Lysk v. J B Hanauer Press Release

RE: TAMPA BAY AREA NASD ARBITRATION PANEL AWARDS OVER $200,000.00 IN DAMAGES IN A VARIABLE ANNUITY "ELDERLY ABUSE" CASE AGAINST J.B HANAUER & CO. INC. AND JAMES J. PHELPS.

Stephen Lysk, a retired merchant marine who lived in a modest house in the quiet town of Seminole, Florida was a self-made millionaire. But Mr. Lysk's story didn't have a happy ending. Instead of living the life of comfort he could well afford, his home had no working refrigerator, no food, was infested with cockroaches, and most of the windows in the house were boarded up from the inside. Mr. Lysk's out-of-state family members were shocked when they learned how Lysk had been living. Interestingly, virtually all of the transactions occurred at Mr. Lysk's house. Ultimately, Mr. Lysk's mental status had deteriorated to the point that he was involuntarily hospitalized or "Baker Acted" in December of 1997. Mr. Lysk died on December 30, 1997 at the age of 79.

As Attorney Charles Cramer of Orlando, Florida began the job of collecting the information and documents to probate the estate, he noticed some very troublesome transactions that had occurred in Mr. Lysk's brokerage account with J.B. Hanauer & Co., Inc. during the last month of Mr. Lysk's life. It appeared that stocks that Mr. Lysk had kept for many, many years had been sold while Mr. Lysk was incapacitated. At this point, Mr. Cramer became very suspicious and advised Mr. Lysk's niece and personal representative of the estate, Sharon Weldon of Alabama, to contact an experienced securities attorney. That's when Jeffrey P. Coleman of the Coleman Law Firm in Clearwater, Florida became involved.

The Statement of Claim filed by the Estate alleged that in 1993, Stephen Lysk was contacted by James Phelps, a registered representative of J.B. Hanauer & Co., Inc. ("JBH") in connection with a solicitation to purchase a tax free bond. Prior to Mr. Lysk's relationship with JBH and Phelps, he had invested primarily in "blue chip" stocks, bonds, certificates of deposit, mutual funds, and savings accounts. During the course of Mr. Lysk's relationship with JBH and Phelps, Mr. Phelps converted a large portion of Mr. Lysk's estate into variable annuities.

J.B. Hanauer & Co., Inc., through its representative, James Phelps, went on to recommend the purchase of thirteen (13) different annuities. With the purchases that involved "switches" from one annuity product to another, Mr. Lysk would incur surrender penalties (totaling more than $50,000.00) while the J.B. Hanauer and Phelps earned substantial commissions. During the hearings held in Tampa, Florida, medical testimony presented by prominent neurologist, Dr. Robert Vollbracht, confirmed that Mr. Lysk suffered from dementia during at least some of the time of the annuity purchases.

J.B. Hanauer and Phelps argued that Mr. Lysk was looking to increase his "death benefit" even though he had no children or spouse, and that is why he was willing to keep incurring significant surrender penalties, commissions and tax penalties. Based upon the outcome of this case, the arbitration panel didn't agree.

The Arbitration Panel agreed with Attorney Coleman and awarded Mr. Lysk's estate $152,372.00 in compensatory damages, (including disgorgement of commissions), pre-judgment interest in the amount of $40,134.00 and reimbursement costs in the amount of nearly $16,000.00. The Panel found that "credible evidence demonstrates that Mr. Lysk suffered from dementia during the final year of his life and was not fully able to appreciate the complexities and financial impact of multiple surrenders, sales of stock, and purchases of variable annuity products. The manipulation of Mr. Lysk's investments resulted in the financial enrichment of Respondents (J.B. Hanauer & Phelps) at the expense of Mr. Lysk who incurred significant penalties, commissions, and taxes for the various sales and switches."

"The variable annuity products are being aggressively sold to the elderly, and we have seen a real increase in the number of variable annuity cases which we are evaluating and filing." commented Coleman. "Annuity products are very complex often not fully understood by the people who purchase them. The National Association of Securities Dealers and the Securities and Exchange Commission have issued publications in an attempt to educate the public about variable annuity products. Another fact pattern that we are seeing is when the annuity increased tremendously in value due to the increase in the stock market and then dropped precipitously after the 'bubble burst.' When a switch of annuities occurs in this instance, substantial death benefits built up in the first company's annuity can be lost in the second annuity. It is very important that any 'switch' of an annuity product be analyzed carefully. The brokers who may be earning commissions starting at 8%, have a duty to make sure that their customer understands all the aspects of a proposed switch." said Coleman. "Given that approximately 40% of all annuity transactions these days are exchanges from one annuity to another, we believe the potential for abuse in this area is a growing problem."