After 44 settlements adding up to more than $14 million in payments to clients of a barred financial advisor who has left the country, Voya Financial Advisors prevailed in one case.
James “Jim” Travis Flynn must pay former client Laurita P. Chmielewski compensatory damages of $322,990 for unsuitable and negligent “high-risk, high-fee, illiquid investments” amounting to $3.5 million worth of non-traded alternative products,
The case comes as the latest example of the
Flynn, who once operated Greenville, South Carolina-based Flynn Wealth Management Group, has
“The panel’s blatant disregard of the controlling law and resultant failure to find Voya vicariously liable is particularly egregious because [she] has no ability to recover damages against respondent Flynn, who has fled the country to the Dominican Republic and appears to be uncollectible,” according to the motion filed by Mika Meyers attorney Daniel Broxup.
“The arbitration panel refused to allow [Chmielewski] to introduce evidence that dozens of other investors had brought claims against respondents Flynn and Voya based on substantially similar allegations, including allegations that Flynn had inflated other investors’ assets on investment application documents without their knowledge,” Broxup wrote. “Many of the investments at issue were made before [she] made her investments, in some cases years before.”
Judging company liability
As is typical, the arbitrators didn’t explain the reasoning for their decision, although the state court filing and Voya’s post-hearing brief in the arbitration displayed the company’s arguments against holding it liable in this case. Broxup provided both documents to Financial Planning.
Efforts to reach Flynn weren’t successful. His ex-wife told
Voya, which
“Voya Financial Advisors terminated James Flynn’s registration in 2017,” spokeswoman Laura Maulucci said in an emailed statement.
Chmielewski, a frequent visitor to the Florida Keys, had opened an account with Flynn in the spring of 2016 after meeting him through another regular visitor to the area from Greenville, according to her attorney. Her allegations align closely with those of other investors alleging that Flynn falsified their net worth on internal documentation to circumvent Voya’s strict limits on the concentration of alternative products in a client’s portfolio. Regulators have detected similar methods used by registered representatives in
Los Angeles-based Patil Law has recovered more than $15 million over more than three years in settlements of cases brought by more than 100 former clients of Flynn and Voya, attorney Chetan Patil said in an email. Flynn had a bankruptcy disclosure and three tax liens on his record before he joined Voya in 2013, he pointed out.
“In our matters, we've directly challenged Voya's supervision of Mr. Flynn, contended that the firm was ultimately responsible for Flynn’s misconduct and had reason to know the fraud was occurring years before Mr. Flynn was terminated in 2017,” Patil said. “He was a ‘red-flag rep’ from day one, but Voya's supervisors and management — up to the highest levels — instead shut down audits, created special approval processes for Mr. Flynn and ignored reports blatantly pointing out discrepancies in client documents. All the while, Voya and Mr. Flynn were pocketing millions of dollars in commissions.”
Flynn’s actions showed “a clear pattern” across all of his clients, according to Patil. With a mixture of pressure from fake deadlines, misrepresentations about the products and their risks, the signing of blank account forms and falsified documentation of their assets to conceal the over-concentration in alternatives, Flynn drew the clients to the investments, Patil said.
“Ultimately, Mr. Flynn recommended the same illiquid and risky alternative investments to the vast majority of his clients, regardless of age, income, net worth, risk tolerance or investment horizon,” he said. “We have represented clients who were sold the same products and fed the same lies when they were as young as teenagers and as old as 101.”
The case
Patil, however, noted that he wasn’t privy to the specific circumstances of Chmielewski’s case. As part of its arguments in the arbitration case, Voya’s attorneys acknowledged briefly that “it is not [the] claimant’s fault that Flynn misled her,” the post-hearing brief shows.
Then Voya’s side proceeded to make the case that Chmielewski hasn’t lost money from the non-traded REIT and BDC investments or liquidated them under her current advisor and that she admitted to not having read disclosure forms she signed with “simple, one-sentence statements found directly above her signature on the transaction documents,” the document states.
“[She] was investing nearly $3 million through Flynn, money that was clearly very important to her,” Voya argued. “The law does not ask too much by requiring her to read the disclosures that she signed, or by presuming from her signature that she read and understood them. To the contrary, a company such as Voya needs to be able to assume that when a customer signs a statement reading ‘The information provided and used to calculate my liquid net worth is accurate,’ she has read the statement and really means it. Voya’s reliance on the information she certified by her signature was unquestionably reasonable.”
Chmielewski had requested damages between $2.5 million and $3.8 million after filing the claim in March 2019. In the internal documents, Flynn presented her liquid net worth as $25 million, which is nearly five times as high as the actual amount, according to her case. With a company policy prohibiting clients from placing more than 20% of their liquid assets in illiquid alternatives, he recommended that she place 60% of her net worth in the investments while making it appear to Voya that she was only investing 11% of her holdings, the motion to vacate the award states.
Her attorney argues that the panel denied the claimant’s requests to enter corroborating evidence while enabling Voya to “ambush” them with documents introduced into the hearings late without appropriate notice, according to the motion. The filing also accused the firm of using “false and fraudulent” evidence suggesting she could have secured the net asset value of her investments in two non-traded REITs and a BDC at any time by selling them back to the issuer.
“The testimony appears to have been integral to the arbitration panel’s decision because the panel awarded [Chmielewski] damages against Flynn for the upfront costs incurred to purchase the investments, but denied [her] any damages for the period following the investment, presumably based on its mistaken belief that [she] could have tendered her investments back to the issuers for redemption during that period,” according to the filing.
Arbitration awards require confirmation in court, but very few decisions get overturned. A state judge in Georgia
