Client seeks lost revenue from Oxford Financial

As markets zigged and zagged last summer, the management team at Reid Hospital & Health Care Services in Richmond was getting ready to pull the trigger on the sale of tens of millions of dollars in investments, following the recommendations of investment adviser Oxford Financial Group Ltd.

Reid said it gave the OK to execute the trades in an e-mail to Oxford on Aug. 1. But the sales did not occur until Aug. 12—a delay Reid alleges cost it more than $2.5 million. It’s trying to recover that sum through a lawsuit it filed this month in Hamilton County.

The immediate sale of the securities would have spared the investments from getting whipsawed by Standard & Poor’s Aug. 5 announcement that it was stripping the United States of the AAA credit rating it had held for 70 years.

Oxford was aware that stock prices had become volatile in late July and that the difficult conditions were continuing into August, Reid alleges in its 18-page suit filed by the Fishers law firm Maddox Hargett & Caruso.

In fact, in an Aug. 5 update issued to Oxford clients, the firm “recognized that the market was firmly in correction territory, economic recovery looked weak, government stimulus was fading, risk of policy mistakes was high, and equity valuations were high by historical standards,” the lawsuit alleges.

Carmel-based Oxford is a powerhouse in the investment advisory business and has long-standing relationships with many of Indiana’s richest families. CEO Jeff Thomasson told IBJ last year that the firm he founded in 1983 oversees more than $15 billion in assets for 700 clients in 35 states.

Tim Dean, Oxford’s chief financial officer and chief operating officer, wouldn’t discuss Oxford’s dealings with Reid or the hospital’s lawsuit. However, he said, “Oxford is not a broker-dealer, and as such we don’t execute trades, as a broker-dealer would, and any allegations concerning such would be incorrect and could possibly be construed as frivolous.”

It’s true that so-called registered investment advisers don’t execute trades themselves. But they do establish relationships with broker-dealers to handle their clients’ transactions.

And according to the Securities and Exchange Commission website, “As a fiduciary, an adviser has an obligation to obtain ‘best execution’ of clients’ transactions. In meeting that obligation, an adviser must execute securities transactions for clients in such a manner that the clients’ total cost or proceeds of each transaction is the most favorable under the circumstances.”

Paul Coan, managing partner of Wealth Planning & Management, another local investment adviser, said he could see circumstances where trades might be delayed a day or two.

However, “I have trouble getting my mind around two weeks,” said Coan, who has no involvement with the dispute.

According to the suit, Jeff Stroman, an Oxford managing director, made asset-allocation recommendations at Reid’s June 16, 2011, board meeting. At the same gathering, the finance committee adopted Stroman’s recommendations, which included selling a handful of investments, most of them stock funds.

The following week, Reid CEO Craig Kinyon and Chief Financial Officer Jim Puffenberger contacted Stroman and asked him to wait until after July 1 to sell the investments. They sought the delay because they wanted to use the gains to offset a loss on a business transaction planned for the third quarter.

After several discussions in mid-July, Reid on Aug. 1 e-mailed Oxford authorizing the sale of the securities, the transfer of $25 million from an existing account to two new accounts, and the purchase of securities in the new accounts.

After not receiving trade confirmations, Reid discovered the transactions had not occurred. According to the hospital, Oxford blamed Reid, suggesting that as of Aug. 1 it was uncertain about timing, amounts and other details of the sales. Oxford also blamed US Bank for delays in establishing the new accounts, according to the suit.

Neither assertion has merit, Reid argues, since it had provided specific, written instructions to execute the trades within an account that had been open a long time.

“Oxford attempts now to show impediments to its ability to have conducted those trades [in a timely manner], but no such impediments actually existed, and Oxford is simply attempting to cover its own failures due to the substantial amount of damages [it] has caused to plaintiff,” the suit charges.

Reid’s advisory agreement with Oxford stipulates that disputes be resolved through arbitration. The hospital filed an arbitration claim with the Financial Industry Regulatory Authority, or FINRA, in November, but Oxford refused to use that forum, the suit alleges.

In the lawsuit, Reid has filed a motion to compel arbitration. If the case remains in court, the hospital is seeking a jury trial.

Reid started working with Oxford in the early 1990s. It suspended the relationship in the mid-1990s before rekindling it around 1997.

The hospital is in the process of severing ties with Oxford and selecting a new investment adviser, said Mark Maddox, an attorney with Maddox Hargett & Caruso.•