A Scottsdale financial advisor with a questionable history is the subject of a lawsuit alleging he breached his fiduciary duty when he made risky investments on behalf of a Glendale resident.
The FINRA lawsuit against Newbridge Securities Corp. and former advisor Larry Labine alleges violations of common law fraud, breach of fiduciary duty, negligence and negligent supervision.
Newbridge CEO Thomas Casalero responded to a request for comment. Alan Baskin, an attorney who has represented Labine in the past, did not respond to a request for comment.
Labine has had 25 consumer complaints filed against him since 1998, according to Broker Check, a service provided by FINRA, or the Financial Industry Regulatory Authority.
A FINRA lawsuit is not the same as a traditional civil suit.
D. Daxton White, managing partner with the White Law Group, said “99.9 percent” of brokerage agreements include an arbitration clause, meaning clients who allege wrongdoing cannot bring a civil lawsuit.
The White Law Group is representing the Glendale resident in the FINRA suit.
White said clients can submit a complaint to FINRA, an organization backed by the financial industry with government-authorized regulatory authority.
Three arbitrators then “act as judge and jury” to decide what, if any damages, to award to the complainant.
The alleged victim is seeking between $100,000 and $200,000 in damages in the Labine suit.
White said Labine made four high-risk investments on behalf of the client, who was not adequately informed of the risk.
White said the “commonality is they are all illiquid, high-risk” investments.
White said “basically there’s all this paperwork that goes into being able to sell these to anybody, and they’re generally only appropriate for really sophisticated, experienced investors.”
White said the type of investments at the subject of the FINRA complaint are typically reserved for experienced and accredited investors who understand the risk.
But outdated regulations have affected who qualifies as an “accredited investor” since someone can qualify simply by having a net worth of $1 million.
“When they wrote that legislation 50 years ago, it was usually somebody who was very, very well to do, but now it’s often just somebody who’s retired and saved their whole life (and) don’t have much investment experience necessarily,” White said.
Labine has a record of shady dealings, according to FINRA and Securities Exchange Commission records.
In addition to the 25 customer complaints, Labine was the subject of six regulatory actions by FINRA and four financial judgments, according to Broker Check.
The majority of Labine’s clients are elderly, according to SEC records.
Labine was also previously fired from DeWaay Financial in 2010 as “the result of allegations of violations of industry standards and regulations, as well as fraud,” according to the SEC.
DeWaay’s owner ultimately paid $100,000 in a settlement with a client over allegations of misconduct against Labine.
In 2017, FINRA barred Labine from acting as a broker or working with a broker-dealer firm as the result of a regulatory action initiated by the Arizona Corporation Commission’s Securities Division.
The investments at the heart of the current FINRA lawsuit occurred before FINRA barred Labine, White said.
The SEC also barred Labine from working as a broker or investment advisor, according to Broker Check.
In 2016, the SEC brought proceedings against Labine for investments he sold to clients in debt securities issued by Domin-8 Enterprise Solutions, Inc., a tech startup previously in a dire financial situation and ultimately went bankrupt.
Court filings in a 2011 lawsuit brought by Domin-8 investors in U.S. District Court show Domin-8 eventually became profitable after years of losses but remained at risk of shutting down because it had taken on too much debt.
The investors alleged Domin-8 leadership approached Labine and DeWaay about acquiring the company after it filed for bankruptcy, leaving existing leadership, DeWaay and Labine to reap the benefits of the company’s newfound profitability while investors would be on the outside looking in.
The two sides settled the suit in 2014.
SEC investigators alleged Labine failed to disclose to clients he was the primary fundraiser for Domin-8 and the terms of compensation he would receive for the sales.
The investigators also alleged Labine “misrepresented” the high-risk nature of the investments.
Chief Administrative Law Judge Brenda P. Murray ordered Labine to pay $100,000 to the SEC and barred him from working in the investment industry for two years.
White recommended all potential investors use the Broker Check service prior to working with any investment professional.