Several investors claim Fidelity Brokerage Services “failed to protect its customers” when an advisor lost his clients $11.1 million in risky investments using its platform.
Four ex-clients of Thomas Chadwick, a former partner with Chadwick & D’Amato, filed a statement of claim with FINRA’s Dispute Resolution Services against Fidelity. The charges included breaching clients’ fiduciary duty and negligence.
“Using Fidelity’s platform, Thomas Chadwick lost his clients’ life savings through extremely risky investments and committed fraud,” Jason Wolf, an attorney with the firm Peiffer Wolf Carr Kane Conway & Wise, said. “If Fidelity had appropriate supervisory systems in place, this never would have happened.”
According to the statement filed with FINRA, Chadwick opened his own New Hampshire-based firm around 2001, mainly serving retirees and older customers in that state and Vermont, with assets totaling about $60 million across approximately 100 customers.
Starting in mid-2019, Chadwick allegedly began investing “a substantial portion” of client assets into a complex, leveraged exchange-traded note with the acronym “REML,” comprised of mortgage real estate investment trusts. According to the claim, it was a risky product meant only for investors willing to “potentially lose their entire investment,” and was inappropriate for “buy-and-hold” investors.
In fact, the REML’s pricing supplement purportedly read that “‘[t]he amount of any monthly Coupon Amount is uncertain and could be zero. Therefore, you should not purchase the ETNs if you require fixed or periodic income payments.”
In March 2020, the market crashed as the COVID-19 pandemic swept the country. REML gradually recovered but never fully.
To the clients, Fidelity’s emphasis on self-directed trading meant it “improperly abandoned its legal and regulatory-mandated supervisory role and permitted fraudsters, such as Chadwick, to have unfettered access to innocent investors.”
“Fidelity had a duty to properly tailor its supervisory systems to closely scrutinize advisory client accounts and all persons trading in these accounts, given the numerous complaints and regulatory matters involving ‘financial advisors,’ investment advisors and others utilizing Fidelity’s Advisory Client account structure,” the claim read.
By late 2021, Chadwick formed a new firm, terminating the registration of his old one; he later registered with his new firm in Vermont but withdrew the application, according to the investors’ claim. (Chadwick is also facing pending charges in Vermont from 2022 for impersonating clients and providing advice while not registered, according to the attorneys at Peiffer Wolf.)
Fidelity allegedly terminated its relationship with Chadwick around that time and removed the firm from the platform, meaning he couldn’t access clients’ accounts at Fidelity.
Nevertheless, he continued to offer advice to clients, telling them that he was merely awaiting his registration to be complete and that they could log in to their Fidelity accounts together if needed or give him their login information.
According to the claim, in April 2022, Fidelity told state securities regulators that they believed a device belonging to Chadwick had accessed nearly 40 of his customer’s Fidelity accounts since the start of the year. (It responded by locking down those accounts.)
“Fidelity failed to supervise for these activities, and only detected these matters after responding to investigations by state regulators,” the claim read. “Had Fidelity detected Chadwick’s improper conduct pursuant to its supervisory duties, Claimants and customer losses could have been lessened or prevented.”
Fidelity did not respond to requests for comment prior to publication.