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Award Date: June 30, 2023
Claimant Representative: Dochtor Kennedy, J.D., MBA
Respondent Firm: Merrill Lynch, Pierce, Fenner & Smith Incorporated
A current investment advisor and former registered rep who has been in the financial services industry for 40 years had one customer dispute disclosure on his records from more than two decades prior. He reached out to AdvisorLaw to seek expungement through FINRA Dispute Resolution.
In 1999, an investor became a client of our advisor, seeking to invest $100,000 in real estate sale proceeds. She intended to place $70,000 in stocks for long-term growth and keep $30,000 for liquidity, taxes, and to purchase CDs.
The customer was an insurance broker, and her husband was retired. She owned life insurance, income-producing real estate, cash, money market funds, and CDs. She wanted to diversify her portfolio and establish more liquidity than her real estate holdings made available while investing for the long term.
Our advisor recommended a variety of diverse investments, including various types of managed accounts. The customer opened a managed mutual fund account and a managed growth stock portfolio in 2000. Together, the managed accounts comprised about 35 percent of her portfolio. She placed $5,000 into the mutual fund account and $50,000 into the growth account. All details were explained to the customer, and she reviewed, completed, and signed all subscription, disclosure, and offering documents.
Due to the market events of 2000 to 2002, the value of the customer’s managed accounts declined. Around late 2001, the customer’s daughter obtained power of attorney over the customer’s accounts. When the customer and her daughter expressed their dissatisfaction to our advisor, he reminded them of the customer’s long-term investment objective and advised them to hold the investments.
In January of 2002, the advisor received a customer dispute from the customer, alleging that the investments in her managed accounts had been inappropriate, due to their performance. She sought $40,000 in damages, and the firm settled with her for $15,000.
Neither the firm nor the customer participated in the FINRA expungement hearing. The FINRA Arbitrator reviewed the pleadings, our advisor’s prehearing brief, and the post-hearing submissions. She also listened to the advisor’s testimony, as well as the arguments that Dochtor Kennedy, J.D., MBA presented in favor of expungement.
In the award, the Arbitrator stated that our advisor’s “conduct was in accordance with the standards of FINRA Rule 2111 at all times.” She noted that the customer had been “in agreement with the purchase of the Managed Account and understood the details and risks associated with this as well as all of her investments.” The Arbitrator pointed out that “The subsequent loss in value, triggered by market reactions to domestic and global negative events…was unfortunate but certainly not an indication of the suitability or quality of the investments in the Managed Account.” Finally, she closed her award mentioning that “to his detriment, [our advisor] relied on the erroneous information that the claim would drop off his record after a matter of years, much like that of a personal bankruptcy on a person’s credit score, thus the delay in seeking this expungement. Based upon those two details, the Arbitrator felt that looking beyond the Six-Year Rule is appropriate.”
With the sole negative mark on his otherwise perfect, 40-year records soon disappearing, this advisor’s public profile will again reflect his four decades of excellence in the industry.