A federal judge has dealt a blow to the CFP Board's efforts to shrink the scope of a lawsuit by two Florida planners, denying the board's efforts to quash discovery requests. The judge also ruled to allow the planners to seek unspecified monetary damages and to argue -- in an expanded version of their original complaint -- that the board committed antitrust violations.
Judge Richard Leon of the U.S. District Court in Washington D.C. entered his six rulings -- one specifically allowing the Camardas to amend their complaint, and five against the board's motions -- without any commentary on Sunday.
"There has been no decision on the merits," board spokesman Dan Drummond said via email in response. The "CFP Board will continue to vigorously defend this case."
Leon's decision will allow lawyers for husband-and-wife planners Jeffrey and Kimberly Camarda, of Fleming Island, Fla., to depose the board's chief executive, Kevin Keller, as well as Michael Shaw, its head of legal and disciplinary matters, and many other witnesses. The ruling also requires the board to produce a voluminous quantity of documents requested by the Camardas, covering the board's disciplinary hearings in cases involving other planners.
In multiple motions in past months, the board tried to convince the court that being compelled to share documents and answer subpoenas would constitute an inordinate burden. Now some wonder if that burden will push the board to settle.
"I think the reality is that [the rulings] puts pressure on the CFP Board to settle the case," says Ron Rhoades, a lawyer and planner who heads the financial planning program at Alfred State College, in Alfred, N.Y. "The judge must have believed that what was being asked for in discovery -- such as how other candidates were treated -- could lead to some type of admissible evidence."
In its earlier motions, the board had argued that its treatment of other planners was irrelevant to its treatment of the Camardas.
The Camardas sued the board in June to prevent it from publicly sanctioning them over their use of the term fee-only. The board argues that the planners violated the board's rules by using the term to market their practice, even though they also own an insurance company.
At the same time that the board investigated the Camardas and sanctioned other CFPs, it had been allowing hundreds of advisors in wirehouses, independent broker-dealers and insurance companies -- all of which rely upon commissions -- to use the term with impunity on the board's own website.
The ruling expands the scope of the case, Rhoades and other observers note.
"The judge's ruling has put everything back on the table," industry consultant Michael Kitces wrote in an email. "This does not appear to merely be a case about the ruling on the Camardas regarding their claim of fee-only at this point. This is now about the legitimacy of the CFP Board's ability to discipline its own CFP certificants, which has much more far-reaching implications for the organization."
If the two sides fail to settle the case, says Rhoades -- who has publicly criticized the CFP Board in the past -- it's likely that the expanded discovery would reveal new information that could prompt the Camardas to amend their complaint again to add new allegations. In such cases, he says, lawyers often share their discovery with other lawyers. This also could draw other aggrieved parties into the dispute.
"I don't want to speculate on who [the other parties to the suit] could be, but you can guess," Rhoades says.
One candidate might be the board's former chairman, Alan Goldfarb, who received a board sanction in 2013 for calling his practice fee-only. Goldfarb has said in the past that he doesn't have the funds to sue.
Kitces says he believes that the lawsuit now threatens the board's authority. "Given the breadth of [the lawsuit's] scope now, all the way up to and including antitrust allegations ... this seems to be becoming a case the CFP Board cannot afford to lose," he says. "To say the least, it's hard to imagine the CFP Board playing much of a role in the regulation of financial planners anytime soon if it were to lose a lawsuit regarding the legitimacy of its own disciplinary process."
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