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Ellman and Sheiffer Obtain Summary Adjudication in FINRA Arbitration

August 28, 2019

Craig Ellman (Of Counsel-WP) and David Sheiffer (Partner-NY) defended a broker-dealer against allegations of suitability of investments and associated state law claims, including allegations that the firm failed to properly supervise an administrative employee who had befriended one of the plaintiffs and had the plaintiff make a bequest to her of $150,000. Both plaintiffs were in their late 60s at the time of their investments, and each had been working with the same financial advisor, also our client. As part of their retirement planning, each sought to restructure certain retirement investments to generate additional income with growth. At the recommendation of our client, both purchased variable annuities that provided income of 5 percent of the base annuity amount with investment in equities for growth of principle, structured as an “L-share.” In addition to the growing controversy regarding the sale of variable annuities in general given the high fees and commissions associated with these products, L-shares are the subject of heightened regulatory scrutiny because investors are charged even higher fees for the option to liquidate the annuity without penalty earlier than other share classes. Given that variable annuities are typically viewed as long-term investments, regulators question the logic behind paying a liquidity premium for a long-term investment. The FINRA Panel’s decision was issued in two parts per FINRA rules: First, the suitability claims were dismissed on the basis the claimants had failed to file their statement of claim within six years of their investment. Next, after the claimant’s counsel did not timely seek court intervention, the Panel dismissed all common law claims, including fraud, finding the facts alleged had no merit. 

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