Four investors have filed an arbitration case against a unit of Fidelity Investments, accusing it of failing to properly supervise former investment advisor Thomas Chadwick who allegedly mismanaged their investments.
Investors Judith Barker, Jason Cayer, Richard Bates, and Maura Bates “lost hundreds of thousands of dollars through the reckless trading strategies run by Chadwick on Fidelity’s platform,” they say in their arbitration complaint. Chadwick’s former registered investment advisory firm, Chadwick & D’Amato, used Fidelity as its custodian to safeguard client assets and for other services.
“Chadwick could not have operated without the assistance and approval of Fidelity, and had respondent properly fulfilled all of its supervisory and regulatory duties as a licensed brokerage firm, claimants would not have suffered their devastating losses,” states the
complaint, which was filed Jan. 29.
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The investors’ lawyers say the investors aren’t pursuing claims in civil court because the contracts they signed to open Fidelity accounts contain mandatory arbitration clauses. The lawyers add that while some investors have received compensation from New Hampshire’s securities regulator, “no one has been made whole.”
Jason Kane, a lawyer representing the investors at law firm Peiffer Wolf, alleged that Fidelity missed red flags it should have spotted. “If Fidelity had appropriate supervisory systems in place, this never would have happened,” Kane said in a statement.
Barred. Chadwick ran his own registered investment advisory firm in New London, N.H., from 2000 until 2021, according to registration records. The firm had just over $60 million in assets in 2021. His clients were generally older investors with conservative to moderate risk tolerances, according to the New Hampshire Bureau of Securities Regulation, which said in a regulatory action last year that it began investigating Chadwick in 2021.
Beginning in 2019, Chadwick “concentrated significant portions of his clients’ accounts in REML,” an investment product that was composed of unsecured debt securities that are only suitable for highly aggressive investors, according to the bureau. REML came with warnings that it was not appropriate for investors who could not afford the risk of
losing their entire investment, the bureau said.
When the Covid pandemic hit in March 2020, the value of REML fell to nearly zero, resulting in losses totaling several million dollars, according to the bureau.
In 2024, the bureau announced that it entered into a consent order with Chadwick, ordering him to pay nearly $5 million in restitution to customers and a $1 million penalty. Chadwick agreed to be permanently barred from securities licensure in New Hampshire. But the bureau’s announcement noted that Chadwick indicated to regulators that he didn’t have the resources to immediately pay the amounts owed.
Chadwick is no longer a registered advisor, according to registration records.
The four investors say in their arbitration complaint that they invested in REML and ultimately suffered substantial losses.
According to the complaint, Chadwick had invested most of his clients’ money in a mutual fund, The Chadwick & D’Amato Fund, that he and a partner managed. But the firm announced in 2019 that it was closing the fund and Chadwick looked for new investing opportunities for his clients’ money, landing upon REML, which was managed by Credit Suisse, according to the complaint. REML was a leveraged product and typically traded for between $23 and $28 per share in late 2019 and early 2020, according to the complaint. However, it “fell precipitously” in March 2020 and never fully recovered before it ceased trading in December 2021, the complaint states.
In late 2021, Chadwick told clients he was ending his partnership with his business partner and starting a new investment advisory firm, which he didn’t ultimately open, the complaint says. Instead, he asked some clients to give him access to their Fidelity accounts and continued to provide investment advice; at the time the investors didn’t know that he was no longer registered, according to the complaint.
Full Story: Barron’s February 3 2025
