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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

H

Hofstra Law Report, Spring 2012  

HOFSTRA LAW REPORT, Hofstra Law’s magazine, is published once a year by the Maurice A. Deane School of Law at Hofstra University.

Hofstra Law Report, Spring 2012  

HOFSTRA LAW REPORT, Hofstra Law’s magazine, is published once a year by the Maurice A. Deane School of Law at Hofstra University.