Family fights to sue Bank of America after Waltham man's suicide
Many investors unknowingly sign away their right to sue.
Philip Grossman saved carefully his whole life, never investing in anything more exotic than certificates of deposit. But in June 2007, his longtime banker at a Bank of America branch in Waltham told him he could do better, without taking more risk, and introduced him to a broker at the bank’s investment arm.
Two years later, Grossman, then a 65-year-old computer consultant, and his wife had lost $400,000 — more than half their savings. In despair in the fall of 2009, Grossman checked into a Woburn motel, left his glasses and watch on the desk in his room, and killed himself.
Stunned by the tragedy, his family tried to sue Bank of America, asserting that the broker invested more aggressively than promised, adding to the steep losses and contributing to Grossman’s suicide. But they soon found out they would not get their day in court: The papers the Grossmans signed to open their account required that any dispute go to a private panel of arbitrators.
“They’ve committed a crime against us, as far as I’m concerned,’’ Grossman’s wife, Gail, said in an interview. “Why do we have to go to arbitration? With other crimes you get a trial and a jury. It just seems very unfair to me.’’
The Grossmans’ case shows how entrenched arbitration has become in the financial industry, demonstrating that even in an extreme case alleging wrongful death, aggrieved clients have no recourse other than a system that critics say favors investment firms. Most investors have no idea that when they open a brokerage account, they give up their right to sue, and must, under a 1987 Supreme Court ruling, take complaints to arbitration.
Philip Grossman had wanted to sue as well, his family said, but five different lawyers told him he couldn’t, and he would probably lose in arbitration.
Last spring, believing that the gravity of their loss made their case an exception, Gail Grossman and her daughter, Helene, hired a lawyer and sued. They accused Bank of America and the broker of negligent misrepresentation and breach of fiduciary duties as well as negligent infliction of emotional distress and wrongful death.
The bank argued that the Grossmans had to go to arbitration, because they willingly signed documents “in plain English’’ that require it. In August, US District Court Judge Douglas P. Woodlock agreed.
“I think you are fighting a war that has already been lost,’’ Woodlock said at the hearing, according to a transcript. “You may win it later, or it may be changed later, but it seems to me the law right now is pretty clear.’’
Bill Halldin, a Bank of America spokesman, said the company was “sympathetic to what we understand are tragic personal circumstances.’’ But, he said, “As the court ruled, the proper forum for the claims is in arbitration, as the parties agreed to previously. The accounts were handled in accordance with the investment objectives of the clients.’’
In arbitrations, customers (and brokerage industry employees) bring their complaints before a private panel of three people. Until now, one of the three has typically been a member of the securities industry. These forums, which are lightly overseen by the Financial Industry Regulatory Authority, the self-regulatory body for brokers, tend to favor the industry, critics say, and keep details of customer complaints out of the public eye.
Secretary of State William F. Galvin said investors should not have to sign their rights away when they hire a broker.
“The fact that you have to sign that and you have no recourse is ridiculous,’’ he said in an interview. “The arbitration system is woefully inadequate and very unfair to investors.’’
President Obama asked the Securities and Exchange Commission to study whether arbitration is fair to consumers. The financial overhaul law, known as Dodd-Frank, gives the SEC authority to restrict the use of mandatory arbitration, but so far, regulators have not done that. In January, the SEC approved a new rule to eliminate the industry representative on arbitration panels, allowing all three to be “public’’ — lawyers, professors, and other professionals.
Critics say the new rule doesn’t go far enough. “The whole point of arbitration is that two parties have agreed to this forum. That’s a fiction,’’ said David B. Cosgrove, a St. Louis lawyer and a former prosecutor in the Massachusetts attorney general’s office.
Philip Grossman was a Boston University graduate and a systems consultant. A thrifty man who distrusted Wall Street, he always warned his daughter to be careful with her money, Helene Grossman said. When the banker pressed Philip and Gail Grossman to meet with a broker, the couple resisted, Gail said. They ultimately agreed to work with the broker because it sounded appealing to earn a bit more on their money, while staying safe, they thought, because they were still with Bank of America.
Like many people new to investing, the Grossmans did not fully understand that once their money went from their bank account to a brokerage account — even to a brokerage owned by a bank — it was at risk. And their timing was terrible. The Grossmans entered the market near its peak, and pulled out at the bottom, amid the financial crisis.
By March of 2009, the Grossmans had lost more half of the $750,000 they invested through Banc of America Investments: $293,000 in stocks, and $105,000 in bonds. “He lost more money than was conceivable to him,’’ his daughter said.
They lost about twice as much as they would have, by Helene’s calculation, if the investments had been in been in blue-chip-stock and government-bond funds. But the broker, Clifton Spinney, put half their money in riskier stock funds that underperformed the market, according to the lawsuit. And even the half dedicated to bonds included esoteric investments like structured notes and closed-end funds that fared poorly, according to court documents.
Some of the bond investments were Bank of America products, the family alleged, meaning the broker had financial incentives to sell them, which he did not disclose. Spinney also charged the Grossmans 1.25 percent of their assets to manage their money, according to the lawsuit, more than the standard 1 percent fee he said he would charge, according to court records.
Spinney still works for the company and has not been disciplined for any misconduct, according to his public broker file. He declined to comment.
The bank said the clients approved all the investments and blamed the losses on “the volatility that occurred in the markets in 2008 and 2009.’’ Had the Grossmans stayed in their investments, as the company says it advised them, they would probably have recouped a large portion of the money, the bank said.
But, panicked that their losses would grow, the Grossmans closed their accounts in March 2009. By Sept. 19 that year, with the losses eating at him, Philip Grossman e-mailed his daughter Helene in California to say how upset he was. He felt betrayed by the bank, and hopeless. She called him right away, given the e-mail’s tone, to talk.
But later that day, Grossman went to the Woburn motel, where he killed himself. The police found $18 and several pens in his left shirt pocket.
Grossman didn’t see his daughter marry last year, and he won’t get to meet his first grandchild, expected to be born later this year. He missed out on the retirement he had planned, with travel and dinners out, after a lifetime of working and saving. His wife and daughter are left with the pain of his loss, and only one option to pursue their case.
They are preparing to take the case to arbitration.
“If arbitration were that good for consumers, the industry wouldn’t force it on them,’’ Grossman’s daughter said. “You’re in a very vulnerable position. You think you’re doing the right thing for you. In reality, you sign away your rights.’’
Beth Healy can be reached at firstname.lastname@example.org.
Correction: The original version of this article had the incorrect town in the Web headline.