Houston financial advisory weighs challenging Exxon retiree payout of $3.8M

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In response to last month's arbitration ruling from the Financial Industry Regulatory Authority ordering Houston-based U.S. Capital Advisors LLC to pay Exxon Mobil Corp. retirees a total of $3.8 million, USCA is considering a motion to vacate, which would effectively reverse the payout ruling.

Suzanne Edwards

Reporter- Houston Business Journal

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In response to last month's arbitration ruling from the Financial Industry Regulatory Authority ordering Houston-based U.S. Capital Advisors LLC to pay Exxon Mobil Corp. (NYSE: XOM) retirees a total of $3.8 million, USCA is considering a motion to vacate, which would effectively reverse the payout ruling.

A motion to vacate refers to a request filed with the court that entered the judgment to dismiss the judgment. USCA did not treat the claim seriously at the onset, and prepared a light defense as a result, said Patrick Mendenhall, the company's CEO, managing partner and head of wealth management.

"We were shocked by the panel's finding because we viewed this as a nuisance suit," said Mendenhall.

The lesson for Mendenhall was that the defense should have educated the panel on industry practices as not a single industry professional, or non-public arbitrator as termed by FINRA, was on the panel.

The panel's comprehension was problematic because they did not sufficiently observe obvious red flags in the plaintiff's case, said Mendenhall.

When a financial advisory client feels there is a performance issue with their portfolio, there is typically a logical escalation that takes place, said Mendenhall. There is a complaint process, then maybe a changing of advisors within the firm if a manager can't allay the client's concerns, then lastly an exit from the firm. Mendenhall said no such escalation took place, and an industry expert on the panel would have seen that as a dent in the plaintiff's argument.

"It went from zero to 120 in a second," Mendenhall said.

The arbitration claim that initiated the FINRA proceedings alleged that USCA mismanaged their investments and misled them concerning its trading strategy, according to the ruling. Mendenhall said that there were statements in the claim that were simply false.

Suzanne Edwards covers money and law for the Houston Business Journal.