The ruling by a panel of three Financial Industry Regulatory
Authority arbitrators found USCA Capital Advisors LLC liable in the
case, along with its brokerage and investment advisory units,
according to a ruling dated Monday.
The decision includes $853,000 in punitive damages, a rare type of
sanction that arbitrators impose to punish and deter improper
conduct, lawyers say. The panel did not give reasons for its
decision, as is customary.
"We are shocked," said Patrick Mendenhall, chief executive of USCA
Capital Advisors. He blamed, in part, a change to FINRA's
arbitration rules that allows investors to opt for a panel that does
not include an arbitrator who is affiliated with the securities
industry. The arbitrators "seemed somewhat confused" about basic
industry knowledge, Mendenhall said.
Financial advisers in the Houston area often target ExxonMobil
retirees, said Thomas Fulkerson, a Houston-based lawyer who
represented the investors. The oil company has a large campus and
other operations in the area.
The investors filed the case in 2013, seeking total damages of more
than $12 million. They said they had entrusted USCA with their
retirement savings based on the firm's promises about how it would
protect, manage and grow their accounts.
Each of the investors had attended a presentation by USCA's
registered investment advisory arm, USCA RIA, LLC, Fulkerson said.
Advisers told the investors that their program, the "Total Return"
model, would increase their S&P 500 gains while reducing the risks
of trading equities.
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Some of the investors believed that a computer program would run the
trading. Others believed the firm would track computerized results
and use the information to trade.
The actual approach, however, was a series of judgment calls,
Fulkerson said. "It was basically 'put your finger into the wind and
sense the direction of the wind, then make a decision on what you
want to do,'" he said.
Mendenhall, USCA's chief, said the investors' allegations were
"fabricated" and prompted by a disgruntled, former employee. The
claims focused on a single strategy and ignored that all but two of
the investors' overall portfolios were profitable, Mendenhall said.
(Reporting by Suzanne Barlyn and Grant McCool)
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