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Award Date: February 2, 2024
Claimant Representatives: Michael Bessette, J.D., HLBS Law
Respondent Firm: Prudential Securities, Inc.
Case Objective & Summary:
An Albuquerque-based financial advisor approaching 30 years in the industry had a single customer dispute disclosure on his records. The dispute was lodged in 2020 and denied by the firm, though the advisor required guidance to bring him through FINRA Dispute Resolution, to seek expungement of the mark from his records.
Summary:
In early 1997, the advisor and a colleague inherited the joint account belonging to a son and his mother. At the time when the account was inherited, the investors already owned a position in the Blackrock Insured Municipal 2008 Term Trust, Inc.
The investors’ account was nondiscretionary, and it provided for verbal authorization on trades. Each of the investors had the authority to authorize trades within the account. In late 1997, the advisor recommended the liquidation of 189 shares of the Blackrock investment and the purchase of a unit investment trust (UIT) with the proceeds. He sent a prospectus to the investors, and they did not object. When the son authorized the Blackrock sale, the advisor sold the shares, and the investors received a trade confirmation.
Subsequently, the mother alleged that the Blackrock sale had not been authorized. The firm investigated and denied the claim. In early 1998, the investors filed a claim with the NYSE, alleging mismanagement, failure to follow instructions, and an unauthorized sale. A settlement was made, whereby the firm repurchased the position and paid past interest to the investors.
Result:
The advisor and firm both participated in the FINRA arbitration hearing, though the investors did not participate. The FINRA Arbitrator noted that the advisor had recommended the sale of Blackrock, as well as using the proceeds to purchase a UIT. The Arbitrator noted that the advisor had “sent prospectuses to the Customers and did not receive any objection from either to the proposed transaction” and that the son had “orally approved the sale of Blackrock interest…and the purchase of [the UIT].”
The Arbitrator went on to mention that, in January 1998, the mother telephoned the advisor to question the trade. The advisor explained that the son had verbally approved the transaction, and the advisor explained why the UIT was suitable for the investors. The advisor requested that the son join the phone call, but the mother indicated that the son was unavailable due to a medical procedure. Later that day, the mother, with the son on the telephone, advised the advisor that the son had not authorized the sale of Blackrock. Neither, however, objected to the purchase of the UIT. The Arbitrator also noted that the firm’s investigation had found there to be no merit to the claim.
The Arbitrator reviewed the process by which the settlement was made and the trade reversed. He then specifically mentioned that “The disclosure, which continues to be published on [the advisor’s] CRD and BrokerCheck Report, has caused [him] reputational harm in at least one instance when the disclosure was raised by a potential investor and continues to place [him] in a bad light.” Finally, the Arbitrator concluded, “based on the foregoing evidence and testimony, that, pursuant to FINRA Rules 8020(b)(1)(A0 and 2080(b)(1)(C), the Customers’ allegations are false and clearly erroneous and that there is no public protection or regulatory value in retaining this disclosure on [the advisor’s] records.”
With expungement awarded, this advisor will soon be free of the damaging mark on his records, and he can enter his third decade in the industry with renewed confidence.