TD Ameritrade steered a disabled couple looking for a managed account to chat rooms where they lost about half a million dollars, according to the clients’ FINRA arbitration filing.
Kevin and Natalie Flynn accused TD Ameritrade of violating FINRA’s “know your customer” rules, as well as unsuitable investments and a failure to supervise — two of the most frequent client claims. Their case sheds new light, however, on the practices of online investment chat rooms.
It also comes at a moment when wealth management firms are increasingly experimenting with new technologies to change how they service clients. National brokerages such as Merrill Lynch have raised account minimums in recent years, shifting smaller investors to calls centers or online platforms.
For its part, TD Ameritrade advertises the timely market data, education and trading tools of its investment chat room platform. "The market never rests. Why should we?" says the firm's thinkorswim website. "In a competitive market, you need constant innovation. Explore our pioneering features."
Neither of the Flynns has been able to work for years, and Kevin Flynn visited a Manchester, New Hampshire, branch of TD Ameritrade in June 2010 looking to invest their disability settlements, according to their statement of claim. Kevin Flynn struggled daily attempting to copy the trades executed by the leaders of the chat rooms, he says.
“We were looking for somebody to manage it, and the rep told us about these chat rooms where you just do what they do,” says Kevin Flynn, 60. “It was very fast, the way that they traded.”
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C.L. King & Associates argued it did not break any FINRA rules.
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The broker’s written promise of 7% returns on a variable annuity made for a simple case, the lawyer for the claimant says.
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The duo led a seven-person team in Chicago serving 50 wealthy clients, according to the bank.
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Stocks and Puerto Rican bonds are the focus of many cases among clients, advisers and firms.
SHADOW TRADER
Financial Planning obtained a copy of the filing in advance of any hearings in the case. A spokesman for TD Ameritrade said the firm doesn’t discuss its handling of specific clients or pending litigation.
“Providing an exceptional experience for clients is our top priority at TD Ameritrade,” the spokesman wrote in an email. “That said, issues do arise from time to time, and we prefer to work those out with the client one to one.”
Kevin Flynn, a former salesman, suffered spinal damage while being treated for back injuries in a car crash nearly 20 years ago, he says. Natalie Flynn, 51, who had been a nurse, was diagnosed in 1996 with Sjögren's syndrome, a disorder similar to Lupus, according to her husband.
The Flynns disclosed their health status and total other assets of $100,000 to both TD Ameritrade and thinkorswim representatives who led a training session, according to the filing. Kevin Flynn began making investments through chat rooms called “shadow trader” and “first wave,” the document says.
The trades followed “constant, real-time transaction recommendations, based upon what the leaders of the ‘chat rooms’ saw coming in the next few minutes with their ‘technical work,’” according to the filing. “There wasn’t one instruction given at a time — it was a flow of instructions we were expected to follow and act upon.”
INSIDE THE CHATROOMS
The leaders selected various kinds of ETFs, option trades and other tactics, Flynn says. Over a period of two or three months in one of the rooms, though, he found it hard to follow who exactly was the leader, the filing shows. He also found it difficult to understand a lot of the jargon used in the rooms.
“These people went through a huge amount of money,” says the Flynns’ lawyer, Arthur Leider of Investors Arbitration Specialists, a San Diego-based law firm. “Never a call from Ameritrade, you know, ‘You’re down a couple hundred thousand, do you know what you’re doing?’”
The Flynns reached out to the firm four times to try to get help but never heard back, Kevin Flynn says. He later received a sales call from a vice president with the firm, only to be told that his problems with thinkorswim were not related to the vice president’s department, he says.
MORE THAN MONEY AT STAKE
The Flynns moved from a house to an apartment about three years ago to save money, and Kevin Flynn’s 15-year-old car has 240,000 miles on it. His wife is coping with depression related to the couple’s ability to provide for their 18-year-old daughter, Flynn says.
Leider and the Flynns are working on finding an expert to appear at hearings scheduled for the fall. But the case means more than the financial harm it caused the family, Kevin Flynn says.
“There should be some kind of safeguard for people who don’t belong in a very complex, accelerated situation like that,” he says.
