Dominic Ismert decided to get back into investing nearly three years, but he lost a substantial amount of money on what his attorney said was “off the cuff” advice from a financial advisor at Charles Schwab & Co. Inc. to buy shares in a complex exchange-traded fund.
Ismert cited “flawed investment recommendations” as one of his causes of action in a Finra arbitration claim he filed against Schwab in August 2020 after holding the United States Oil Fund from March until June of that year. He lost more than $500,000.
Three public arbitrators in the Financial Industry Regulatory Authority Inc. dispute resolution system found Schwab liable and awarded Ismert and his designated beneficiary plan $144,000 in damages plus interest, according to a Feb. 7 award.
“We’re very pleased with the decision,” said Jason Haselkorn, one of the lawyers who represented Ismert. “It’s a significant award against a major broker-dealer. Our client had the wherewithal to go up against a [firm] with substantial resources, and he got a positive result.”
An online description of the U.S. Oil Fund ETF warns investors of the fund's derivative nature and that it's not a proxy for investing directly in the U.S. oil markets. Haselkorn said the investment wasn’t suitable for his client, a small business owner in the Kansas City, Missouri, area.
“The recommendation was made off the cuff without sufficient research or analysis,” said Haselkorn, owner of the law firm Haselkorn & Thibaut.
Finra and other regulators have been increasing their scrutiny of complex products. The arbitration award didn't indicate the reasoning behind the arbitrators’ decision.
Schwab defended its level of customer care and pointed out that Ismert obtained only part of the $550,000 in compensatory damages he had requested.
“With our ‘Through Our Clients Eyes’ perspective at the center of everything we do, Schwab remains committed to providing excellent service while delivering the high level of value they have come to expect from us,” Schwab spokesman Peter Greenley said in a statement. “While we disagree with [Ismert’s] allegations, we are pleased the arbitrators awarded only a fraction of what he sought.”
Haselkorn said Ismert’s win wasn’t diminished by the size of his payout given who he was taking on.
“We’ve got a client who tried to go up against a very large institution, and he came away with an award well over six figures,” Haselkorn said.
[More: The complexity of ETF options]
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