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Award Date: November 1, 2023
Claimant Representatives: Dochtor Kennedy, MBA, J.D. and Harris Freedman, J.D.
Respondent Firm: UBS Financial Services Inc.
Case Objective:
This Dallas-based advisor with over 30 years in the financial services industry had an impeccable record, aside from one customer dispute lodged in 2008. This advisor’s case was unique in that a prior arbitration panel had previously ruled on expungement of the same disclosure — but that ruling was subsequently vacated. The advisor decided to use his last opportunity to seek expungement of the claim and restore his perfect record, with AdvisorLaw by his side in the FINRA Dispute Resolution process.
Case Summary:
In 2006, an investor’s account was assigned to the advisor, after the investor transferred his account to UBS. The investor’s existing portfolio included auction rate securities (ARSs) at the time of the transfer. The portfolio had been designed to follow a strategy of bidding on the lowest-yielding ARSs from the previous auction, in anticipation of a higher rate in the subsequent auction. The advisor had not participated in the formation of that strategy.
The investor’s son requested that the advisor maintain the investor’s current portfolio and ARS strategy. The advisor ascertained the investor’s profile and recommended a diversified portfolio that contained dividend-paying stocks and short bonds. He did not solicit any ARS investments from the investor.
However, the investor was a very active bidder on ARSs, which he did weekly. The investor enjoyed the high yield provided by ARSs at the time, and he aggressively sought the highest interest rate available each week. At times when his strategy did not deliver the highest yield, the investor would speak critically of the auction process.
Due to the investor’s actions and comments about the auction process, the advisor resigned as broker of record on the account and turned it over to his office manager. Then when the ARS auctions later began to fail in 2008, a customer dispute by the investor was reported to the advisor’s records. UBS later repurchased the ARSs at its gross initial par value, and a settlement of $25,000 was reflected on the advisor’s records.
Result:
At the FINRA hearing, neither UBS nor the investor participated. The FINRA Arbitrator did not review the settlement documentation, though he did listen to the advisor’s testimony and the arguments that were presented by Dochtor Kennedy, MBA, J.D. and Harris Freedman, J.D.
The Arbitrator explained his reasoning and decision in the Expungement Award. He noted that “ARS investments were already in the Customer’s account at the time the account was transferred into UBS” and that “The ARS investments were directed by the Customer and [the advisor] did not select them.” He pointed out that the advisor “only followed the Customer’s instructions after providing him with full disclosures,” as well as the fact that, “after the collapse of the ARS market, the Customer received the full value of the investments and experienced no monetary loss.”
The Arbitrator recommended expungement, meaning that the advisor will soon be back to having impeccable records for the first time since 2007.