An arbitration panel recently awarded $2 million to a husband and wife who were private banking clients of Bank of America. The arbitrators found that the bank had breached its fiduciary duty to the couple, and awarded an amount intended to force disgorgement of any profits that the bank had derived from the private banking services it had provided to the clients.
The Atlanta couple, sophisticated investors with extensive real estate holdings, had decided to invest in a condo hotel conversion in Florida, but when the bank began to question the viability of the project and ultimately declined to provide financing to the developer, the couple’s private banker did not pass along the bank’s concerns to the couple. Because the project was having difficulty in obtaining financing, the husband agreed to provide a substantial letter of credit to enable the developer to obtain financing, but Bank of America still did not advise him (or his wife) of the bank’s concerns about the risk of the investment and the softening market for condo hotel conversions and Florida resort property. The bank also did not tell the wife that her husband had encumbered their marital assets, despite her having requested that the private banker keep her abreast of her husband’s financial activities. Like many successful entrepreneurs, the husband was a visionary and a risk taker, but he needed direction and guidance from financial professionals such as those employed by the private banking department at Bank of America, which was the reason they entered into the relationship in the first place.
“This case illustrates how even the most knowledgeable investors can be duped when they place their trust in others,” said Craig T. Jones, an attorney with Page Perry, an Atlanta law firm which represents victims of investment fraud. “Where there is a relationship of trust between an investment advisor and a client in which the client relies in good faith upon the representations made by the advisor, the advisor cannot avoid liability by simply claiming that the investor should have known that he was making a bad deal.”
It is noteworthy, however, that the Atlanta couple asked the arbitrators to award their total losses, which were much more than $2 million. The arbitrators limited the award to disgorgement of the bank’s profits because they believed that the investors should have realized that the investment was risky and could not completely blame the bank, but at the same time the arbitrators did not want the bank to profit from conduct that violated the bank’s fiduciary duty to its private banking customer.
Given the current financial crisis and the failure of many investment markets due to the subprime mortgage crisis, many disgruntled investors are turning to lawyers to determine whether their losses may have been caused by the unlawful conduct of investment advisors and brokers. The Atlanta law firm of Page Perry represents many investors who are seeking to recover their losses in such cases.