PA Brokerage Ordered to Pay $1M in Damages

According to public records, Greensburg, Pennsylvania based brokerage firm, Trustmont Financial Group, Inc. was ordered by the Financial Industry Regulatory Authority to pay an aggrieved client more than $1 million in damages. 

The dispute centered on claims by the investor of breach of fiduciary duty, fraud, and negligence in relation to two 1035 annuity exchanges and a private real estate investment trust. The investor's demand for $500,000 in damages related to the transactions was doubled by the FINRA arbitration panel, which awarded him nearly $850,000 in compensatory damages and another $100,000 in punitive damages, as well as forum and legal fees reimbursement.

FINRA Crackdown on 1035 Exchanges Continues

Brokers like Trustmont typically will recommend that clients exchange their variable annuities under Section 1035 of the tax code. The transfer is tax-free to the client but the transaction generates a commission for the broker. In recent years, brokers have exploited this as opportunity to commit a form of churning, which FINRA is not happy about.

Accordingly, FINRA has sent a strong message from 2016 through the present by assessing sometimes huge fines to brokers and brokerage firms who take advantage of the 1035 exchange.

Brokers typically recommend clients replace annuities under Section 1035 of the tax code. That provides a tax-free transfer for the client, but also generates additional commission for the broker. As such, 1035 exchanges are typically how abusive account churning occurs with annuity products.

Pennsylvania & New Jersey Securities Fraud Attorneys

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