A client who said UBS Financial Services and a former broker “grossly mismanaged” his account will receive $1.1 million in compensatory damages under a FINRA arbitration award.
Patrick David Ridgeway lost millions of dollars out of a windfall of $13 million he took to UBS and registered representative W. Mark Parker after selling a stake in his medical testing company, according to the statement of claim and an interview with Ridgeway’s attorney, Lance McCardle of Fishman Haygood. In the Feb. 16
While the amount came in below the range of $1.3 million to $2.5 million that Ridgeway had sought in the February 2021 claim, the case stands out because of the fact that
Ridgeway alleges that Parker and UBS steered his money into company-managed accounts, products and a line of credit from an affiliate of the wirehouse that garnered the highest possible fees for themselves and saddled the client with losses. For instance, after the first U.S. outbreak of the coronavirus in March 2020, the company converted the account to all cash and later to 100% municipal bonds, missing out on the rising equity values that came later, McCardle said.
“The problem is, because of his loan, they were constantly changing his asset allocation to make sure the loan wasn’t called or there wasn't any problem with it,” he said. “It underperformed for years, but then what really was egregious was when COVID came.”
Representatives for UBS declined to comment on the case.
Parker, who’s now part of the Memphis, Tennessee-based Parker Wealth Advisory of Raymond James, didn’t respond to requests for comment on the case. The arbitration claim didn’t name Parker as a respondent, but his
More information on cases?
The vast majority of client complaints in FINRA arbitration end through settlements or other means before coming to any decision by arbitrators,
FINRA CEO Robert Cook has
Cases like Ridgeway’s against UBS display the amount of missing information in the available public award documents, according to Nicole Iannarone, an assistant professor at Drexel University’s Thomas R. Kline School of Law. Without obtaining the statement of claim or other documents in arbitration cases from one of the parties or their attorneys, awards usually don’t reveal very much about the nature of the cases, she points out.
“I wish there were more detail in the award, that there was a way for us to say what caused such a significant matter,” Iannarone said. “I wish we had access to the underlying information, the statement of claim and the answer at the very least to gain some understanding about what's happening in proceedings of this type.”
The detailed allegations
A later interview with McCardle and his cooperation in sharing the statement of claim enables a closer look at this case than most.
Ridgeway, a married father of four in his 50s who is a Jackson-based businessman with a successful career as a medical device salesman, received the significant payout after an outside investor purchased an interest in October 2014 in the testing company launched by himself, another co-founder and a doctor from New Orleans, according to the filing. Without any experience working with investment advisors, Ridgeway sought someone to help manage the windfall as well as expected taxes and other costs totaling $6 million.
Rather than managing a lower amount of assets and therefore taking in a smaller number in fees, Parker advised Ridgeway to use debt for the expenses by taking out a large credit line he could arrange through a UBS affiliate, according to the statement of claim.
“This arrangement, of course, allowed Parker and UBS to maximize their management fees by ensuring that claimant leave all of his sales proceeds in UBS-managed accounts rather than use those funds toward his cash needs. Through this arrangement, Parker and UBS received fees from the management of Claimant’s invested funds, as well as fees on the balance of Claimant’s outstanding loan,” the filing states. “UBS and Parker managed Claimant’s funds (particularly including the selection of Claimant’s asset allocation) in their own self-interest to ensure that Claimant could continue to maintain the large balance on his credit line and to protect its collateral.”
Certain alternative investments, including proprietary UBS products recommended by the rep and the firm, added to the fees amassed, according to the filing. Later, during the steep losses in stock values during the initial U.S. outbreak of the coronavirus, Ridgeway “pleaded with Parker and UBS to work with him through the temporary downturn,” the document states. Instead, the firm liquidated his securities and moved the proceeds to cash, it says.
“As Parker and UBS knew well at the time, this liquidation ensured that claimant would not participate in the market’s recovery, causing him substantial losses,” the claim states. “From May to August 2020, Parker and UBS began moving the bulk of claimant’s cash holdings into municipal bonds. They did not place any of claimant’s investments back into equities and nor did they recommend that claimant pay down any portion of the credit line at this time. All of these actions were also taken to protect UBS’s own interest at claimant’s expense.”
After Parker eventually left UBS for Raymond James in August 2020 and Ridgeway paid off the credit line a few months later, he had only about $1.25 million left out of the windfall, the filing alleges. Ridgeway filed the arbitration claim last February, accusing the firm of breaches of fiduciary duty and contract, misrepresentation and non-disclosure, negligence and gross negligence, failure to supervise, control person liability and a violation of Mississippi law. In its answer, UBS denied the allegations.
Under the award, the arbitrators unanimously ordered the compensatory damages from UBS to Ridgeway, plus 1% interest from the date of the claim through the final payment. They rejected the payment of any attorney fees or other kinds of damages and assessed equal costs for hearing sessions and postponements to the two parties, though. Ridgeway was “very pleased” with the award after UBS sought to discredit his claim before the panel, his attorney said.
“It was a lot of, ‘Well, he spent too much money.’ It’s his money,” McCardle said. “He went to you for advice. They owe a fiduciary duty to put his best interest first, and there's no way in the world that anyone could justify setting someone up like that to be in their best interest.”
