There are conflicts of interest in the brokerage industry, and then there are mega conflicts of interest that can turn into King Kong-sized problems for financial advisors, their firms and their clients.
This column is about the latter, those giant messes that lead to clients filing lawsuits seeking millions of dollars in damages.
In this instance, disturbing allegations about the sales practices of a longtime Triad Advisors broker are beginning to emerge through legal settlements and potential arbitration claims.
Triad Advisors is a broker-dealer that is part of the giant network Osaic Inc., formerly Advisor Group, which has 10,500 financial advisors and brokers. Owned by private equity funds, Osaic has been busy changing its name, consolidating its separate broker-dealers and making significant acquisitions, all indications it is likely moving toward an initial public offering of its shares in the near future.
The broker at the center of this mess is James "Jim" Walesa, who had a 39-year career in the securities industry before leaving in 2021 to run a senior care technology company called Clearday Inc., where he is chairman and CEO.
Walesa was a broker at Triad Advisors from 2000 to 2019, according to his BrokerCheck report, and at Arkadios Capital for two years after that. His practice was based in the Chicago suburb of Park Ridge, Illinois.
According to settled and potential investors claims, Walesa allegedly sold clients illiquid alternative investments, including real estate deals, that he also managed, owned or directed. In other words, he was allegedly both the salesperson and the product sponsor to some clients, which is a doozy of a conflict.
According to one investor claim recently settled with Triad Advisors and published on Walesa's BrokerCheck profile, "the allegation was that the financial professional was involved in unsuitable recommendations for investment in businesses for which he also served in positions of ownership, operation or direction."
That investor complaint was filed last March for $5 million in damages and settled in November for almost $2.1 million, according to BrokerCheck. The investments were private limited partnerships and direct investments.
And Triad Advisors is potentially facing further damages. "Not all claimants in the claim settled," according to BrokerCheck. "Those that elected not [to] settle have advised that they will continue to pursue their claims through a formal filing."
Walesa's BrokerCheck report shows another $4.7 million in settled claims since 2021, alleging "unsuitable" investment recommendations, along with $1.5 million in claims pending.
"Based on these allegations, there's no question about the potential for a huge conflict of interest involving these investor claims," said Knut Rostad, president of the Institute for the Fiduciary Standard.
A spokesperson for Osaic declined to comment.
Chet Payne, president at Arkadios Capital, said the investments that were the basis of the investor arbitration claims were sold at Walesa's prior broker-dealer. "None were sold here," he said.
A former client of Walesa, Galia Meiri, 55, says she invested $4.5 million in private deals with Walesa starting in the 2000s but doesn't have the funds to retire.
A medical doctor, Meiri first met Walesa almost 30 years ago after her parents died in a car accident.
As time passed, Meiri faced other life-changing problems, including a battle with breast cancer and a divorce in 2019. She said Walesa's message was simple throughout: Her money was in good hands.
"You keep doing what you do best, and eventually work will be optional," Meiri said in an interview, paraphrasing Walesa's advice. "And that’s what I went with. I started out not knowing who to trust and he made me trust him."
She and her attorney, Dax White, said that her investments in the private investments sold by Walesa have been rolled over into other companies and are now shares of Clearday, the health care company Walesa is now leading. Shares of Clearday last traded on Friday for 62 cents.
"I worked my whole life trying to save for now, and I can't retire," Meiri said. "I have to work for the next 10 years."
A Clearday spokesperson noted that Meiri can still reap plenty of wealth from her longtime investments with Walesa, particularly as Clearday has announced a merger.
"Galia and her advisors appear to misunderstand what she owns," the spokesperson for Clearday wrote in a statement to InvestmentNews. "Her holdings are not worthless. In fact, the majority of her holdings are in preferred shares of a Clearday predecessor company with certain rights that are preferential to common stock."
"These preferred shares carry attractive conversion privileges," the spokesperson wrote. "Galia's preferred shares, if converted and sold at the upcoming business combination, should be worth significantly more than Galia ever invested."
The spokesperson added in the statement that Walesa was only a financial advisor and a personal investor with the companies he sold to clients like Meiri before 2019, when he took on a leadership role that was fully disclosed. That was the same year Walesa left Triad Advisors.
White, Meiri's attorney, said that there was so little trading in Clearday, it would be almost impossible for her to sell her shares in the company, which number more than 1 million.
"The Clearday stock is so thinly traded, I can’t imagine a scenario in which she could sell her shares," White said. "There’s no one buying."
He has not yet filed an arbitration claim on her behalf, but said he will soon, and is planning investor claims seeking more than $35 million in damages in claims involving Walesa and Triad.
Alternative investments are all the rage in the financial advice industry these days, with firms aggressively marketing scads of new alternative investments for their wealthy clients. Alternative investments can be expensive, complicated products, or the exact opposite of cheap, easy-to-understand index funds.
And notable industry figures, including Jay Clayton, the former chairman of the Securities and Exchange Commission, want to make illiquid, expensive alternative investments more available to investors.
Those people should take a few moments to talk to Galia Meiri as they push for easier purchases of alternative investments. Perhaps they would come to appreciate the risks involved in such strategies.
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