High-profile adviser loses 314G arbitration claim

NEW YORK — A high-profile financial adviser who hosts a weekly financial-advice radio show has lost a $314,000 arbitration claim that focused on his failure to deliver promised investment management.
Donald Sowa, president of Sowa Financial Group Inc. in East Providence, R.I., which is affiliated with Commonwealth Financial Network, has a strong media presence. He is quoted regularly in consumer and trade newspapers, including InvestmentNews, and has appeared on ABC’s “Nightline,” in addition to hosting “Money Talk,” his local radio show on 630 WPRO-AM in Providence.
On April 12, an NASD arbitration panel decided for the plaintiffs, Ruth and William Schunmann, and against Mr. Sowa and Commonwealth, which is based in Waltham, Mass. As is typical with arbitration claims, the arbitrators gave no reasoning for the decision.
The original claim was for nearly $524,000 in compensatory damage and $1.5 million in punitive damages.
Securities arbitration panels take issues of asset allocation seriously, one plaintiff’s attorney said.
“Most arbitration panels tend to agree that brokers have a duty to asset allocate — and re-balance — at least once per year, doubly so if it’s a volatile asset class,” said Andrew Stoltmann, a securities attorney and partner with Stoltmann Law Offices PC in Chicago. Mr. Stoltmann added that Mr. Sowa’s experience may have hurt him in the claim. “It is typical for arbitrators to hold a higher-profile, more experienced adviser up to a higher standard than the rookie broker fresh out of the training class,” he said. “Arbitrators tend to expect more from more-seasoned advisers. While the standards are the same legally, arbitrator perceptions always come into play.”
“While we respect the panel’s decision, we do not agree with it,” said Ellen Rosenberg, Commonwealth’s associate general counsel, in an
e-mail message. “Additionally, please remember that claimants were only awarded a fraction of the total amount they were seeking.”
Mr. Sowa was traveling and not available to comment. Calls to his attorney, Thomas Nicholson of Finneran & Nicholson PC in Newburyport, Mass., were not returned.
The case unfolded during the worst time of the bear market. The Schunmanns hired Mr. Sowa in August 2000 to manage and invest their assets.
Their contributions peaked in November 2001 at $1.3 million, and they ultimately lost $523,000, according to the statement of claim.
Their portfolio consisted of a mix of individual stocks, including shares of Microsoft Corp. and Oracle Corp., and mutual funds, including the Putnam International Voyager Fund, which since has become the Putnam International Capital Opportunities Fund.
‘No models’
Mr. Sowa failed to deliver on his promise of hands-on management, said Frederick W. Rosenberg, the attorney for the Schunmanns.
“My clients hired him to be an investment manager,” Mr. Rosenberg said. “They wanted somebody to actively manage their account.”
Instead, according to Mr. Rosenberg, Mr. Sowa simply parked his clients’ initial investment in stocks and mutual funds.
“He had no models to figure if anything was wrong,” Mr. Rosenberg said.
Some of Mr. Sowa’s remarks in his testimony from last September before the NASD arbitration panel appear to buttress that claim.
According to his testimony, Mr. Sowa said that he “didn’t have to” re-balance the Schunmanns’ portfolio in 2003, even though asset allocation percentages of their portfolio changed due to the bear market.
During the arbitration proceedings, Dan Woska, another attorney for the Schunmanns, asked, “In the Schunmanns’ case, no decisions were made to do anything different than the original asset allocation, correct?”
“That’s correct,” Mr. Sowa replied.
Later in the testimony, he said that he probably reviewed the Schunmanns’ portfolio 85 times, based on a series of e-mails.
“And it appears that if you did look at it 85 times, then 85 times you made the decision nothing needs to be done?” Mr. Woska asked.
“Many of those times [that] would probably be true,” Mr. Sowa replied.
Mr. Woska asked, “Well, can you think of a time that you felt that something did need to be done?”
Mr. Sowa answered, “I have no idea. I would not recall.”
According to his testimony, he had $74 million in client assets under fee-based management at the end of last September.