Perspectives
“
The student interns were able to negotiate a settlement for their client that allowed ‘Harriet’ to
”
recoup her entire investment along
with some pecuniary compensation, while avoiding arbitration.
Securities Arbitration Clinic
was suitable and appropriately managed. The interns
Protecting Seniors From Unscrupulous Investors
explained to Harriet that due to the surrender penalty, a variable annuity requires a long-term investment objective. They told her that variable annuities carry
“Harriet,” age 67, was a retired public school teacher
high fees, which make them particularly attractive to
and cancer survivor living alone on a fixed income. In
broker-dealers but threaten to eat up a large portion of
2009, Harriet received a cold call from a stockbroker,
any potential gains from a retired, short-term investor.
promising to help her with her investment strategy.
Through careful research, the student interns
Harriet agreed to a meeting, where she told the
learned that many states had enacted legislation to
broker that she was looking for a safe way to maximize
prevent some of the consequences befalling seniors
her savings while receiving periodic payments. She
who are victimized by unscrupulous brokers pushing
warned the broker that she did not want to get
variable annuities. The fact that, by cold-calling Harriet,
involved in anything risky that might require a long-
the broker likely violated his ethical duties only added
term investment before yielding a profit. The broker
fuel to the fire.
recommended a variable annuity. He explained to her
Harriet’s contract with her broker contained an
that a variable annuity was essentially a combination of
arbitration clause, requiring resolution by the Financial
mutual funds with insurance features that would keep
Industry Regulatory Authority, which regulates all
her capital investment intact while providing her with a
securities firms doing business in the United States.
monthly income.
However, before proceeding to arbitration, the student
However, upon receiving statements showing her
interns, accompanied by their supervisory lawyer,
invested savings quickly dropping from $20,000 to
met with the broker and his lawyer. Armed with a
$15,000 over a period of a few months, Harriet got
memorandum supporting the strength of their argument,
nervous and told her broker she wanted out. After
the student interns were able to negotiate a settlement
removing her money, Harriet was hit with surrender fees
for their client that allowed Harriet to recoup her entire
leaving her with only $11,000 from her initial investment.
investment along with some pecuniary compensation,
Believing she had been victimized, Harriet turned to the
while avoiding arbitration.
students at the Securities Arbitration Clinic, who have
Without representation by organizations like the
experience representing low-income individuals with
Securities
fraud claims.
often find that the deck is stacked against them when
Arbitration
Clinic,
low-income
investors
The student interns at the clinic informed Harriet
they are forced to represent themselves before FINRA,
that her broker violated fiduciary duties that he owed
especially if they are challenging action by well-funded
to her as a client, which ensured that her investment
financial institutions.
Hofstra Law Report • SPRING 2012
34
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