Working over several semesters, students of the Investor Rights Clinic secured a favorable settlement for a senior client who thought she would never see her lost retirement savings again. The 78-year-old client had entrusted her retirement savings to her neighbor of more than 20 years. The neighbor, who was also a registered securities broker, convinced the client to invest a substantial part of her retirement assets in a fraudulent business venture that he owned and managed. The fraudulent scheme — which comprised more than $2,000,000 in total sales to multiple investors — led to a FINRA enforcement action resulting in a permanent bar of the broker from the securities industry.
The client worked with her neighbor and broker for 13 years before the fraudulent transaction. Over those years, the broker sold the client several annuities. In 2017, he recommended that she cash in one of her annuities in order to purchase a "deposit agreement" issued by a company he owned and managed, promising 6% annual interest on her investment. Not only did the client lose almost the entire amount she invested in the deposit agreement, but she also incurred fees associated with cashing in her annuity.
The client received sporadic interest payments on the deposit agreement until 2020. When she questioned the broker about the missing interest payments, he falsely claimed that they were delayed due to an acquisition of the company. The client then sought advice from another financial professional and later sought representation from the Investor Rights Clinic.
"I can't believe he did that to an old, gray-haired neighbor," the client said. She also expressed concern that the broker would make it difficult for her to recover her losses.
"After our first call with [the client], her kindness and her story emphasized the importance of the work the clinic does for its clients," said 2L Alfredo Dally. "[M]y team would always come in eager to work and make a difference. It is a true honor to have been able to be a part of the clinic's success in helping [the client], as well as experience the hard work and dedication it takes to help those most vulnerable.
During its investigation of the client's dispute with her broker, the IRC determined that her claim should be filed in arbitration as soon as possible to avoid defenses based on the time elapsed since her purchase of the fraudulent investment. Students of the IRC next drafted a statement of claim to initiate a FINRA arbitration proceeding against the brokerage firm that employed the broker and prepared a substantial discovery request. A significant challenge to recovery from the firm was that the broker had engaged in "selling away," or the practice of selling investments that the firm had not approved the broker to sell. Further complicating a potential recovery, the brokerage firm had limited insurance proceeds to cover multiple claims against the same broker.
In the end, the client recovered the majority of her losses through an early settlement of her claim, paid from a limited insurance policy designated to cover multiple claims against the same broker.
In her words, she was "exceptionally pleased" with the outcome. After receipt of the settlement proceeds, the client expressed her gratitude to the IRC and its students through a generous gift of $1,000 to assist with costs in other cases.
"I was ecstatic when we found out that I was going to get something at all," said the client, "because at the start I didn't think I would get anything at all. I was so impressed with the way the students handled it and kept me informed, and if I had any questions, they always got answers for me," the client said. "That's why I sent the small amount I sent—to thank them."
"It was a miracle that I got hooked up with [the IRC]," said the client. "I think more universities should have this kind of clinic. … It's a godsend for old people without money."
The clinic provides a resource to individuals of modest means who have suffered investment losses as a result of broker misconduct but, due to the size of their claim, cannot find legal representation.
"Having the opportunity to be a part of the clinic has been the most educational and rewarding experience I've had in law school," said 3L Jesse Hodges. "It is incredible to see that our work, as students, could actually make a difference and help someone."
The Investor Rights Clinic is a one-semester clinic staffed by second and third-year law students who represent under-served investors in securities arbitration claims against their brokers before the Financial Industry Regulatory Authority.
"The student interns did a terrific job preparing Mrs. Goodyear's case and overcoming some challenging facts to get to a favorable result in record time," said Acting Associate Director Melanie Cherdack. "It was gratifying to see Mrs. Goodyear recover some of her lost retirement money as well as her peace of mind."
"We couldn't be happier to help this client or more grateful for her generosity," Acting Director Scott Eichhorn said.
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