AdvisorLaw Wins Dispute Expungement, Clears Connecticut Advisor’s Record

Award Date: May 30, 2024
Claimant Representatives: Dochtor Kennedy, MBA, J.D. and Harris Freedman, J.D. 
Respondent Firm: Morgan Stanley DW Inc.

Case Objective:

An advisor in Connecticut had two customer disputes from 2002 and 2003 on an otherwise clean record that dated back to 1997. After living with the marks for more than 20 years, he decided to attempt to achieve expungement, and he hired AdvisorLaw to bring him through arbitration with FINRA Dispute Resolution.

Summary:

Around 2001, a couple became a client of the advisor. They owned several real estate properties from which they derived income, and they were seeking speculation with a high-risk tolerance. The advisor made various recommendations, including Morgan Stanley’s Choice Account, which was a fee-based account that allowed for unlimited trading with no commission fees. 

The customers applied for the Choice Account and for permission to use the margin in the account. While most of their trading was directed on an unsolicited basis, the advisor recommended some speculative stocks, which the investors chose to purchase both in their account with Morgan Stanley and another account that they held with a different firm. 

As a result of the market volatility over the next couple of years, the investors’ stocks declined. The investors told the advisor that they felt that the firm should reimburse them for half of their losses. They filed for arbitration with the NASD, seeking $140,000. The firm settled with the investors for $37,000 and did not require the advisor to contribute to the settlement.

The second customer dispute was lodged by an investor who became a client of the advisors in 2000. The advisor made recommendations to the investor that included a mutual fund comprised of highly-rated, well-known stocks. The investor purchased the fund.

Over the next couple of years, the investor’s portfolio declined along with the markets. On numerous occasions, the advisor’s office attempted to contact the investor, who had apparently moved away without providing any forwarding information to the advisor’s office.

Around 2003, the investor finally called the advisor and informed him that he had moved to Florida and filed a long-term disability claim. He had seen a billboard encouraging investors to file claims against Morgan Stanley in hopes of achieving a settlement. While the investor stated that he did not intend to sue the advisor, he filed for arbitration with the NASD, seeking $22,300 in damages. Morgan Stanley settled with him for $15,000.

Resolution:

The FINRA Arbitrator reviewed the documents submitted by the advisor and listened to both the advisor’s testimony and the arguments presented on his behalf by Dochtor Kennedy, MBA, J.D. and Harris Freedman, J.D. 

The Arbitrator noted that the delay in the advisor seeking expungement of these claims was “because until about 8 years ago[,] he was unaware he could seek expungement” and that “He finally took action[,] because he realized that prospective customers could easily access his BrokerCheck® Report and not engage him based on false information.”

The Arbitrator cited the allegations of “unsuitable investments and excessive use of margin” in the first claim and mentioned that the advisor had “credibly testified at hearing that the [investors had] opened an account in late 2000 or early 2001 with an investment objective of ‘speculation’ and a risk tolerance of ‘Aggressive.’” Additionally, the advisor “testified that he did not suggest to the customers that they open a margin account” and that, “Rather they told him they wanted to trade with a margin account.” 

The advisor “testified that the customers filed their complaint after margin calls and suffering losses following the market downturn after the September 11 attacks and also the tech bubble burst.” The Arbitrator “credit[ed the advisor’s] testimony that his recommendations aligned with the customers’ investment objectives and is buttressed by the [firm’s] account records showing the customers investment objectives and risk tolerance.”

The Arbitrator noted that the second customer’s claim alleged that unsuitable investments had been purchased and that fees had been misrepresented to the customer. The Arbitrator stated in his award that the advisor had “provided documentary evidence of the customer’s portfolio demonstrating that the equities purchased were highly rated, diversified and were weighted with FDIC fixed income instruments in line with [the] investment objective of capital appreciation with a moderate risk tolerance” and that the advisor “further testified that in every instance he provided the customer with a prospectus and disclosure spelling out the associated fees.” Additionally, the Arbitrator noted that the customer “had decided to file a complaint with [the firm, but he also told the advisor] that it was not directed at him and that it was not personal.” Finally, the Arbitrator noted that the settlement was less than the amount sought and that the advisor had not been asked to contribute to the settlement.

With the FINRA Arbitrator’s recommendation for expungement of both claims, this advisor will soon have perfectly clear public records for the first time in over 20 years.

Facing a similar situation? Contact AdvisorLaw today for a complimentary consultation.