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Sue Your Broker When Your Investments Lose Value

This article was written by in Investing. 6 comments.

I know Larry Hagman from watching re-runs of I Dream of Jeannie, but he’s apparently better known as the answer to the question, “Who played J.R.?”. Hagman’s now in the news, not because his next movie is in production, but because he has won $1.1 million plus legal fees in a suit against Citigroup. That’s not all. Citigroup was required to pay $10 million to charities as a result of the arbitration.

Here is how it all began. Hagman and his wife moved their investments to Smith Barney in 2005, when the broker was a branch of Citigroup. Although Hagman requested a conservative portfolio, the broker invested in a mix of 75% stocks and 25% cash and bonds, a mix better described as moderately aggressive. The broker also sold Hagman a $4 million life insurance policy requiring annual premium payments of $168,000.

After the market collapsed, Hagman sold the insurance at a significant loss and was also required to pay a $437,000 exit fee.

The broker was obviously not exercising fiduciary duty, and this was the arbitration panel’s finding. There may be many investors with a similar story. When a full-service broker makes her own decision to invest differently than instructed by the investor, there could be legal consequences. Of course, there would be no such suit in a better market. If a broker’s independent decision resulted in a windfall for the investor, he wouldn’t in his right mind sue the brokerage for providing higher-than-expected returns with a riskier portfolio. Risk only seems to matter when the results are unfavorable.

Most investors should be more hands-on and involved than Larry Hagman. He’s a busy actor, and probably doesn’t put in the effort to handle his investments personally, and will probably only look at them when there is a problem. Furthermore, Hagman has the resources to hire and pay an attorney to take his case, not knowing whether he would receive compensation for those legal fees.

If my investments lose value, I have no one to blame to myself and no one to sue. If I had enough money to hire someone to take care of my investments while acting in my best interest, my options for passing the blame would be expanded. Most people have lost money in the stock market — and that doesn’t include victims of scams like Bernie Madoff‘s operation — over the past few years and would love to get that back.

Should Larry Hagman be responsible for monitoring his broker or should Citigroup be liable for his investment losses?

It’s Not Nice to Mess With J.R., Gretchen Morgenson, New York Times, October 9, 2010

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The Madoff Name Premium

This article was written by in Wealth and Affluence. 3 comments.

On Saturday, an auction in New York featured items once owned by Bernard Madoff. The auction raised over $900,000, beating expectations. Once combined with proceeds from another auction later this week, it’s likely that this money will go to investors who were burned by Madoff’s Ponzi scheme.

Here are some of the items that received winning bids this weekend:

  • Two pairs of Ruth Madoff’s diamond earrings: $140,000
  • Bernie’s Mets jacket: $14,500
  • Three duck decoys: $11,500
  • Madoff branded boogie boards: $1,000
  • A life preserver: $7,500

Serving 150 years in prison could likely be, from an asset value standpoint, one of the best things to happen to Madoff. Of course, he won’t be able to enjoy the benefits of his celebrity status. The benefits of this auction and Tuesday’s auction of larger assets such as Madoff’s boats will go to his victims. One of these victims is allegedly Zsa Zsa Gabor. She owes $120,000 to the IRS and claims her inability to pay is due to Bernard Madoff who took $7 million of her money through the Ponzi scheme.

Zsa Zsa will assemble the money with the help of her ninth husband and will do what many people do when they owe the IRS money: They will set up a payment plan on pay the debt over time.

Watch eBay and other auction houses; perhaps some of these items will continue to fetch higher prices due to their association with the most popular investment scammer in recent history.

Madoff’s Mets jacket sells for … $14,500, Les Christie, CNN Money, November 15, 2009
Zsa Zsa Gabor says she was victim of Bernie Madoff, Jessica Hudson, Examiner.com, November 15, 2009

Consumerism Commentary was included as an Editor’s Choice in the 229th edition of the Carnival of Personal Finance earlier this month with Seven Zen Principles to Guide Your Money and Your Life.

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