A FINRA arbitration panel ordered Woodbury Financial Services to pay two customers more than $1 million in compensatory damages and interest for failing to supervise a former employee.
Clients Kris and Sandy Dielman say Woodbury breached fiduciary obligations regarding know-your-customer rules and misrepresented them as clients after failing to properly supervise former broker Robert Hayes Hoffmann, according to the
The misrepresentation related to real estate and coal investments, specifically the Hybrid Aircraft Company, Edgewood Property Group and an Indiana military building, in addition to variable annuities issued by Lincoln National and AIG Polaris and unspecified A-share mutual funds.
Since Hoffmann filed for bankruptcy in federal court in February, the panel stayed judgment and did not rule on claims against him. In September, FINRA suspended Hoffmann for three months for willfully failing to amend his Form U4 to disclose an IRS tax lien against him, per BrokerCheck.
FINRA barred Hoffmann in November for refusing to appear for requested on-the-record testimony about customer allegations concerning potential unsuitable recommendations, unauthorized transactions, excessive trading and private securities transactions, among other violations, per BrokerCheck. Hoffmann was also barred by the Indiana Securities Division in January, per BrokerCheck records. Hoffmann neither admitted nor denied the findings.
The total $1,091,575 award to the clients comprised of $970,107 in compensatory damages and $121,468 in pre-judgment interest, per the award.
Hoffmann forged a relationship with Dielman, a four-time Pro Bowler, that lasted 13 years, according to Dielman’s attorney Robert Traylor of the San Diego-based law firm Stratege Law.
“Over time he essentially remade Dielman’s investment by engaging in short-term trading, and in inappropriate switching of A-share mutual funds,” Traylor says. “Woodbury did nothing despite obvious presence of misconduct that violated the firm’s own procedural and supervisory rules.”
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Some of the proceeds went to commission a song with the lyrics: “Pop champagne in L.A., New York to Florida; buy another bottle just to spray it all over ya,” says the SEC.
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The fraudulent investments advertised guaranteed returns of up to 8% annually, the regulator says.
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The firm arranged to make transactions differently on the days that it was required to calculate its reserve deposits, the regulator says.
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In total, Hoffmann transferred millions of dollars of Dielman’s investments almost entirely into three variable annuities that were “wholly unsuitable” for an investor in his 30s, says Traylor. While Dielman did not lose the principal, he was charged commission and fees. “The performance was dismal in comparison to a standard, suitable portfolio,” Traylor says.
An attorney for Hoffmann, Adam Wentland, did not return a request for comment.
Another pending disclosure is requesting $3.2 million in damages citing unauthorized trades and churning, per BrokerCheck. Hoffmann began his career with Robert W. Baird in 1999, moving to Woodbury in 2006 and remaining with the firm until 2017, per BrokerCheck.
“Hoffmann was consistently in a bit of compliance trouble, especially with inefficiencies in records and operations and Woodbury just didn’t step up and oversee him in a way that was calculated to catch what was happening,” Traylor says.
Woodbury, along with Questar Capital, agreed to pay more than
A spokeswoman for Woodbury declined to comment citing a company policy regarding litigation.
