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A group of ex-clients of bankrupt former financial adviser William Tatro IV has agreed to settle a Financial Industry Regulatory Authority arbitration targeting Tatro and his former employer, San Diego-based First Allied Securities Inc.
The 11-member group agreed to drop the case in exchange for unspecified sums to settle their individual claims, papers filed in Bankruptcy Court in Rochester show. The payout is to come from an insurance company that wrote an errors-and-omissions policy indemnifying First Allied and Tatro.
In a Bankruptcy Court motion filed last week, Catlin Specialty Insurance Co. is asking for the court's approval to pay the ex-clients. The payout and nearly $100,000 to pay Tatro's legal bills are part of a confidential settlement reached between the group and First Allied, the filing states.
In a resolution typical of the settlements brokered by FINRA arbitrators, financial terms are not disclosed and neither Tatro nor First Allied admits wrongdoing.
Securities lawyer Robert Pearl of the Pearl Law Firm P.A. in Pittsford and Florida, who represents the former Tatro clients, confirmed the settlement but declined to discuss it, citing the agreement's confidentiality clause. Other former clients are waiting in the wings, and arbitrations against Tatro and First Allied will continue, he said.
Meanwhile, Tatro's bankruptcy lawyer filed a blistering rebuke of Pearl last week. The rebuke came in a brief answering Pearl's request for permission to conduct a deep inquiry into Tatro's dealings, books and records in a special Bankruptcy Court proceeding known as a Rule 2004 exam.
In framing his request for the Rule 2004 proceeding, Pearl repeated "some of his usual diatribes against (Tatro), repeating false and defamatory allegations, which are irrelevant," maintained Jack Weider, special counsel in Rochester to the Buffalo-based Damon & Morey LLP.
The 2004 exam request and Pearl's request for an extension of a deadline to object to a discharge of Tatro's debts should be turned down, Weider asserts.
In previous statements made in open court, Weider has accused Pearl of breaching Bankruptcy Court rules and using Tatro's creditor list to troll for new clients.
Pearl maintains a website that solicits as clients people who put money into investments suggested by Tatro or Tatro's wife and sometime business partner, Mary Helen Caprice Mallett of Arizona. The securities lawyer has also targeted former Tatro clients with letters advising clients who lost money that they could be eligible to seek recovery from brokers that employed Tatro.
In an interview last week, Pearl said he would not comment until he had thoroughly reviewed Weider's 19-page filing.
Long active in the Rochester area and Arizona as a financial adviser, Tatro filed a Chapter 7 petition in July. Most of more than 1,000 unsecured creditors he listed in the filing are former clients. After filing the bankruptcy petition, Tatro dissolved several firms he previously used as a financial adviser and as host of a radio program offering investment advice. He has since registered new businesses, which he described to court officials as part of his new career as a life coach.
The bankruptcy filing halted the FINRA arbitration. In the arbitration complaint, former clients claim Tatro and his former employer, First Allied Securities, racked up big commissions while Tatro, whom First Allied failed to supervise properly, grossly mismanaged their accounts.
In August, Bankruptcy Judge Paul Warren said that for the time being he would let the automatic stay on the FINRA action stand for Tatro but would let the arbitration proceed against First Allied, whose insurer could pay claims.
Tatro's bankruptcy filing lists most of his ex-clients' debts at $1 apiece, a placeholder for sums to be determined later. The filing totals his liabilities, including $550,000 in secured debt, at $2.3 million. Tatro states virtually no recoverable assets. Anything realized from sales of his 4,000-square-foot Wayne County home, an adjacent 39-acre plot and a now-closed golf course would go to pay secured creditors, including Mallett, who has a position as a junior mortgage holder.
The FINRA complaint Pearl filed on behalf of the 11-client group describes Tatro as steering financially naive clients into instruments intended for sophisticated investors and needlessly tying up retirees' money in illiquid, non-traded real estate investment trusts. In a final accounting, Tatro clients' losses could total more than $100 million, Pearl asserted in previous interviews.
Weider paints such claims as vastly overblown if not outright false. The 11 ex-Tatro clients who recently settled with First Allied invested a total of $5.7 million and in the aggregate suffered only $131.60 in losses, Weider states in the papers filed last week.
In that filing, Weider identifies specific amounts that members of the FINRA group agreed to take to settle the case, arguing that the paltry sums they accepted belie Pearl's claims of Tatro bringing clients to ruin.
Lead FINRA plaintiff Donald Putnam, for example, whom Pearl identified in Bankruptcy Court as having lost most of what he invested with Tatro, does not appear to have taken that much of a haircut, Weider asserts.
"It is alleged that Mr. Putnam lost all but a small portion of his original investments made through (Tatro) and has been forced to drastically reduce his standard of living. However, the alleged pauper Mr. Putnam has entered into a settlement agreement whereby for the gross sum of $25,000 he granted a release to First Allied and (to Tatro)," Weider states in the filing.
"Cathy Hogan ... (whom) Pearl also describes as a pauper forced to live on Social Security, also has entered into a settlement agreement whereby for the gross sum of $8,000 she granted a release to First Allied and (Tatro)," Weider states.
Other Tatro clients whom Pearl claimed to represent have pulled out of Pearl's cases, and some clients whom Pearl names in court papers as Tatro's customers never did business with Tatro, Weider adds.
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