Ameriprise Hit With $20M Suit From Former Clients
BY ANDREW WELSCH
OCTOBER 5, 2015

http://www.onwallstreet.com/news/industry/ameriprise-hit-with-20m-suit-from-former-clients-2694335-1.html

Ameriprise is defending itself from a $20 million arbitration case filed by two clients who claim they lost millions due to negligence and misrepresentation. The firm denies the charges, saying they were sophisticated self-directed investors. Image: Bloomberg.
Ameriprise has been hit with a $20 million arbitration suit from two former clients who say they lost millions due in part to negligence and misrepresentation of certain securities.
The firm and advisor deny the charges, countering that the clients were sophisticated, self-directed investors, according to arbitration documents.
The dispute between the two parties, which is pending in arbitration, hinges in part on certain multi-million dollar stock positions and what advice the clients received.
George Murphy, 64, and his wife, Cheryl, 63, started working with Ameriprise advisor Joseph Grund in 2009 after moving from Michigan to West Palm Beach, Fla., according to documents filed in the arbitration case.
They had previously worked with another Ameriprise advisor in Michigan, and had previously maintained accounts with H&R Block that was acquired by Ameriprise in 2008. The former clients and had accumulated approximately $15 million in retirement savings, the documents show.
They had accumulated the assets through savings from George Murphy’s job as a plant controller for an auto parts supplier in Michigan as well as investing in several pharmaceutical and biotech stocks in the 1990s and 2000s, according to their attorney, Lars Soreide.
Soreide says that his clients moved to Florida “with certainly enough money to retire [and] looking to be more conservative.”
Their new Florida-based advisor, Grund, has been with Ameriprise since joining the industry in 1994, according to BrokerCheck. He had one previous client complaint that was withdrawn.
When reached via telephone, Grund referred any questions to Ameriprise.
‘DEVASTATING LOSSES’
The Murphys had two large concentrated stock positions in Arch Coal and Allied Nevada Gold.
According to their arbitration claims, the couple says that Grund recommended buying Arch Coal stock on margin, yet used no stop loss or hedging strategy. Grund traded in and out of the stock position, earning large commissions while the stock plummeted in value, according to the couple. They lost more than $8 million over the course of three years.
Grund repeated this with other large stock positions, including Bank of America, the former clients say. The couples’ losses in Bank of America stock cost them over $5 million, arbitration documents show.
This strategy deviated from their risk tolerance and goals, and though they complained, Grund told them that he could “make it all back,” according to claims filed by the couple.
“Clearly there was no adequate system in place at Ameriprise Financial which allowed their employee/registered representatives to over concentrate their client’s account into high risk investments on margin resulting in devastating losses to their life savings,” the couple allege according to arbitration documents.
SELF-DIRECTED INVESTORS
Not so fast, says Ameriprise.
The firm denies the allegations, saying that client George Murphy was “an active investor in the equity markets who liked to take concentrated equity positions, trade options and employ margin,” according to the firm’s rebuttal filed in arbitration.
Ameriprise says that the clients were in fact “active, self-directed and sophisticated traders who took risks and developed and followed their own investment strategy,” and the firm bears no responsibility for their trades.
Murphy, the firm says, reported that he had a high risk tolerance and was an experienced investor, even going so far as to listen in on earnings conference calls.
According to Ameriprise, Murphy even maintained a self-directed account with an online brokerage firm, transferring over at one point 380,000 shares of Arch Coal stock, worth about $1,047,617.
Soreide, his attorney, confirms that his client did have an account with Scottrade.
And Ameriprise says that the clients repeatedly declined Grund’s advice to take less concentrated positions and diversify their portfolio, according to arbitration documents. The former clients can’t turn around and blame Ameriprise and Grund for their “self-executed trading strategy,” the firm says.
The clients’ attorney disputes this charge, saying that Grund “would frequently recommend buying more and ‘averaging down.'”
“Mr. Murphy utilized a broker to watch and protect his funds. Ameriprise implemented no stop loss on any position or any hedging strategy to protect his account to the downside despite having such large concentrated positions,” says Soreide, whose law firm is based in Pompano Beach, Fla.
Documents filed in arbitration show that there was frequent trading in and out of certain stock positions, often within weeks or days or each trade, and with commissions charged for each.
When reached for comment, an Ameriprise spokesman says: “We believe this claim is unfounded and we are vigorously defending ourselves. We stand behind the advisor and the supervision of the transactions.”
The heated dispute isn’t likely to be resolved any time soon. Short of a settlement, the two parties will have to wait for an arbitration panel to settle the matter after hearings start – next June.
Article Questions:
#1 After your initial read of this article which side are you on and why?
#2 Regardless which side you are on (Broker/Ameriprise or the clients)…what duty or responsibility (if any) should an investor have “to watch the watcher” (i.e. pay attention to those they hire to do important work on their behalf)?

#3 Saving 15 million in a retirement account is difficult without some exceptionally high returns and taking some abnormally high risks (using borrowed money to leverage your investments, hyperactive trading in volatile stocks, naked options and highly concentrated portfolios)…assuming the Murphy’s (the clients) used some of these strategies in the past should that impact the outcome of the lawsuit in your opinion (why)?
#4 Any ideas on how the broker/Ameriprise could have better protected themselves from this lawsuit?