FINRA Expungement Award:

Hybrid Broker Expunges Two Customer Disputes

 

FINRA Expungement Award:

Hybrid Broker Expunges Two Customer Disputes

 

Award Date: May 26th, 2021
Hearing Site: Jersey City, New Jersey
Respondent Firm: Wells Fargo Clearing Services, LLC


Case Objective:

A financial advisor from New Jersey, who has been in the industry for over two decades, sought to clean up two false customer disputes on his BrokerCheck profile and CRD record.

The first investor complaint was spurred by a crisis that made national headlines — the Puerto Rico Bond meltdown. The second involved a claim made by investors who alleged that dividends had been reinvested without authorization.

With many years left in the business, this hybrid broker decided that it was time to hire AdvisorLaw and clear his record and reputation, once and for all, through FINRA arbitration.


Case Summary:

The first customer had significant investment experience. He owned municipal bonds. Seeking other bond options, the customer had been referred to our financial advisor. Through conversations, our advisor found that the investor’s objective was income with a high risk tolerance and a long-term investment time horizon.

Based on the customer’s profile and objectives, our financial advisor recommended a variety of diverse investments, including the Puerto Rico Sales Tax bond. The recommendation was fully vetted, and the bond had an A rating from Goldman Sachs.

Over the next five years, the customer met regularly with our financial advisor. However, in 2014, the government of Puerto Rico demonstrated that it would not be able to pay its debt, and three major credit agencies downgraded the bonds to “junk” status. As a result, the investor lost a significant portion of the investment.

The investor then filed a complaint, alleging that, after five years of owning the bonds, he had come to believe that they were “unsuitable.” After receiving complaints from dozens of Puerto Rico bond owners, the firm unilaterally decided to settle nearly all of the bond investors’ claims.

The second customer dispute involved a couple who were referred to our advisor, seeking aggressive growth and income to fund their child’s college expenses. After meeting regularly with the advisor and discussing several investment options, the investors chose an income-producing fund. After one year of paying dividends as income, the fund in question discontinued its monthly dividend. Upon ceasing to receive monthly income from the fund, the investors errantly filed a complaint against the advisor, alleging that the dividends were being reinvested without their authorization.

The firm denied the patently false claim, as the dividends had simply been stopped by the issuing fund. Subsequently, the investment was liquidated and moved to another fund that was currently paying a dividend. The investors received a settlement from the firm for the change in value of the fund.


Result:

A FINRA arbitration panel reviewed the evidence of each of the complaints through FINRA’s Dispute Resolution Forum. The Panel found that both complaints should be expunged, per FINRA Rule 2080.

In the first case, the Arbitration Panel found that the bond at issue was one of the few that actually had remained solvent and that it had been suitable at the time of purchase. That sophisticated investor, with a long-term time horizon and no need for liquidity, was simply caught by an investment that was universally accepted to be safe. There was nothing that our broker could have done differently without the benefit of hindsight.

Furthermore, the Panel found that the customers in the second case simply did not understand that the fund had declared no further dividend and that no trade (authorized or unauthorized) had in fact taken place.

The two claims arose from unfortunate situations that were neither caused by nor due to any incorrect action on the part of our financial advisor. This is a great example of the type of customer complaints that AdvisorLaw routinely succeeds in getting removed.




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