A group of retirees sue Metairie brokers, claiming they squandered savings to earn fees
Gordon Dalrymple, who retired from his management job at the technology company Zedi nearly five years ago, said the realization that his life savings were being frittered away came slowly.
On the advice of a former boss who was also a friend, he had entrusted about $450,000 from his 401(k) savings account to Craig Accardo who, together with Frank Briseno III, runs a Metairie-based investment firm. Both are registered brokers with FSC Securities, a large national broker-dealer network.
For several years before his retirement, Dalrymple had invested this money on Accardo’s advice and expected his principal to grow until he was ready to start drawing on it for retirement income.
“He had told me, ‘You’re not going to make astronomical amounts of money, but you will be able to draw about 5% retirement income,’ ” said Dalrymple. “But when I started drawing on it, as time went on, I noticed that the principal kept going down. Everytime I called him to explain why the principal was going down, there was always an excuse: Something went wrong in the stock market, and so on. But that wasn’t true because the market was having some of its best years ever.”
Eventually, Dalrymple, now 70, had had enough. “When you’re retired, the only way for you to make a living is to draw from the money you spent a lifetime putting away,” he said. “When the principal starts going backwards, you see the writing on the wall. If that money goes away, guess what? You’ll be sleeping under the bridge.”
When he sought alternative investment advice, Dalrymple was told that much of his money had been invested in wildly unsuitable securities for a retiree looking to preserve capital, such as risky real estate investment trusts for which there was no market that would allow him to sell and get out.
He is now part of a legal claim that has grown over the past few weeks to include 30 retired New Orleans-area investors who have similar stories of investing with the Metairie firm, which trades as Nettworth Financial Group.
The lawyer acting for the retirees, Joe Peiffer, said indications are that many more will join the claim, which will be arbitrated by a panel convened by the industry regulator, the Financial Industry Regulatory Authority, under the compulsory arbitration clauses that many people sign — often without realizing it — in broker contracts.
As Peiffer explains it, the claim isn’t that the brokers defrauded the investors. “It’s not like their money was stolen and they were wiped out in a Ponzi scheme,” he said. “But in some ways, this is even more unscrupulous. It’s a long con. This kind of misconduct can be hard to detect, but the reverberations can linger.”
The investors’ claim is filed against FSC Securities, with Briseno and Accardo cited in the suit as “nonparty representatives” of the Atlanta-based firm. Peiffer said broker-dealer firms typically organize so as to try to put distance between them and their operatives, but that it is well established that such claims are brought against the parent companies.
Gregory Curley, a lawyer for both Advisor Group and its subsidiary, FSC Securities, said via email: “FSC will be defending the claim against it, and as is our standard practice we decline to comment on pending litigation.”
Frank Briseno wrote in an email: “Craig and I are able to respond as follows: We take our clients’ well-being and suitability very seriously and are proud of our history of serving clients’ needs. These allegations are baseless, and we intend to defend them vigorously.”
Neither FSC Securities nor the Nettworth brokers would comment further about the specific claims.
The crux of the investors’ claim is that the brokers misrepresented investments and sold the retirees high-risk securities to generate high commissions for the brokers, even though they knew their clients wanted low-risk investments that would protect their capital.
The claim, if found to be true, would violate FINRA rules, including the requirement that investment advisers must not mislead investors about the risks of an investment.
Part of the claim says the brokers “concealed from claimants material information regarding the investments, and actively, unreasonably and illegally induced claimants to invest their money in a way that led to guaranteed and unearned profit” for the brokers.
Many of the claimants, like Donald Diggs, worked for AT&T and met the brokers at an event organized through their former employer.
Diggs, a retired area manager who invested more than $750,000 of his savings with Nettworth, said he became uneasy with all the obfuscations.
“Frank (Briseno) never wanted you to write him, and that kind of bothered me,” Diggs said. “He would say, ‘If you send an email, I have to send it to corporate and corporate has to look over it before I respond.’ ”
Like Dalrymple, Diggs felt he was being misinformed and getting the runaround. “I talked to him and said, ‘Frank, one of the main things I told you when I came here is I want to protect my principal,’ ” Diggs said. “I’ve had times when I’ve looked at my account and overnight it’s tens of thousands of dollars down when the market was going up. He kept telling us not to compare with the market because my investments were safer. But they were not.”
One of the investments that many of the claimants’ money was put in was American Finance Trust Inc., which was a nontraded real estate investment trust until it was listed on the Nasdaq exchange last year, ostensibly to give investors a way to sell and finally realize their gains. Its value has dropped by more than half since it was listed, and that company itself is being sued for allegedly misleading investors.
The case represents a broader issue that has dogged the consumer financial services industry, which is notoriously hard to regulate.
It was only in June that the Securities and Exchange Commission, which oversees FINRA, adopted a package of rules to protect regular investors after talking about it “for nearly two decades,” as SEC Chairman Jay Clayton put it. The new rules explicitly say brokers and advisers now have to work in their clients’ best interest rather than their own.
The claim against the Nettworth brokers includes the allegation that they deliberately concealed the way they were being compensated, which was allegedly through high commissions on unsuitable investments.
The new “best interest” rule will not come into effect until next year, though, and that will be too late for any investors lodging a complaint before that, according to Jessica Forbes, a securities lawyer at the Fried, Frank firm in New York.
Consumer advocates have also argued that the only remedy process that is available to investors — a compulsory arbitration by FINRA — is inadequate.
“Self-regulation is a problem for any industry that is interested in making money,” said Sally Greenberg, head of the Washington, D.C.-based National Consumer League, a consumer advocacy group.
She notes that compulsory arbitration — which has spread since the 1980s to cover most contracts that affect people’s lives, such as employment, telecom, credit cards and others — has tended to favor industry rather than the consumer. “The companies are repeat players, so they tend to use the same arbitrators, and they are paying the bills,” she said. “So, there is a temptation for arbitrators to side with industry.”
Peiffer, the claimants’ lawyer, said he has been calling for years for rule changes that would enhance investors’ rights. But he said the FINRA process, when it is done right, can produce a satisfactory result more quickly than investors might expect if they could go through regular courts.
“I feel hopeful that we’ll get a fair arbitration,” said Diggs.
Dalrymple, too, is putting his faith in the process, which he was previously unaware of.
“I’m hoping that the arbitrators can see that these are legitimate, hardworking people who trusted in these people, and they’ve gotten taken,” he said. While the retirees were seeing their nest eggs dwindle, the brokers “were the ones making the money. They were the ones getting rich.”
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