Finra orders investment broker to pay $1.17M award to family

Two Charleston lawyers have helped a family secure a more than $1.17 million award against a Texas financial adviser accused of negligence for selling self-serving investments and giving bad advice.

A three-member arbitration panel for the Financial Industry Regulatory Authority, or Finra, issued the award against Terry Chilton on May 17 after determining that his bad investment advice harmed Rex McCorquodale; his wife, Ann; and their college-age son, Knox.

Chilton was friends with the McCorquodales and sold them risky variable annuities after they inherited about $6 million following the death of Rex’s mother, according to an attorney for the family, Andrew Gowdown of Rosen, Rosen & Hagood. He and his law partner, Timothy Muller, represented the family alongside lawyers from Oklahoma and Texas.

According to Gowdown, Chilton sold the McCorquodales two annuity accounts for $4 million in 2007 ahead of the market collapse and failed to warn them that they would be penalized for making withdrawals from the accounts.

Gowdown said Chilton knew that the McCorquodales would need to make frequent withdrawals to keep their business running. They manufacture specialty hot-water heaters.

He also didn’t tell them that they would be hit with additional surrender charges if they cashed in the accounts, which they did twice in order to follow Chilton as he moved between brokerage houses, Gowdown said.

The penalties and fees coupled with the McCorquodales’ market losses added up to nearly $2 million, according to a claim that the family filed with Finra against Chilton.

Chilton made more than $250,000 in commissions on the McCorquodales, according to Gowdown. He said Chilton was unqualified to work with the family because his broker’s license limited him to offering insurance products and annuities, neither of which was suitable for the McCorquodales.

Chilton declined comment and his attorney, Zandra Foley of Thompson Coe in Houston, did not respond to an interview request.

The Finra panel ordered Chilton and his company, Chilton Financial Services, to pay the McCorquodales $1,142,000 in compensatory damages and $30,000 in expert witness costs.

The family has negotiated a $600,000 settlement AXA Advisors along with a smaller, confidential settlement from IMS Securities. Chilton worked for AXA and IMS while serving as the McCorquodales’ financial adviser and the family accused the two firms of failing to supervise him.

Gowdown believed that Chilton’s “unlikeability” played a role in the Finra award. He said Chilton was “very arrogant, very sure of himself.”

“At the end of the day, this is professional negligence,” he added.

Chilton has not yet paid the award, according to Gowdown. He has asked Finra to discipline Chilton for failing to comply with the arbitration panel’s order and for allegedly violating the investment industry’s rules, regulations and standards of care.

He asserted that the Finra decision was noteworthy because arbitrators tend to “split the baby” and the award in this action, when coupled with the earlier settlements, nearly makes the McCorquodales whole.

But another securities lawyer, Elizabeth Zeck of Willoughby & Hoefer in Columbia, said such awards, while not exactly commonplace, aren’t really all that rare. Zeck was not involved in the case at hand.

“There are arbitrators out there who are willing to do the right thing,” she said. “Sometimes you just have to push the defendants and say, ‘This is a bad thing and these people have been wronged and they need to be compensated.’”

Follow Phillip Bantz on Twitter @SCLWBantz

NEGLIGENCE – BREACH OF FIDUCIARY DUTY

Case name: McCorquodale v. Chilton

Court: Financial Industry Regulatory Authority arbitration panel

Case No. 13-02390

Date of award: May 15

Amount: $1,172,000

Attorneys for plaintiffs: Andrew Gowdown and Timothy Muller of Rosen, Rosen and Hagood in Charleston

Attorneys for defendants: Zandra Foley, William Radford and Cory Reed of Thompson Coe in Houston.