Sue Your Broker When Your Investments Lose Value
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