TBS Attorneys Carl Carlson and Jason Dennett won an appeal before the Washington State Court of Appeals in a case involving a family trust’s $26 million claim for investment losses. TBS’s clients claim that AIG Financial Advisors (now known as SagePoint Financial Services) failed to supervise an AIG registered representative (stockbroker) who was simultaneously employed as an Investment Adviser by a separate Registered Investment Adviser firm, when he, in his capacity as an Investment Adviser, managed his grandfather’s trust accounts at a different brokerage firm. The family trust claims AIG’s stockbroker lost (or diverted to his own use) the trust’s entire $26 million through breaches of fiduciary duty, unsuitable and speculative trading, negligence, securities fraud, and securities law violations. The Court of Appeals, in Garrison Trusts v. SagePoint Financial, Inc., reversed the trial court’s ruling dismissing the trust’s claims, and sent the case back for trial.
The key issue on appeal was whether a broker-dealer has a duty to supervise its stockbrokers’ conduct when they engage in securities transactions not on behalf of their brokerage firm, but as a Registered Investment Adviser, in accounts held at a different brokerage firm. In a published opinion filed July 14, 2014, the Court of Appeals ruled that a broker-dealer could have such a duty, (1) if it knew or should have known that its registered representative was being paid as an Investment Adviser for engaging in private securities transactions at a different brokerage firm; or (2) if red flags existed, triggering a duty for SagePoint to investigate and monitor the activity.
You can find a link to the opinion here.