From sealed transcripts,
the inside saga of
LPL Financial’s largest termination ever

THE FIRING OF BASHAW

The investigation resulting in Bashaw’s termination began after a second whistleblower, another LPL advisor, alerted the firm to the two Blackwell loans in August 2014, LPL executives said in their testimony.  

The firm accused Bashaw of undisclosed private securities transactions, the client loans and a business deal that posed a potential conflict of interest, according to FINRA BrokerCheck. 

Blackwell’s estate won a $1.9 million settlement from LPL and Bashaw (it's unclear how payment of the settlement was divided) the day after Bashaw’s bankruptcy filing, his full CRD regulatory disclosure file shows.

Blackwell’s daughter Karen, a trustee and administrator of the estate, declined to comment. Bashaw listed her as his largest creditor in his bankruptcy, with a debt of $500,000 from a judgment amid total liabilities of $1 million to $10 million.

The other transactions at issue included investments by Blackwell in a members-only airline company, Texas Air Shuttle; an equity swap between JebCo and an asset manager, Ascendant Advisors; and purchases of shares in the energy investment fund Navitas Fund by another Bashaw client.

Bashaw’s lawyer argued that LPL should have known about the transactions from its oversight of his email and other means, including the 2011 review following the tip. Bashaw testified that Blackwell’s two loans provided capital to his firm rather than to him personally.

He also said that he quickly scrapped the Ascendant deal and received no compensation for the other ones. Pressed by LPL’s lawyers on the lack of private securities transactions disclosed in his annual compliance questionnaires, Bashaw said he had not viewed his involvement with the transactions as formal participation.

He testified, for example, that he had simply introduced Blackwell to Texas Air Shuttle owner Ken Haney and told the client that Navitas appeared to be a good investment. LPL’s lawyers countered that even transactions bringing Bashaw no profit should have been disclosed.

Haney declined a request for an interview; Navitas manager John Lovoi and representatives for Ascendant didn’t respond to requests for comment.

In his May 2016 arbitration filing against LPL, Bashaw alleged defamation, negligent misrepresentation and an “an audit of Bashaw in furtherance of its plan to raid JebCo's employees, steal Bashaw's clients and to destroy his career.” Bashaw set his final request for damages at $16 million to $24 million.

The arbitrators’ rejected Bashaw’s claims in a 2-1 decision. One of the two arbitrators who ruled against him dissented on the panel’s decision to grant Bashaw a $25,000 payment from LPL over its failure to produce documents in the case.

THE PERSONAL TOLL

The sizable but unsuccessful request for damages spoke to how much JebCo’s business had expanded under LPL. Bashaw had received a buyout offer of $14 million for the firm in 2007, when it had about eight to 10 advisors with around $300 million in assets under management, he testified. Between 2007 and 2014, JebCo’s production nearly tripled to $9 million with more than 30 advisors across several offices, he said. He retained only 4% of its $966 million in AUM, roughly $40 million, after the termination, an accountant hired by the claimant said. 

Bashaw’s daughter Mason and her then-fiancé, now husband, Lane Clelland, resigned from LPL, and the firm fired Bashaw’s assistant, Laura Thompson, and his compliance delegate, Tony Cilia. JebCo remains in business as an affiliated office of International Assets Advisory, with Mason Clelland one of its two other advisors. 

In testimony during the arbitration, Clelland broke down as she testified that her father has “never been the same” since the termination and the April 2015 death of her mother. 

The timing for the Bashaws was indeed dreadful. As Bashaw dealt with inquiries from the news media as well as FINRA and the Texas State Securities Board, he testified, his wife Kim’s condition reached its final stages. “We were constantly battered by news reports, emails, clients calling, friends calling, the press calling. And we were under siege,” Bashaw said. 

State regulators suspended his license for six months, and two FINRA lawyers and an investigator questioned him for 11 hours in March 2015 at the regulator’s Boston office, Bashaw testified, noting that the regulators have not handed down any major punishments against him.

FINRA spokeswoman Michelle Ong said she could not discuss Bashaw’s case. However, she noted that the regulator’s Central Review Group, a unit of its Office of Fraud Detection and Market Intelligence, reviews regulatory filings for potential misconduct, including U5 filings on terminations for cause.

Bashaw submitted a formal response to LPL’s U5 filing, contesting “the accuracy, validity and motive for the purported reasons for termination,” FINRA BrokerCheck shows.

THE COMMAND CENTER 

When LPL’s investigation ramped up in late September 2014, Shorris, Lewis, Nussbum and Bill Morrissey, LPL’s managing director for business development, along with other staff members, set up a command center in a Houston hotel room, Lewis testified.

While Bashaw was out of town on a recruiting trip, on Sept. 24, Robert Prestininzi, LPL’s vice president of investigations, led a surprise visit to JebCo’s offices, according to testimony by Thompson, Bashaw’s assistant. Prestininzi questioned her for more than two hours, she said. 

By her account, one member of his team played the good cop, telling her she was doing a good job and that she would be OK. The bad cop, Prestininzi, accused Bashaw of elder abuse in his handling of Blackwell and told her Casady and Moore had given her boss preferential treatment, Thompson said. 

“He was cruel. He was rude. It was one of the most uncomfortable situations I’ve been in in my entire life,” she said. “That man was awful.”

Prestininzi’s group included a deputy from the Harris County Sheriff’s Office working off-duty as a private security guard whom Prestininzi identified to her as an auditor in training, Thompson testified. The deputy, John Klafka, testified that he had his loaded service weapon on his hip.

“I don’t remember her being upset,” Klafka said of the interview with Thompson, describing it as a roughly an hour long in which “everything was cordial.” Prestininzi testified that the conversation had been “professional” in tone even though Thompson had appeared nervous.  

Bashaw’s daughter said Thompson was “shaken” by the interview.

Bashaw learned through calls to him by Thompson and other staff about the surprise visit to JebCo and immediately booked a flight to Houston from Jackson, Mississippi. Shorris reached him by phone shortly after he arrived at George Bush Intercontinental Airport in Houston, Bashaw testified.

Shorris and Thomas Estridge, a supervisory specialist, informed Bashaw of the firm’s investigation for the first time, according to Bashaw. They fired him in the course of a five-minute conversation, according to Estridge’s testimony. Shorris later said he no longer felt comfortable with Bashaw being registered with LPL.

Shorris had recommended Bashaw’s ouster to the executive leading the investigation, Ken Fasone, based on the type of conduct and its repetitive nature, he testified.

“As part of LPL’s annual advisor training and certification process, advisors — including branch managers, [office of supervisory jurisdiction] managers like Mr. Bashaw — are asked a series of questions about compliance with the firm’s rules and FINRA rules as well,” Shorris said. “He was asked questions that should have elicited — based on the information we found here — ‘yes’ answers. And he did not give those answers. So the information was incorrect.”