A three-person FINRA arbitration panel on Tuesday found Fidelity Brokerage Services liable to pay almost $1.29 million in damages to two sets of investors in a claim that involved complex structured products and notes.
Fidelity was ordered to pay $843,000 in compensatory damages to James and Tina Baldocchi and $445,000 to Kimberly Hosler and James Doorley, according to the FINRA panel’s award.
The investors in both claims made a variety of allegations against Fidelity, including negligence and a breach of fiduciary duty, related to clients’ investments in structured products or notes.
The arbitration decision did not provide any detail about whether the salesperson involved was a broker, registered investment advisor, or a representative at a call center. The salesperson was not identified in the arbitration award.
A Fidelity spokesperson did not immediately comment on Wednesday.
Matthew Thibaut, the attorney for both groups of investors, also did not immediately respond to comment.
Structured products and notes, however, are complex financial instruments and require extra supervision from firms when they are sold to customers.
The performance of structured notes is typically tied to an underlying asset, such as a specific stock or an index such as the S&P 500 stock index. Customers buy the products and get some protection from a loss in the investments but have gains, or the upside, capped.
“In some investor claims, it’s a double whammy,” said Scott Silver, a plaintiff’s attorney. “Fidelity is a powerful name for retail investors, plus it works as a custodian for RIAs, and the custodian is supposed to be the guardian at the gate here.”
Investors and plaintiff attorneys have been arguing for years that RIA custodians like Schwab and Fidelity should be sued via FINRA Dispute Resolution Services in such disputes because those firms have obligations when involved in sales of structured products – or other complex investments – to vet those products.
FINRA Dispute Resolution Services is a private industry forum through which most clients file lawsuits and complaints against firms and individual financial advisors.
When structure notes or products go wrong, broker-dealers can wind up in costly litigation.
A three-person arbitration panel overseen by FINRA Dispute Resolution Services last March stunned the financial advice industry when it awarded clients of Stifel Financial $133 million in damages and legal fees in a dispute centered on a former star broker in Miami, Chuck Roberts.
David Jannetti and family members in 2023 sued Stifel Nicolaus & Co., the broker-dealer subsidiary of Stifel Financial, claiming at least $5 million in damages related to investments in structured notes, a strategy that has resulted in several previous significant arbitration claims and tens of millions of dollars in damages to clients.
A federal magistrate judge made a recommendation this month to a federal trial court judge in Miami to deny Stifel’s motion to vacate the $133 million award, the largest award in FINRA history in a retail customer arbitration.
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