Tonkon

Case Study

Description
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Oregon Jury Says Investors’ Interests Must Come First

When a registered investment advisor leaves an investment firm, the two parties often negotiate who retains the advisor’s clients and management of the associated investment assets. While such horse trading is a common industry practice, it clouds the issue of fiduciary duty owed to the investor. Who is responsible for acting in the client's best interests? What information must the investment firm share with the investor?

Last summer, a Multnomah County jury helped answer these questions. Tonkon Torp trial lawyers Paul Conable and Steve Olson obtained a jury verdict and $1.86 million award (plus punitive damages) for their client, Dr. Melissa Beal, by successfully arguing that her investment firm failed to meet its fiduciary duties by withholding material information about her advisor’s departure from the firm. 

Background 


When Dr. Beal’s investment advisor (who had undisclosed performance problems) left his firm, he was permitted to solicit 20 specific clients from his book of business. The investment firm sent those clients letters encouraging them to move their relationship to the departing advisor. No mention was made of his performance issues. Dr. Beal moved her retirement accounts, which totaled over $2 million. The investment advisor placed this money in unsound investments, which he misrepresented. Dr. Beal sued the investment advisor for securities fraud, seeking recovery of her retirement funds. Only then did she learn about the investment advisor's performance issues at his prior firm and about the negotiation between the investment advisor and the firm over control of her accounts. Dr. Beal sued the firm for failing in its fiduciary duties to her.

Conable and Olson argued that in protecting some clients from an advisor who didn’t meet the firm’s standards, while releasing other clients to that advisor, the investment firm had breached fiduciary duties that require full and truthful disclosure of information to all investors. The jury agreed.

With thousands of registered investment advisors and billions of dollars under management by their firms, this ruling could have far-ranging consequences.

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