March 02--HYANNIS -- An 80-year-old West Yarmouth woman says that in 1998 her former financial adviser sold her a $2 million life insurance policy that was inappropriate for her age, income and net worth. As a result, Jane McInnes is trying in Barnstable Superior Court to recoup more than $1 million from the adviser, Karl McGhee Jr., and the firm he was associated with at the time, LPL Financial LLC.
On April 4, the state Supreme Judicial Court will consider one aspect of this case: whether McInnes has to settle her claims through a securities industry arbitration process or in a courtroom.
The case in Barnstable Superior Court is on hold while the higher court considers it.
"I was thinking it would be nice for my boys," McInnes said Thursday of the insurance policy as she sat in the Hyannis office of her attorney, Bruce Bierhans. McInnes, a widow, has two adult children. She lives at Mayflower Place, a senior housing complex, and said she lives on proceeds from the sale of her house in Marstons Mills.
At the time McInnes purchased the life insurance policy, McGhee -- as her adviser -- had estimated her net worth was under $500,000, court records state. She and her attorney maintain that the policy sold by McGhee was too large.
McGhee and LPL Financial want to settle McInnes' claims through arbitration, using the services of the Financial Industry Regulatory Authority, an independent regulator of securities firms. They say McInnes signed a document in the 1990s and again in 2003 agreeing to settle disputes through arbitration and that she should abide by that.
McInnes, though, is pursuing her claims in court using state laws, the Consumer Protection Law and the Uniform Securities Act to ensure a fair hearing of her concerns, Bierhans said.
"We would much prefer to litigate in the state court with a jury of her peers rather than before an industry arbitration panel," Bierhans said Wednesday.
McInnes first filed her complaint on Sept. 28, 2011, in Barnstable Superior Court, alleging that McGhee failed to disclose the overall details of how the policy operated and its costs and risks. She also alleges he intentionally misrepresented facts about her investment, breached his fiduciary duty by failing to inform her of many aspects of the policy and intentionally inflicted emotional distress. McInnes also alleges that LPL Financial is liable for McGhee's actions while he was employed by the company.
McGhee had advised McInnes on financial matters since 1990. Starting in 1996, he was registered as a securities broker through LPL Financial at a South Carolina branch, according to FINRA records. He is no longer employed by the company, attorney Thomas Carey Jr., who is representing McGhee and LPL Financial, said Wednesday.
After McInnes filed her complaint in 2011, LPL Financial and McGhee filed motions asking a judge to place the court proceedings on hold and force her to participate in arbitration. The motions, in 2011 and 2012, were denied. The denial in 2011 specifically cites a 1982 ruling by the state Supreme Judicial Court that says consumers don't have to submit to arbitration as a precondition to obtaining relief under the state Consumer Protection Act.
The 1982 ruling is what McGhee and LPL Financial now say is out-of-date, considering more recent rulings in state and federal courts, Carey said. In December, the pair asked the Supreme Judicial Court to review whether the 1982 ruling remains viable, and the court agreed to the request. The pros and cons of that legal question will be argued at the April hearing.
"Our position has been that the early SJC case no longer has any vitality, given later developments," Carey said. "The principal reason we asked the SJC is that they're the only ones who can say, 'We're going to overrule our earlier case.'"
In 2003, McGhee settled with a customer who complained that she purchased a $1 million life insurance policy that was inappropriate for her needs, according to FINRA records. The settlement was for $30,000, with no admission of wrongdoing or liability by the broker.
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