By Vicky Ge Huang | January 8th, 2020
A Finra arbitration panel has ordered National Planning Corp. to pay $2.6 million to an octogenarian customer who bought fraudulent promissory notes, non-traded real estate investment trusts (REITs) and other unsuitable investments on the recommendation of a now imprisoned former broker.
The award from three public arbitrators includes $1.58 million in compensatory damages, $1 million in punitive damages and almost $46,000 in costs, according to the award statement published on Tuesday. It did not explain the panel’s reasoning or their relatively rare granting of punitive damages.
Sandra Alford, 84, was a customer of William Glaser, who worked for nine years at National Planning, a broker-dealer unit of annuities company Jackson National Life Insurance, according to the widowed investor’s lawyer.
Glaser, who was not named in the arbitration, was barred from the securities industry in 2017 for failing to cooperate in FINRA’s probe of his termination by National Planing for selling-away allegations.
The 61-year-old broker is serving a three-year sentence for wire fraud for selling $1 million of high-yield promissory notes that clients bought through self-directed IRAs he helped them establish, according to the U.S. Attorney’s office in St. Louis. Glaser also misled them by falsely asserting he had invested in the unsecured notes, which were issued by a now-liquidated construction firm and never made any payments on the instruments.
The arbitration claim, filed in September 2017, accused National Planning of negligent supervisions, breach of contract, common law fraud and negligent misrepresentation. It sought between $1.6 million and $3.7 million in compensatory damages based on alternative calculations, in addition to an unstated multiple for punitive damages. Arbitrators ordered National Planning to pay all of the costs sought by Alford, but denied her request for attorneys’ fees.
Spokespeople at Jackson National, a subsidiary of British insurer Prudential Plc, did not respond to a request for comment on the award, and Jason Kempf, the U.S. firm’s lawyer in the arbitration case, declined to comment.
“This is not a small boiler room firm, this is a firm that should have known better,” said Bruce Oakes, one of Alford’s lawyers. “This is a firm that also almost exclusively sold these types of packaged products, annuities and non-traded REITs.”
In addition to encouraging investors to buy the bogus notes and high-cost REITs, Glaser allegedly pushed Alford to prematurely cash in annuities and buy almost identical products. The switching cost his client $300,000 in surrender fees, Oakes said.
Brokers and their firms typically collect commissions of 8-10% on non-traded REITs, said Craig McCann, owner of expert witness firm Securities Litigation and Consulting Group who testified on Alford’s behalf in the arbitration. Calculating in offering costs that sponsors keep, investors typically give up 13% to 14% of their purchase price, he said.