Firm Says Broker Told Customer to Sue, He Cries Foul, Arbitrators Hold Noses
An arbitration panel has essentially said “a plague on both your houses” to independent broker-dealer Prospera Financial Services and a Minneapolis-based broker from whom it sought indemnification for an award Prospera was ordered to pay to one of his former customers.
Prospera sought more than $376,000 from Alan Luttman for allegedly influencing a former customer to file an arbitration claim against the firm that he was affiliated with from 2004 to 2008.
Luttman, who earlier won expungement of Prospera’s notation on his regulatory record that he committed fraud in relation to the incident, counterclaimed for $305,000. He alleged defamation, among other causes of action.
In a decision posted on Friday on Finra’s arbitration awards website, a three-person panel dismissed both parties’ claims in their entirety, without explanation.
In a phone interview, Luttman said the arbitration settlement Prospera made with his former client involved a trading error for $20,000 made by another advisor but that he and the firm had racked up immense legal bills that far exceeded the award. He alleged that Prospera pursued him primarily to send a message for his having told regulators about errors that the other top producer, who served as Luttman’s office of supervisory jurisdiction (OSJ) ,was systematically making.
“They were mad at me because I gave a packet of emails, phone recording and other data to Finra [investigators], and then I gave it to the client when he asked,” said Luttman, a 30-year veteran broker and insurance salesman who is now affiliated with Cetera Advisor Networks. “Their lawyer kept saying at the hearing that it was a ‘roadmap to use against us.’”
Niel Prosser, the Memphis-based lawyer who represented Dallas-based Prospera, did not respond to several requests for comment. Abel Garcia, Prospera’s chief compliance officer who Luttman said testified at the arbitration hearing, also did not return a call for comment.
“In nearly 30 years of practice, I have never seen a case like this one,” said Donald McNeil, Luttman’s Bloomington, Minn-based lawyer. “It is highly unusual that a broker-dealer would pursue a former representative under these circumstances.”
Luttman said that his former OSJ, who was managing a Pacific Life annuity subaccount as a registered investment advisor for the client who sued Prospera, had moved the client and others from cash and government bond positions to equities right before Lehman Brothers filed for bankruptcy in September 2008 in the depths of the financial crisis.
He said he encouraged some other elderly clients who lost money as markets tanked after the bankruptcy to also consider claims against the other advisor and Prospera.
“The arbitrators asked me if I would ever go to Finra again to help a client, and I’m not sure,” Luttman said, noting that his firm’s production that for several years topped $1 million but is now down significantly. “I’m not getting back any of my attorney’s fees or any of the life that was sucked out for me.”