A retired couple has withdrawn a Finra arbitration case against a former broker and his firm after realizing they hadn't suffered investment losses from a recommendation that they invest in life settlements.
A Florida law firm, Rodriguez Tramont Guerra & Nunez PA, filed the claim on the behalf of the couple in January.
The law firm alleged that in 2006, Bradford H. Blazar, formerly a registered representative with RIM Securities Ltd., solicited the couple — now 77 and 88 — to invest their $450,000 individual retirement account in a portfolio of investment interests in life settlements.
Life settlements involve a person's sale of his life insurance policy to an investor for cash. The investor makes the premium payments to keep the policy in force and ultimately receives the death benefit.
Though Mr. Blazar said he had left RIM by the time the couple made the investment, the claim alleged that the ex-rep and the broker-dealer failed to disclose the risks tied to investing in life settlements — specifically, that an investor can pay policy premiums for an extended time if the insured individual lives longer than expected.
The clients alleged they had difficulty making required minimum distributions from their IRA because it was tied up in illiquid life settlement investments.
Two weeks ago, as the arbitration panel was being selected, the couple decided to drop their claim because they technically had experienced no losses on the investments, despite having accrued $150,000 in penalties for failure to make their RMDs.
“Their hand was forced,” said Stephen Ostrofsky, securities arbitration consultant for Rodriguez Tramont Guerra & Nunez. “If we go to a panel, they're going to say that the [insurance policies] were in force and that though the people haven't died, the investors haven't lost their money — they'll get it at some time.”
Because the two bought the investments in 2006, they were also bumping up against Finra's six-year limit for submitting an arbitration claim, Mr. Ostrofsky said.
Faced with those factors and with having to shell out tens of thousands of dollars to bring the arbitration, the investors “got skittish,” Mr. Ostrofsky added. “They decided to back off so they can wind down the process,” he said.
Barbara Matin Hawkesworth, chief compliance officer at RIM, did not respond to calls seeking comment.
In the meantime, attorneys are drafting the settlement documents, said Mr. Blazar, who is no longer registered with Finra.
“The attorneys representing the claimants realized they didn't have a sound case,” he said.