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Friday, December 6, 2019

Fraud claim against investment firm dismissed in case in which nephew stole aunt's money

Lawsuits

By Megan Sims | Sep 5, 2018

General court 09

NEW ORLEANS – Aegis Capital Corp. was recently granted a motion to dismiss claims of fraud and negligence in a suit in which a woman alleged the investment company was liable the fraudulent acts committed by a her nephew who stole over $500,000 from her.

According to court filings, Beryl Patin hired her nephew, Terry Trenchard, to be her financial adviser while he was an Aegis employee. Patin found out that Trenchard had been stealing money from her account for several years in a confession letter he wrote prior to his suicide.

Patin argued that Aegis was as fraudulent and negligent in the incident as Trenchard, but U.S. District Judge Mary Ann Vial Lemmon in U.S. District Court for the Eastern District of Louisiana issued a judgment on Aug. 24 granting Aegis their motion to dismiss. 

Patin hired Trenchard in 2005 as her financial adviser and made an investment of $1.5. million, court filings said.  In May 2009, Trenchard left Aegis, so Patin moved her investment to Trenchard's new employer, Capitol Securities Management Inc., but by this time she only had a balance of $765,668. Trenchard explained away her low balance as being caused by the 2008 market crash, which Patin did not dispute. Then for eight more years, Trenchard would continue to be in charge of her account at Capitol until he was terminated in March 2017 because he was being investigated for fraud. Upon his termination, Trenchard sent confession letters to several people, including Patin, Capitol, and other clients, which detailed his fraudulent activity and shortly after, committed suicide. 

In his confession letter, Trenchard admitted that after losing a substantial amount of a long-time client's money in the early 2000s, he used Patin's money, as well as other clients' money, to fund that account, court filings said. Through at least 2010, he forged Patin's signature on letters of authorization to transfer money to other accounts and wrote checks to himself and his wife totaling over $500,000. While at Capitol, he continued to funnel Patin's money to other accounts, created fake documents using the Capitol letterhead and even created a joint account in his and Patin's name with Fidelity Brokerage Services, after learning he could do so without her authorization. His goal in creating the joint account was to make back some of the Patin's money by participating in aggressive trading, but it backfired, the filings said. 

In August 2017, Patin filed arbitration claims against Capitol, Fidelty and Aegis with the Financial Industry Registry Authority (FINRA). Aegis quickly filed a motion to dismiss on the grounds that Patin's claims were untimely based on a FINRA rule that does not give eligibility to claims submitted six years after the occurrence of the claim; FINRA granted the motion.  

Patin filed suit against Aegis on May 17 claiming Aegis was fraudulent and negligent. Aegis again filed a motion to dismiss arguing that Patin did not properly plea as her claims are directed to Trenchard specifically. The court went on to suggest that Patin had early warning signs that something was not right with her account in 2009 when she first moved her account from Aegis to Capitol. 

"At that time, Patin was on notice that something was amiss and should have investigated further," Lemmon said in her judgment. "If she had conducted a reasonable investigation into her account, she could have discovered that Trenchard had improperly withdrawn funds from and mismanaged her account." 

Patin also argued that Aegis was liable for Trenchard's conduct. Aegis argued she was untimely with her filing, and the court agreed.  

"Any alleged continuing acts of fraud or conversion committed by Trenchard and any negligent supervision on the part of Aegis ended in May 2009 when Trenchard left Aegis," Lemmon said. "Any responsibility on the part of Aegis for Trenchard's actions terminated at that time." 

Though the court dismissed most of Patin's claims, which included fraud, negligence, conversion and negligent supervision, the court decided not to dismiss Patin's claim of breach of fiduciary duty based on fraud as there is a 10-year period to submit a claim.

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