Oil Entrepreneur Sues Wells Fargo and LPL For Mismanaging Securities-Based Loan Strategy
From the Desk of Jim Eccleston at Eccleston Law
An oil refinery entrepreneur has filed suit against Wells Fargo Advisors and LPL Financial alleging that his advisor overleveraged his account with a $5 million securities-based loan as part of a strategy that failed amidst the Covid-19 pandemic.
The complaint accuses the former advisor, John Dougherty, as well as LPL and Wells Fargo of breach of fiduciary duty and breach of contract. According to the complaint, Dougherty allegedly convinced the client in 2013 to obtain a $5 million loan to cover taxes and other obligations following the sale of his Alabama-based business, Warrior Asphalt, Inc., for a $9.5 million profit. Dougherty claimed that the loan would permit the client to generate income from the full proceeds to cover living costs and interest. However, the loan allowed Dougherty to charge management fees on the gross investment while also obtaining credit for interest payments on the loan, which exposed the client to greater market risk. Dougherty never recommended paying off the loan, even though the client’s account required at least a 3.5% return merely to pay the annual advisory fee and interest on the account.
The strategy ultimately failed in March 2020 at the outset of the pandemic as Dougherty began selling off most of the client’s equity securities to protect himself and Wells from losing their collateral on the loan, according to the complaint. Dougherty departed for LPL in January 2021. LPL failed to conduct due diligence on the advisor’s accounts and additionally ratified Dougherty’s problematic strategy in an effort to “continue recovering substantial fees”, according to the suit.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.
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