Articles Posted in FINRA Arbitration

Has the Harvest Volatility Management Harvest Volatility Management Collateral Yield Enhancement Strategy (“Harvest CYES”) been a deceptively bitter harvest for you? You are not alone in your complaint.  Well known brokerage firms like Merrill Lynch, Morgan Stanley, J.P. Morgan, Schwab and Fidelity have sold the product from the 11-year-old little known vendor of options-focused portfolios.  But as time goes by dozens of investors have complained they weren’t told by their brokers that the product is excessively risky.  Many of these investors were seeking low-risk places to put their money.

Harvest CYES is an complex “Iron Condor” investment structure that was peddled by multiple asset management firms in recent years.  Investopedia describes iron condor as a strategy  “constructed by selling one call spread and one put spread (same expiration day) on the same underlying instrument.”  Most often, the underlying asset is one of the broad-based market indexes, such as the S & P 500 Index (SPX); the NASDAQ-100 Index (NDX); or the Russell 2000 Index (RUT), the financial dictionary adds.

Investopedia goes on to show the head-scratching complexity of the Harvest Volatility Management Harvest Volatility Management Collateral Yield Enhancement Strategy and its ilk by saying it involves selling an at-the-money put with a strike price closer to the current cost of the underlying asset.  “Sell one at-the-money call having a strike price just above the current price of the underlying asset. Buy one out-of-the-money call with a strike price further above the current price of the underlying asset. The out-of-the-money call option will protect against a substantial upside move,” Investopedia explains.

This week the sun has set on the near quarter of a century career of Bank of America Merrill Lynch top private wealth manager Patrick Dwyer.  The top earning Dwyer, who wore both the broker and adviser hats for the firm has departed in the wake of company concern about a $25,000 political contribution he made in a suspected attempt to pressure the Financial Investor Regulatory Authority (FINRA) to wipe out customer complaints on his record.

That record includes a claim where customers were trying to seek more than $7.2 million in damages. All but one of the complaints were closed or denied without being resolved as detailed by the Miami Herald. The campaign contribution went to Florida Chief Financial Officer Jimmy Patronis who is one of the Florida officials who oversees the state banking regulator.  That paper said an arbitration panel agreed to remove the complaints, but FINRA itself balked.

Dwyer had seven customer complaints filed against him between 2001 and 2009. Two were denied, one was settled and the rest were closed without any action.  Six of the complaints alleged he had made unsuitable investment recommendations.  In the one dispute that was settled, the client received $111,000 in 2001 after complaining Dwyer didn’t delay the purchase of an investment as the investor instructed. As is customary, the firm disclosed the matter was settled to avoid the expense of litigation and that the complaint arose from a misunderstanding between Dwyer and the investor. Before leaving, Dwyer had run a 12-person unit that had close to $4 billion in assets under management and took in $10 million in revenue for the firm annually.