Speer v. Morgan Stanley Smith Barney, LLC, FINRA ID #13-00549 (Tampa, FL, 3/21/16).
The arbitration pleadings – which we sometimes manage to obtain – often shed light on the likely reasons for the arbitrators’ decision when the Award itself reveals little or nothing on that point, but they sometimes also present two mutually contradictory views of the facts, as they do here.
The Award itself recites the typical list of causes of action (including unsuitability, unauthorized trading, churning and violation of Florida’s elder abuse statute), asserting simply that “they relate to, among other things, Claimants’ investments in the banking and financial services sector of the market.” Here, we review the Amended Statement of Answer filed on behalf of Lynnda L. Speer, widow of Roy M. Speer, representing Roy’s Estate and various trusts, and the Amended Statement of Answer filed on behalf of Morgan Stanley, broker Ami Forte and her branch manager, Terry McCoy.
Claimant’s Side of the Story
The late Roy Speer (who died in 2012) was an entrepreneur whose ventures included the Home Shopping Network. Forte, his broker and paramour since the mid-1990s, gradually increased the number and size of Mr. Speer’s accounts under her control, which moved with her to Morgan Stanley. By 2009, Mr. Speer’s mental health was deteriorating, making him incompetent to understand the trading in his account. Forte, with McCoy’s knowledge and connivance, but without consulting Mr. Speer or getting his authorization, took advantage of this deterioration to churn his accounts (increasingly as her client’s condition became worse), charge excessive fees, over-concentrate his account and rack up a $13 million margin loan balance from which Respondents benefited. In 2012, an estate lawyer Mr. Speer hired on Morgan Stanley’s recommendation drafted an estate plan that would have reduced Lynnda Speer’s share of her husband’s estate, allowed Forte to continue managing the accounts after Mr. Speer’s death and given McCoy a lucrative appointment as a trustee.
Respondents’ Side of the Story
Roy Speer “was a remarkably sophisticated and controlling businessman who pursued unique investment opportunities and remained personally involved in his business activities throughout the time period at issue.” More to the point, he personally directed and supervised all of the trading in his account, employing a strategy of buying undervalued fixed income investments and selling when their prices rose, which sometimes resulted in over-concentration. His accounts earned over $60 million between 2009 and 2012. He used margin loans because their interest rate was very low and sometimes withdrew the funds he thereby obtained from Morgan Stanley to finance outside investments. He was not declared incompetent until shortly before his death, after trading ceased in his account. Lynnda and other members of the Speer family had a history of arguing over money, Mr. Speer directed the preparation of the proposed estate plan to which Claimant objects when he was still competent, and McCoy declined the offer to become a trustee.
After 142 hearing sessions, the Panel found all three respondents liable for “unauthorized trading, churning, breach of fiduciary duty/constructive fraud, negligence, negligent supervision, unjust enrichment” and elder abuse, awarding $32,840,000 in compensatory damages and $1,547,777 in legal costs to Claimant. The Award reports that Claimant did not submit the claim of unsuitability to the Panel.
(ed: *Claimant was represented by Scott C. Ilgenfritz and Guy M. Burns of Johnson Pope, a Tampa-based firm. Mr. Ilgenfritz is a former president of the Public Investors Arbitration Bar Association (PIABA). **The original Statement of Claim included other claimants, but they withdrew from the case. The Award describes Lynnda Speer, in her various guises, as the “Speer Claimants.” ***The Award also includes a detailed account of various motions in the case. Of most significance to the ultimate result, the Arbitrators granted Claimant’s motion to apply Florida law; reversed an earlier decision to exclude her expert neuropsychologist from testifying, finding that the expert was not a treating physician as they had earlier believed; and limiting the claim to damages occurring in or after 2009, based on Respondents’ assertion that Claimant destroyed relevant evidence. Claimant also requested an explained Award, but Respondents objected and the Panel denied the request. ****ARBchek users should watch for Awards that carry the designation, “Award has Backup.” Often, that “backup” will contain documents from the case, press releases, or other information about the particulars of a case.) (SAC Ref. No. 2016-13-07)
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