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Award Date: August 6, 2024
Claimant Representative: Peter Lindholm, J.D., HLBS Law
Respondent Firm: Triad Advisors LLC
Case Objective:
This California advisor is approaching four strong decades in the financial services industry. Yet his perfect record was recently marred with three settled customer disputes incurred between 2021 and 2023. Hoping to restore his perfect records in time for his 40th year in the industry, he hired HLBS Law to seek expungement through FINRA Dispute Resolution.
Summary:
The first dispute was lodged in January 2021 when a customer alleged that the advisor had made unsuitable recommendations. The customer had been referred to the advisor in mid-2014, and he had told the advisor that he was seeking capital appreciation with an aggressive risk tolerance. He did not have liquidity needs, and he had a long-term investment time horizon. The advisor and customer discussed alternative investments, including real estate investment trusts (REITs) and business development companies (BDCs). The customer chose to invest in three REITs and one BDC, which collectively represented less than 20% of the customer’s portfolio. In 2018, the customer moved away and moved his investments, parting on good terms with the advisor. When one of the REITs declined in early 2020, the customer was solicited by an attorney, and he filed for FINRA arbitration, seeking $114,000. The firm settled with the customer for $26,000.
The second claim was lodged in August 2021 when a couple who were customers of the advisor claimed unsuitability. The couple had become customers of the advisor in mid-2015, seeking capital appreciation with an aggressive risk tolerance, no liquidity needs, and a long-term investment time horizon. The advisor’s recommendations to the couple included two REITs and a fund. The couple invested, and the investments represented less than ten percent of their net worth, collectively. In 2021, one of the REITs filed for bankruptcy. The couple was solicited by an attorney, who led them to file for FINRA arbitration, seeking over $400,000. To avoid further expense, the firm settled with the couple for less than $150,000.
The third claim was lodged in early 2023 after a customer alleged unsuitability and misrepresentation of two alternative investments. The customer became a client of the advisor in 2013, again seeking capital appreciation with an aggressive risk tolerance. She required liquidity of less than 15% of the value of her investments on an annual basis, and she had a long-term investment time horizon. This customer already owned various alternative investments, with which she was very pleased, and she wanted to purchase more. The advisor recommended two REITs, and the customer purchased them with approximately 13% of her total net worth. When the two REITs lost value in 2020 and 2021, the customer was sought out by an attorney, who helped her file for FINRA arbitration. She sought $190,000 in damages, and the firm settled with her for $75,000.
Resolution:
Triad Advisors participated in the advisor’s expungement hearing and did not oppose his request. None of the customers participated. Peter Lindholm, J.D. made compelling arguments in favor of expungement on behalf of the advisor, and the FINRA Arbitrator listened to the advisor’s testimony, as well.
In each claim, the Arbitrator noted that the advisor “was not named as a party to the claim and the FINRA arbitration filing…however [Triad] reported the complaint on [his] registration records due to its reporting obligations[.]”
Regarding the first dispute, the Arbitrator pointed out that “The [customer’s] claim is contradicted by the subscription and disclosure documents from [the advisor] that [the customer] completed and signed in advance of investing in the REITs[.]”
For the second claim, the Arbitrator again mentioned that the documents signed by the customers contradicted their claim, as they had “received and reviewed the associated prospectuses, and affirmed in writing their understanding of the investments.” He mentioned that the advisor had “recommended a variety of diverse investments, including the REITs, as part of a balanced, diversified portfolio based on [the customers’] investor profile[.]”
The Arbitrator similarly found the third customer’s claim to be contradicted by “the subscription and disclosure documents” that she had “completed and signed in advance of investing in the REITs[.]” He pointed out that the advisor had “reviewed with [the customer] in detail the terms, risks, costs, fees, and advantages and disadvantages of the REIT investments” and that the firm had “settled for a fraction of the amount sought to avoid the potential cost of arbitration or litigation.” The Arbitrator concluded that the advisor had “fulfilled his duties [to] the Customers, and did not violate any securities laws, rules or regulation in connection with their handling of the Customers’ investments” and that, therefore, “The Customers’ complaints…were clearly erroneous and false.”
The Arbitrator recommended the expungement of all three of the disputes, and the advisor can now end his fourth decade in the industry with a perfect public record.