the Doelgers.
The couple put their Boston home up for sale and moved in with Yoon’s daughter in New Jersey. It was then that family members began investigating. “I was horrified by what I saw,” said James Serritella, Yoon’s son-in-law and the lawyer representing the couple.
The lawsuit he filed for the couple alleges that JPMorgan overstated Peter’s wealth and investing prowess in a rush to reel in a whale of a client, then kept him in MLPs and borrowing money to reap high management fees and interest.
“I don’t believe Peter understood this stuff the way they made him out to understand it,” Serritella told Bloomberg. “Peter trusted people: ‘I don’t need to know all the ins-and-outs because I trust you.’ So this whole construct of the sophisticated guy, we strongly disagree with that.”
Peter keeps getting worse. He has trouble walking and naps much of the time. Yoon said she visited a few assisted-living facilities. None are places she would like for her and her husband. They’re trying to sell their last property, the apartment in Paris, to afford more.
“He deserved to have a comfortable life,” she said. “We had a comfortable life.”
This article was provided by Bloomberg News.