Forgetting to Discuss Capital Gains with Clients Can Be Costly
A broker’s recommendation to a customer to sell his entire position in Panera Bread Co. shares is costing him and former employer Wells Fargo Advisors almost $170,000.
The broker, David W. Mesker Jr., failed to tell the client that sale of the position would create a capital gains tax bill, according to a complaint filed in October 2017 and decided in the client’s favor by a Finra arbitration panel this week.
It ordered Wells and Mesker, a St. Louis-based broker now with Raymond James & Associates, to pay $81,533 in compensatory damages and a $85,239 in lawyer’s fees, plus costs, to a trust of the now-deceased customer. The customer sought a refund of $50,000 for the “unnecessary” tax liabilities and $170,478 in lawyers’ fees, among other requests.
The claim by customer Eugene E. Brucker and the trust alleged that Mesker solicited sale of the Panera position “without communicating or disclosing the significant an unnecessary capital gains tax impact that [the] transaction would create,” according to the award document, and accused the broker of breach of contract, breach of fiduciary duty and negligence.
Tax-related negligence claims proliferate in bull markets, lawyers said, and brokers need to be sensitive to them.
“It’s a really important issue that I think gets overlooked regularly,” said Adam Gana, a plaintiff’s lawyer in New York who was not involved in the case. “Sometimes brokers think clients should know” about capital gains.
The arbitration panel, which did not provide a reason for its decision, denied Mesker’s request for expungement of the complaint. It also denied the claimants’ request that Wells return for disgorgement of commissions of $1,967 related to the Panera share sale and for $300,000 in punitive damages
Mesker, who is based in St. Louis, did not respond to a request for comment.
The Brucker claim is the only disclosure on his BrokerCheck record after a 28-year career that began at Wells predecessor firm A.G. Edwards & Sons in 1991. Mesker, who works in Raymond James employee channel, moved to the firm in May 2018.
Wells Fargo disagrees with the arbitrators’ decision but “will honor the outcome,” spokeswoman Jackie Knolhoff said.