Royal Alliance Associates Inc., one of four subsidiary broker-dealers of AIG Advisor Group, has been ordered to pay $1.4 million to three retirees over allegations that it was negligent in supervising sales of nontraded real estate investment trusts and variable annuities.
The retirees, who were former employees of AT&T Inc., were encouraged by a former broker, Kathleen Tarr, to take a lump-sum buyout from their employer rather than a lifetime annuity, according to an attorney for the claimants, Richard B. Fosher, a partner at Oakes & Fosher. The money was then placed into Inland Real Estate, a nontraded real estate investment trust company, and unspecific variable annuities, he said.
“You have very low-income and low-wealth retirees who were encouraged to take a lump sum and put into variable annuities and non-traded REITs in an IRA,” said Craig McCann who is with Securities & Litigation Consulting Group Inc. and testified as an expert witness on behalf of the plaintiffs. “There can't be any justification for a high-cost, illiquid product in an IRA.”
There were no net out-of-pocket losses from the investments themselves, but the investors missed out on earnings they would have received if they had opted instead to receive the lifetime annuity from their employer or invested the lump sum in a “reasonable manner,” according to Mr. Fosher.
FINRA ARBITRATION
The award, granted by a Financial Industry Regulatory Authority Inc. arbitration panel, granted more than $1 million in compensatory damages as well as $25,000 per investor in punitive damages and $241,000 in costs and legal fees.
“The evidence showed that the supervisors at Royal Alliance were not supervising these particular brokers,” said Mr. Fosher. “Part of the punitive award in my view is due to the complete failure of Royal Alliance to supervise its registered reps.”
For its part, Royal Alliance had this to say about the award: "We are surprised and disappointed with what we believe is an unreasonable damage award in this case," according to a statement. "We are at a loss to understand how the panel reached its conclusion, especially in light of the fact that when residual investment value and past withdrawals are taken into account, these claimants collectively have experienced a gain on the investments that were at issue."
Ms. Tarr has been involved in about 40 customer disputes and complaints, according to her BrokerCheck record. Those cases have made her the subject of several articles, including a
Bloomberg story on how 401(k) rollovers hurt retirees and an
article on expungement in
The New York Times.
Ms. Tarr, who was discharged from Royal Alliance in 2010 according to BrokerCheck, is president and chief executive officer of an airborne mapping company. She denied the claims in the
Times piece, but did not respond to a request for comment. She asked for expungement in this case and was denied, according to the award.
'ONE-SIZE-FITS-ALL'
“It's a one-size-fits-all type scenario where every customer ... was invested essentially in Inland REITs and variable annuities,” Mr. Fosher said. He added that he is pursuing another case against Royal Alliance on behalf of seven other AT&T retirees.
An attorney representing Royal Alliance, G. Thomas Fleming III of Jones, Bell, Abbott, Fleming & Fitzgerald did not respond to requests for comment on the case or the possibility of an appeal.
Royal Alliance appealed an earlier award by filing a motion to vacate the award in Los Angeles County Superior Court, but the appeal was ultimately denied, according to Mr. Fosher.
