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Award Date: October 27, 2023
Claimant Representative: Kathleen Patchel, J.D., HLBS Law
Respondent Firm: Merrill Lynch, Pierce, Fenner & Smith Incorporated
Case Objective:
An advisor working in Miami has been in the financial services industry for nearly 35 years. During that time, he maintained spotless records, until he was hit with a customer dispute in 2021, alleging misrepresentations. Despite the fact that the claim was closed with no action taken, it was going to remain on his record until he sought expungement through FINRA Dispute Resolution.
Case Summary:
In early 2019, an investor became a client of the advisor. The investor was not pleased with his previous advisor, and he sought new investment ideas. The advisor worked with the investor, making recommendations based on the investor’s profile. Over the course of more than two years, they spoke regularly regarding the performance of the investor’s portfolio.
In April 2020, the investor completed and signed an options agreement, wherein he affirmed his investment objectives of income, hedging, and speculation. That December, the investor completed Merril Lynch’s eligibility form, letter of representation for derivative transactions, and commodities futures trading commission segregation election letter. Therein, he confirmed his understanding of the risks of options. In July 2021, the investor opened a currency options position on an unsolicited basis. The position had a maturity date of May 2023.
In October 2021, the investor received margin calls on the options position, which requested that he deposit an additional $118,000. The investor made an unsolicited decision to close the position, against the advisor’s advice. Then, approximately one month later, the investor regretted having closed the position and sent a letter to Merrill Lynch requesting that it reverse the closing of the options position. The advisor’s manager submitted the situation to FINRA as a complaint alleging misrepresentations and seeking $130,000 in damages. Merrill Lynch then sent four letters to the investor, negating his allegations, and the claim was closed with no action taken.
Result:
Merrill Lynch participated in the advisor’s expungement hearing and did not oppose his request. The investor participated, as well, and he opposed the advisor’s request for expungement.
After considering the pleadings, the advisor’s testimony, the evidence, and the arguments laid out by Kathleen Patchel, J.D., HLBS Law, the Arbitrator made his decision in favor of expungement of the claim.
Specifically, the Arbitrator pointed out that, “after signing numerous disclosures regarding options trading (and the risks involved), [the investor had] opened an options account[.]” He went on to add that the investor had “made numerous option transactions in currency options (all unsolicited per the testimony), and eventually [Merrill Lynch] had to make a margin call due to the fluctuation of the currencies involved.” The Arbitrator pointed out that the investor had then “closed his account, rather than waiting for the options to mature at a later date, and later demanded that those options be reinstated, claiming brokerage and bank error[.]”
With the FINRA Arbitrator’s recommendation for the expungement of the disclosure, the advisor will promptly return to having the clean records that he was able to show off before the 2021 claim.