LPL Financial and one of its largest branches must pay a second and larger monetary award to clients who say the giant wealth manager failed to detect fraud and then tried to conceal its mistakes.
Myriam Rodriguez Gonzalez and Juan Angel Ibarra Rodriguez won their latest FINRA arbitration award in a July 14
That decision follows their November 2019
Dr. Ibarra and his wife relocated from the Mexican border town of Camargo to Rio Grande City, Texas, out of concern for their personal safety, they said in their arbitration filings. They opened American banking and investment accounts to secure and diversify their assets. Instead, they lost millions of dollars to fraud, unsuitable and unauthorized investments, and negligent supervision, according to their statements of claim. For the last seven years, Ibarra and Rodriguez have been fighting LPL in three court cases and two arbitrations. Dr. Ibarra, a surgeon who is a dual Mexican-American citizen, runs a practice and small hospital in Camargo.
The legal wrangling often required for victims of fraud is “really a disadvantage to the investor because they're getting the worst of both worlds,” said regulatory expert Douglas Schulz of Invest Securities Consulting.
“It's supposed to be quicker and cheaper for the client than having to go to state or federal court,” Schulz said. “The law firms that make a living defending Wall Street make a living by running up the legal bills by fighting these things just as much as if they were in state or federal court.”
Representatives for LPL, which denied the couple’s allegations in its answer to the arbitration case, didn’t respond to requests for comment. The attorneys who represented Rodriguez and Ibarra didn’t respond to emails seeking comment.
‘Collateral’ or ‘carved out’ case
The couple first sought redress through the courts in 2015 and 2019, but state judges ordered each case into arbitration based on provisions of their customer agreements. Prior to the unanimous panel decision earlier this month, one arbitrator in the couple’s first case dissented from the award. The clients “failed to offer evidence that they suffered any monetary damages as a result of their customer relationship with LPL,” the arbitrator wrote. The two others on the panel held LPL liable for $1.2 million in damages and $340,000 in attorney fees.
Edward Bruce Miller, the CEO of Fort Mill, South Carolina-based Financial Resources Group, declined to comment on the cases. In a response listed on Miller’s FINRA BrokerCheck
With relationships spanning 90 financial institutions and 1,000 registered representatives managing over $37 billion in client assets, Financial Resources Group generates $200 million in revenue per year, according to the company’s bio of Miller on its website. It’s one of the largest enterprises
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Both cases include mention of a barred and terminated former LPL advisor named Christian P. Garza who hasn’t been registered with any firms for a decade. The cases blame LPL and two of its independent branches for engaging in or failing to prevent harmful actions. The couple didn’t name Garza as a respondent in either case. They have resolved their case against the LPL branch they named in the first case, Lone Star National Bank.
PO Box Mexico
Dr. Ibarra and his wife opened separate LPL accounts at roughly the same time with Financial Resources Group through Garza and through Lone Star with other brokers, according to their statements of claim. The couple had initially hoped to invest in certificates of deposit. In using multiple banks, they searched for the best rates while being mindful of FDIC insurance limits.
Rodriguez and Ibarra “would make frequent cash deposits, in the form of proceeds from the hospital, into their accounts in Texas,” according to their April 2017 statement of claim. “Banking options within Mexico came with a very real threat of kidnapping and violence for [the couple] and their children.”
The couple alleged that Garza, who later turned himself in to the FBI, bilked them for millions through forged documents listing an address of “PO Box 42, Mexico” and unauthorized offshore investments later seized by authorities. They had accused Lone Star of recommending unsuitable investments in non-traded REITS through misrepresentations and omissions. And they demanded accountability for LPL and the branch supervisors for
“Not only did [the] respondents ignore the glaring omission of there being no city listed for the PO Box 42 in Mexico, but, even worse, Mexico does not have PO boxes,” according to the January 2021 statement of claim. “Any comparison between account documents and the PO box and email address Mr. Garza was utilizing would have revealed instant discrepancies.”
The “egregious conduct” of LPL and Financial Resources Group “forced” the couple to file the second arbitration after the panel in the first case denied the clients’ request to file a larger, amended claim including evidence that surfaced late in the initial proceeding, according to Rodriguez and Ibarra’s claims. Documents such as trade confirmations and account statements with phony email addresses painted the full picture of the case for the first time, the couple said.
If LPL and Financial Resources Group had provided all of the materials from the get-go, the “true extent of Mr. Garza’s fraud in [the clients’] accounts and [the] respondents’ catastrophic failures in its supervision would have been revealed in 2012 instead of 2018,” the filing states. “Instead, [the] respondents actively concealed this information from [the clients] to induce them to continue utilizing LPL for their securities transactions.”
LPL had successfully compelled arbitration in both cases after Rodriguez and Ibarra filed civil claims in state courts. The firm fell short in its effort to enjoin the couple from pursuing the second case through an order from the Houston federal court, where its attorneys argued that the first arbitration was the last word on the matter. In February 2021, District Judge Nancy Atlas denied the firm’s request on procedural grounds.
