Finra panel awards pilot $2.7 million in flap over suitability

A retired American Airlines pilot from Maryland won a $2.7 million judgment from a Finra arbitration panel in a dispute over how his savings were invested. After a five-day hearing, the Financial Industry Regulatory Authority Inc. panel agreed that Andrew Michalak's retirement money should not have been concentrated in two non-public mortgage funds. The panel decided that American Investors Co. and adviser Sewell Frey Sr., should pay $1.32 million in damages, interest and fees. Fund manager Dunham & Associates Investment Counsel, Inc. was told to pay $1.37 million in damages to Mr. Michalak, who was ordered to transfer ownership of his shares with the Dunham & Associates Daily Mortgage Fund back to Dunham. Mr. Michalak invested more than $2 million — essentially the entirety of his savings after working more than 30 years — in the pair of Dunham mortgage funds on the advise of Mr. Frey, said Thomas Costello, the attorney for Mr. Michalak. “I don't' think he ever appreciated the difference between public and private funds,” Mr. Costello said. “He woke up one day and didn't have any access to his money.” The pair of mortgage funds suspended redemptions in early 2009, thus preventing Mr. Michalak from being able to draw from his retirement accounts to pay his and his wife's daily expenses, Mr. Costello said. Mr. Michalak is in his seventies. Calls to American Investors weren't returned. Another Dunham entity, along with two officers named in the arbitration, “were completely dismissed and expungement recommendations were made for one of the officers,” said Dunham's chief sales and marketing officer Salvatore M. Capizzi. Meanwhile, Mr. Costello said the Finra award goes a long way in helping the Michalaks “get back to where they should be.”