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Galvin launches inquiry of broker

State to examine what clients were told

QUESTIONS ON INVESTMENTS The state Securities Division, which William F. Galvin oversees, is looking into actions of a Bank of America broker. QUESTIONS ON INVESTMENTS
The state Securities Division, which William F. Galvin oversees, is looking into actions of a Bank of America broker.
By Beth Healy
Globe Staff / March 15, 2011

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Secretary of State William F. Galvin is investigating a Bank of America broker who allegedly invested a Waltham couple’s money more aggressively than promised, possibly contributing to the loss of half their savings, a spokesman for his office said.

Investigators from the state Securities Division, which Galvin oversees, are looking into whether Bank of America broker Clifton Spinney misled Philip and Gail Grossman, or inappropriately invested their money, leading to $400,000 in losses during the financial crisis. Philip Grossman, then 65, fell into despair over the losses, according to his family, and committed suicide in September 2009.

“The goal would be to seek compensation for the family’s losses,’’ Galvin’s spokesman, Brian McNiff, said.

Bill Halldin, a Bank of America spokesman, said the company is cooperating with regulators. But the company said the losses were due primarily to the market’s drop. “The accounts were handled in accordance with the investment objectives of the clients,’’ Halldin said in a statement.

Spinney declined to comment, Halldin said. He has no disciplinary matters disclosed on his public broker record.

A story in the Globe on Sunday detailed the Grossmans’ ordeal. Longtime banking clients of Bank of America, in 2007 they were persuaded by their branch representative to meet with a broker about investing. Both in their 60s at the time, the Grossmans had previously placed their money only in insured certificates of deposit. The banker and the broker told them they could earn more on their money without taking more risk, the family alleges.

But when the market plunged, the Grossmans found out how much risk they had taken. Spinney invested half their money in stock funds that fell even more steeply than the stock market, they alleged. The other half, which was supposed to be in conservative bonds, included complex investments such as structured notes and closed-end funds, which also fared poorly. The couple lost $293,000 in stocks and $105,000 in bonds, according to court documents.

The family tried to sue the bank in court, alleging negligent misrepresentation and breach of fiduciary duties, as well as negligent infliction of emotional distress and wrongful death. But a federal judge dismissed the case, referring it back to arbitration — a private forum where all disputes in the brokerage business must be handled.

Customers who do business with brokerage firms routinely sign documents pledging to take any grievances to arbitration, a Wall Street business practice that was upheld by a 1987 US Supreme Court ruling. In arbitration, a panel of three people decides cases. The venue is generally less costly than taking a complaint to court, but investor advocates say the forums shelter financial firms from publicity and decisions are often tilted toward the industry.

Bank of America said it was sympathetic to the family’s “tragic personal circumstances,’’ but said the proper forum for the dispute was arbitration. Philip Grossman also had wanted to sue the bank, but was advised by several lawyers that he would have to arbitrate, and was likely to lose the case in arbitration, according to the family.

Angela Magary, a Boston lawyer representing Gail Grossman and her daughter, said she hoped Galvin’s investigation would shed light on investment firms’ sales practices with older customers, and on a lack of sufficient disclosure about risks and fees of various investments.

She also said she hopes Galvin — who has testified before Congress against mandatory arbitration — “will continue the fight to make arbitration optional.’’

Beth Healy can be reached at bhealy@globe.com.