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Award Date: March 29, 2024
Claimant Representatives: Dochtor Kennedy, MBA, J.D. and Peter Lindholm, J.D.
Respondent Firm: Cetera Advisor Networks LLC
Case Objective:
An advisor in Texas with over 30 years of industry experience had three lingering customer dispute disclosures on his record from 2002 and 2003. After spending more than 20 years with the marks on his public record, the advisor hired AdvisorLaw to seek expungement of the claims through FINRA Dispute Resolution.
Summary:
In late 1999, a tax client of the advisor sought his help with investing a settlement that she had received from a personal injury claim. The client had been engaging in margin trading in a self-managed account with Fidelity since the mid-1980s. She sought growth through a more aggressive investment strategy, and she wanted to participate in the current market surge that was occurring at that time, by purchasing technology stocks and trading on margin.
The advisor made various recommendations, including technology stocks, and the client chose a variety of stocks in which to invest, based on the stocks’ growth potential. She purchased the stocks between December 1999 and March 2000. The stocks constituted approximately 30% of her portfolio. In late March 2000, the dot-com crash began. Due to the margin in the client’s account, its value experienced a steep and rapid decline of approximately 95%. The client filed for FINRA arbitration in March 2002, alleging unsuitability and unauthorized trading and seeking $100,000 in damages. Cetera settled with her for $56,000.
Around June 1999, another tax client of the advisor’s became an advisory client, when she inherited an IRA and opened a beneficiary IRA with Cetera. The advisor recommended a variety of investments that included Putnam mutual funds. The client purchased the mutual funds. The client never directed the advisor to transfer any of her personal funds into the IRA, and even if she had done so, IRS regulations prohibited such transfers.
Between 1999 and 2002, the client made many withdrawals from her IRA, totaling $40,315.68, from an initial deposit of $40,181. In 2002, she ceased to be a client of the advisor, though she still owed him for tax preparation fees. In May 2003, the client lodged a claim with the Texas Board, stating that she had told the advisor to sell stocks and transfer them into her IRA. When the Texas Board completed a review and closed the matter with no action, the client filed for FINRA arbitration, seeking $15,000 in damages. Cetera made a business decision to settle with the client for $15,500.
In August 2000, the third client became a customer of the advisor, when she sought to invest in an IRA rollover. After reviewing her investor profile. The advisor recommended a variety of diverse investments within Cetera’s Preferred Asset Management (PAM) account. The client established a PAM account. The advisor made various recommendations based on her investor profile, which included stocks, such as Texas Instruments, The Home Depot, and Intel Corp. The client purchased the stocks. In December 2001, she directed the advisor to purchase stock in Southwest Airlines. In June 2002, she authorized a purchase of The Hartford MidCap mutual fund. Though she did not speak with the advisor about any concerns that she had, the client lodged a claim in March 2003, alleging unauthorized trading. The Texas Board completed a review and closed the claim with no action, and the client did not pursue it.
Result:
Neither Cetera nor any of the clients participated in the advisor’s FINRA expungement hearing. The Arbitrator considered the pleadings, the advisor’s testimony, the evidence, and the arguments presented by AdvisorLaw’s Dochtor Kennedy, MBA, J.D. and Peter Lindholm, J.D.
Regarding the first claim, the Arbitrator noted that “the customer was an experienced investor who wanted growth and had a high-risk [sic] tolerance” and that the advisor “provided disclosure forms and fully explained the advantages and disadvantages of using margin within the account.”
Concerning the second claim, the Arbitrator pointed out that the advisor “spoke with the customer monthly and expressed concern with the customer’s frequent cash withdrawals” and that, while “The customer’s complaint alleged the unauthorized purchase of unsuitable equity investments[, the advisor] testified that the customer authorized all trading in the account.”
Similarly, the Arbitrator noted that the third “customer’s complaint alleged the unauthorized purchase of equity investments[, though the advisor] testified that the customer authorized all trading in the account.”
The Arbitrator recommended the expungement of all three customer dispute disclosures from this advisor’s records, and he will soon have perfectly clean public records for the first time in over two decades.
Learn more about our Disclosure Expungement services.