Widow files arbitration claim against Deutsche Bank, claiming risky fund was sold to her as safe

A North Carolina woman today filed an arbitration claim with the Financial Industry Regulatory Authority Inc. against Deutsche Bank Securities Inc., claiming that the firm misrepresented a fund as a conservative investment for her marital trust, when it was in fact unsuitable.
The 72-year-old widow claims that a Deutsche Bank broker who had known the family well recommended the Aravali Fund LP, touting it as a conservative, income-producing municipal-bond fund that was appropriate for her and the trust’s needs, according to attorney David R. Chase.
He is representing the trust, which had been drawn for the widow’s benefit.
Mr. Chase asked that his client not be identified.
The investment was a complex, leveraged-bond fund with significant risk, instead of a safe investment, he said.
The widow invested some $500,000 into the fund in June 2007 and liquidated it in February this year after the balance had all but vanished, Mr. Chase said.
The broker wasn’t named in the arbitration claim for strategic reasons and because the problem stems from how Deutsche Bank marketed its investment, the lawyer said.
“In this case, it appears as though this is a product where institutionally it was marketed as a safe, conservative investment,” Mr. Chase said in an interview.
“It looks like the adviser was just reiterating what they were told about the product.”
A Deutsche Bank spokesman had no comment on the arbitration.
This arbitration is the latest of several Finra complaints and lawsuits against Deutsche Bank regarding how it marketed the Aravali Fund.
The legal actions have sprung up since last October’s suicide of Houston-based Deutsche Bank adviser Russell Smith, who allegedly recommended the fund to husband-and-wife investors Joan and Bernard Spain and the Duncan Family Trust, according to court documents.
After the fund’s performance plummeted, Mr. Smith allegedly took his life and claimed in a suicide note that the firm told him that the fund was conservative and that the data he had received indicated that it was a suitable investment, according to court documents.
He also recommended that the investors contact his attorney “for possible redress.”
The Spains and the Duncan trust sued Deutsche Bank and Aravali last December in the U.S. District Court for the Southern District of New York. Although the claims against Deutsche Bank were dismissed in February, the case against Aravali is still in progress.

Related Topics: Financial Industry Regulatory Authority