Finra arbitrators ordered Raymond James and Associates Inc. to pay $3.2 million to more than two dozen customers over unauthorized trading in oil and gas ventures.
The three-person all-public Financial Industry Regulatory Authority Inc. panel ruled in an Oct. 25 award that the firm was liable for transactions conducted by James Edward Lyons, a former registered representative who is now barred from the industry.
The claimants accused Mr. Lyons of filling their portfolios with oil and gas master limited partnerships and unit investment trusts without their approval. Linn Energy, Memorial Production Partners, Calumet Partners and Cushing MLP Funds were among the companies in which Mr. Lyons invested their money, including funds from individual retirement accounts and 401(k) plans.
The trading occurred from February 2013 through November 2017. Mr. Lyons worked in the Raymond James office in Shreveport, La., until April 2017, when the firm fired him over allegations of unauthorized trading. Mr. Lyons was a registered representative with Morgan Keegan for 19 years prior to the firm's acquisition by Raymond James in 2013.
Mr. Lyons constructed the customers' portfolios such that upwards of 80% was concentrated in the oil and gas partnerships, according to their attorney, Frank "Kim" Breese, owner of Breese Law Office. The value of the investments in the highly leveraged ventures plummeted around 2014, when the price of oil dropped precipitously.
The arbitrators awarded a total of about $3.2 million, plus interest, to 27 customers. Most of the award was in compensatory damages. It also included $140,000 in expert witness fees and $25,00 in costs and travel expenses. The claimants asked for $8.9 million in damages at the close of 73 arbitration hearings.
"We were pleased with the award," Mr. Breese said. "It was more than they lost out of their pockets. It's not as much as we claimed that they would have made if their portfolios were invested properly."
A Raymond James spokesman declined to comment.
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The arbitration panel was lenient toward Thomas Whitmeyer O'Brien, who is the Raymond James branch manager in Shreveport and was a respondent in the case along with Raymond James. The arbitrators ordered the expungement of references to the case from Mr. O'Brien's BrokerCheck record.
The arbitrators found that Mr. O'Brien had no direct contact with the investors and would not have been able to discern the suspicious trading in their accounts among the 11,000 accounts at the branch.
"The tools available to him as a manager were insufficient for him to note the excessive levels of concentration in claimants' accounts, and he justifiably relied upon his operations manager under delegated authority and claimants to bring matters to his attention," the arbitrators wrote. "Although [Mr.] O'Brien was not the financial advisor assigned to the claimants' accounts, he did take steps to inform his brokers to be mindful of over-concentration in the oil and gas sector."
The finding that the Raymond James did not provide Mr. O'Brien with the resources needed to catch the problem could haunt the firm, according to Mr. Breese.
"That's a strong precedent to have against Raymond James in future cases," he said.