Feb 14 U.S. securities arbitrators ordered Deutsche Bank Securities Inc to pay a couple and their trusts a total of $934,000 after a onetime adviser allegedly swindled them in a multimillion-dollar insurance deal.
The ex-adviser, Karl Hahn, is equally responsible for the sum, according to a ruling by a Financial Industry Regulatory Authority arbitration panel on Tuesday.
Hahn worked in Boston for Deutsche Bank's private wealth management division, a unit of Deutsche Bank AG, from 2008 to 2009. FINRA permanently barred him from the securities industry last year after a series of customer and regulatory complaints, according to a public disclosure report.
Susan and Michael Myers filed the case in 2011 on behalf of themselves and several trusts, alleging civil fraud and negligent supervision of Hahn, among other misdeeds, according to the ruling. The case involved their purchase of a risky type of life insurance in which policyholders finance premiums with loans typically tied to variable interest rates.
The Nevada-based couple initially sought $2.2 million in compensatory damages and more than $13 million in punitive damages.
The case is an example of the risks a brokerage can face when its advisers participate in certain business dealings outside of the firm. Brokerages typically have strict policies about such dealings, which in some cases can also violate industry rules.
Deutsche Bank is facing other litigation stemming from Hahn's alleged conduct.
While Hahn advised the Myerses through Deutsche Bank, he did not tell them that his father would receive a "significant" commission from the sale of the life insurance policy - an arrangement that could have prompted his recommendation, according to a complaint in a separate court case stemming from the transaction.
A Deutsche Bank spokeswoman declined to comment. Efforts to reach Hahn were unsuccessful. The panel did not include reasons for its ruling, as is typical in FINRA arbitration cases.
David Thomas, a San Francisco-based lawyer for the Myerses, said he is pleased by the ruling, which includes $834,000 in damages and $100,000 in legal fees. His clients believed Deutsche Bank and Hahn were to blame for the life insurance transactions, which caused "substantial losses," he said.
In other cases involving Hahn, New Hampshire federal prosecutors charged him in 2010 with wire fraud related to an alleged $1.9 million real estate scam, according to court documents. Hahn worked out a plea deal, but then changed his mind, according to the documents. The status of the case is unclear.
Hahn's legal troubles also include a $2.55 million federal court judgment obtained by Deutsche Bank last year. The lawsuit stemmed from the unpaid balance of a $2.8 million bonus he received upon joining Deutsche Bank, according to court documents. Signing bonuses are structured as loans that are forgiven over time, typically within seven to 10 years.
The FINRA panel also dismissed a claim the Myerses filed against Oppenheimer & Co, where Hahn worked after Deutsche Bank. An Oppenheimer spokesman said the panel found no liability for wrongdoing against the company and that Hahn had worked there "for a very short time during the period in question."