PALM BEACH -- A lawyer in Palm Beach has sued Barclays, claiming the bank forced her and her husband into an investment that allegedly cost them $6.5 million.
Lesley Blackner and her husband, Richard Stone – who is also an attorney – filed their complaint in U.S. District Court. They claim that the bank failed to tell them about the risks of the investment, which involved Yahoo and Chinese e-commerce company Alibaba.
When the Internal Revenue Service refused Yahoo’s plans to sell $22 billion of its Alibaba stock in a no-tax deal, Blackner and Stone lost their investment.
Florida A&M University professor Joseph Grant said it was this underlying issue that gave the case its complexity.
“One of the underlying drivers in this transaction was they were trying to spin off their interest in Alibaba so that they wouldn’t have tax liability,” Grant told the Florida Record.
He also said there were other transactions like this that have been done before.
“I think it is something that the average person couldn’t have anticipated that the IRS would basically make a change in regulatory direction on a transaction like this," he said.
Curtis Carlson, acting as the couple’s lawyer, has filed a 53-page lawsuit that claims after the couple lost their money investment, advisors at the bank then admitted they did not fully understand the risks and implications of the investment, which they had allegedly portrayed to the couple as one with 99 percent certainty and a "no-brainer."
Grant said there were two main responsibilities of investment advisors in these situations.
“No. 1, they have a duty of loyalty that just basically means they can’t act with any sort of conflict of interest.," he said. "I think the second really important fiduciary duty that the bank or the investment advisor has to a client is a duty of care. So, they have to act under a prudent personal standard. So, the sorts of investment that a prudent person would make for themselves the bank also has to make those for their client as well.”
He said the question in this case was whether or not the duty of care was violated.
“If you are paying an investment advisor, in most cases you are going to deem them to be the professional in these cases. So, they are the ones that really the onus falls on in most cases. If you are giving professional advice or expertise to the client, the client should be able to fall back on that and rely on it," Grant said.
In the filing, Carlson has accused the Barclays of violating the Dodd-Frank Wall Street Reform and Consumer Act that was put in place in 2008. The act requires financial institutions to give potential investors comprehensive written disclosures about swap trading.
In addition to requesting the court award them their lost funds, they have also sought punitive damages.
Media reports indicate that Yahoo has a 15 percent stake in Alibaba. They made their investment in the company in 2005 and reports indicate if they sold their share it would cost them more that $12 billion in taxes.