Dropbox co-founder Arash Ferdowsi filed a lawsuit Wednesday alleging that an advisor at J.P. Morgan Private Wealth Advisors steered him into "highly improper" investments that caused him over $225 million in damages.
Ferdowsi asks the court to allow him to pursue a Financial Industry Regulatory Authority arbitration against J.P. Morgan Private Wealth Advisors, J.P. Morgan Securities and advisor Arif Ahmed without interference from the lawsuit's two defendants — JPMorgan Chase Bank and the Federal Deposit Insurance Corp. as receiver for the failed First Republic Bank.
"These investments were selected for no legitimate investment purpose, but rather because they allowed JPM Wealth to extract over $40 million in hidden fees that it then shared with Ahmed," Ferdowsi and his revocable trust allege in the complaint filed in U.S. District Court for the Northern District of California.
"Ahmed steered Ferdowsi into complex, low-performing investment vehicles with exorbitant embedded fees that were fifteen times higher than the advisory fees that Ferdowsi and Ahmed had agreed upon," the billionaire entrepreneur alleges in the lawsuit.
"To make matters worse, Ahmed compounded his rent-seeking strategy by churning Ferdowsi's account, recommending unnecessarily early and frequent trades. Each of these trades lined Ahmed's and JPM Wealth's pockets with further fees while causing ever-increasing harm to Ferdowsi's portfolio," the complaint says.
More Details
When Ferdowsi first discovered the improper fees in December and confronted Ahmed about them, "Ahmed evaded and lied. Soon after, JPM Wealth informed Ferdowsi — without any explanation — that he had a matter of weeks to close all of his investment accounts before they would be liquidated," the complaint alleges.
"Ahmed and JPM Wealth's fraudulent mismanagement of Ferdowsi's investments, compounded by their retaliatory closing of his accounts, violated their fiduciary and other common-law duties, a host of applicable FINRA rules, and federal securities laws," it contends.
Ferdowsi seeks to recoup the alleged damages through a FINRA arbitration case, filed Tuesday, which names the three parties he considers responsible: Ahmed, J.P. Morgan Private Wealth Advisors and J.P. Morgan Securities.
His FINRA case claims that these parties violated Securities and Exchange Commission regulations and notes that the SEC requires brokers to place investors' interests before their own under Regulation Best Interest.
The lawsuit alleges that from April 2020 to October 2023, "prominent" advisor Ahmed advised Ferdowsi to invest in dozens of complex structured notes, called Market-Linked Investments, to gain market exposure to the technology sector.
The relationship started before and continued after JPMorgan Chase acquired First Republic Bank and its investment subsidiaries after the California-based bank's failure last year.
Ahmed and JPM Wealth, however, "failed to inform Ferdowsi that the MLIs were specifically designed to include large, embedded fees paid to JPM Wealth. Those fees were many multiples greater than the fees on similar investments that Ferdowsi could have invested in.
"Moreover, Ahmed had agreed with Ferdowsi that JPM Wealth would be compensated through a flat 0.25% financial-advisory fee that would not be affected by the selection of any particular investments," the suit contends.
The fees, disguised as "underwriting discounts," typically amounted to 3.75% of the MLI purchase price, or 15 times the agreed-upon advisory fee, the suit alleges.
Alleged: Over $40M in Fees
Ahmed and JPM Wealth collected over $40 million in fees from Ferdowsi's investments by churning his account through repeated MLI purchases, "which totaled a staggering $1 billion across 35 investments," the complaint alleges
