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Recent Cases: Divorcee rescinds unsuitable CRUT and recovers her trading loss. |
The Client, a retired school teacher, received about $1.5 million worth of UPS stock in her divorce. This represented virtually her entire liquid net worth, and she needed this money to live on for the rest of her life. Thus, her primary investment objective was to generate income to pay her living expenses. In addition, since these assets were irreplaceable, preservation of capital was also of paramount concern. In 2002, she consulted the Respondents, who held themselves out as “financial advisors” offering “comprehensive financial planning.” Respondents advised the Client to set up an irrevocable Charitable Remainder Unitrust (“CRUT”) and transfer all of her UPS stock into the CRUT. They then had the CRUT sell the UPS stock and purchase a large variable annuity along with huge purchases of proprietary mutual funds. Finally, Respondents advised the Client to purchase a $1.8 million variable universal life (“VUL”) insurance policy to in effect replace the UPS stock she had irrevocably given away to the CRUT. While this “financial plan” generated astronomical commissions for Respondents, it left the Client with almost no assets to her name and an inadequate and unreliable income stream. Furthermore, it substantially increased the Client’s living expenses, because the VUL policy had an annual premium of $22,000. In arbitration through FINRA, the Firm negotiated a rescission of the CRUT, and the Client received her original UPS stock back together with substantially all of her trading losses. The case was handled by Ed Dovin and Allison Ficken. |
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