Houston Retirees File $5,000,000 Lawsuit Against Fidelity
Shepherd Smith Edwards & Kantas, LLP (investorlawyers.com) Options Strategy Loss Lawyer teams are representing more Fidelity customers wrongfully convinced to use options to hedge their concentrated position. This is at least the third similar case SSEK has been retained to work on for a Fidelity investor with a large position in a single company who was told to use that to engage in a covered call strategy against that position.
In the most recent case, a Houston couple has filed a FINRA arbitration against Fidelity Brokerage Services alleging that the covered call strategy sold to them was misrepresented and far too risky. Ultimately, the stock they were holding went up in value significantly, resulting in almost $8 million in losses from this recommended strategy.
This is a sad example of what happens when a firm places its own interests ahead of its clients’ interests, which is a violation of the Securities & Exchange Commission’s (SEC) “best interest” standard. In this case, the two retirees are alleging unsuitability, misrepresentations and omissions, gross negligence, breach of fiduciary duty, and more.
In their options trading strategy fraud case, as outlined in the FINRA complaint, one of the claimants had worked for a technology company and received shares of the company as a part of his compensation. Over time, he accumulated millions of dollars in shares, but at a very low-cost basis. So, the couple did not want to sell the shares as the tax consequences would be very high. As a result, the millions of dollars in shares were sitting in an account where Fidelity could not make any money from them.
Over the years, according to the complaint, these investors met with Fidelity regularly to discuss their accounts, always indicating they did not want to sell their large holding of this stock. During one meeting in 2023, since the claimants did not want to sell their large position and let Fidelity manage the proceeds, the firm’s financial advisors recommended that the claimants retain a third-party manager to sell covered calls.
Claimants were allegedly told this strategy would allow the retirees to generate extra income from these otherwise dormant assets. According to the complaint, the couple made it clear they were inexperienced investors when it came to buying and selling options and didn’t understand how options worked or the risks involved.
Nevertheless, the claimants were told that this was a suitable investment strategy. No discussion was offered about the extreme risks of options or that there could be a huge loss or negative tax consequences.
Did Fidelity Seek To Defraud Investors?
It has come to light from other cases filed around the country that Fidelity had been looking to get a better return on the assets in client accounts. This was especially true for accounts holding a concentrated position since the firm was the custodian of those accounts but didn’t make anything for holding the shares.
Fidelity allegedly pushed customers to retain third-party managers to put into action a covered call strategy so Fidelity could profit from the assets. The managers would charge a fee for their services, and Fidelity would get a certain percentage of the fees as a “kickback” payment.
Fidelity allegedly recommended third-party managers that charged the highest fees and paid the highest kickbacks to the firm, a direct violation of Regulation Best Interests.
Our Options Strategy Loss Lawyers Can Help You Explore Your Legal Opportunities
These are not the only investors Shepherd, Smith, Edwards & Kantas is representing with broker fraud lawsuits against Fidelity. For example, earlier this year, two other claimants filed a six-figure options trading loss lawsuit in which they are seeking up to $500,000 in damages. They are alleging that the broker-dealer employed a covered call strategy on a concentrated position, very similar to this one.
Shepherd, Smith, Edwards & Kantas is also investigating Cornerstone Wealth Management, which is one of the third-party managers that Fidelity has recommended to customers through its Wealth Advisors Solutions product (WAS) as well as Spiderrock Advisors, who was one of the “sub-advisors” implementing the options strategy at issue in this case..
If you sustained losses because of what may have been a too risky investing strategy recommended by Fidelity or another brokerage firm, contact our seasoned options trading strategy attorneys today to request your free, no obligation case consultation.
For more than 30 years, Shepherd Smith Edwards and Kantas Options Strategy Loss Lawyer teams have represented retail investors, retirees, wealthy investors, and institutional investors against negligent or greedy broker-dealers. We have the knowledge, skills, and experience to take on even the most complex kinds of losses and claims.
Call our Options Strategy Loss Lawyer team at (800) 259-9010 today.