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Award Date: July 25, 2023
Claimant Representative: Harris Freedman, J.D., HLBS Law
Respondent Firms: Lincoln Financial Advisors Corporation and Wells Fargo Clearing Services, LLC
Case Objective:
An advisor in California had three disclosures on his records — customer disputes that were lodged between 2000 and 2011. In hopes of achieving expungement of the disclosures, he hired HLBS Law to bring him through the FINRA Dispute Resolution process.
Case Summary:
While our advisor was registered with Wells Fargo around 2000, he worked with a senior partner. An investor became a client of our advisor’s team around that time, and the team recommended a variety of investments for a balanced, diversified portfolio. While the investor had originally planned to invest about $66,000 per month over three months, rapidly rising market conditions led to a change in his plan. Instead, he authorized the purchase of about $115,000 in investments in a single month. Shortly thereafter, the precipitous decline in the technology sector led to a decline in the investor’s portfolio. In June 2009, the investor lodged a claim seeking relief for his losses. While the firm denied the claim, it remained on our advisor’s records.
Also around 2000, a couple became clients of the advisory team through a referral from another client who owned a substantial amount of stock in Optica. The couple wanted to invest in Optica stock, as well. The advisory team recommended a variety of investments based on the couple’s investor profile, and they explained the Optica stock in detail. The couple purchased 3,000 shares of Optica around August 2000. In October 2000, our advisor left Wells Fargo. Then in March 2001, after their portfolio had declined along with the markets, the couple lodged a claim seeking $7,000 in damages. The firm settled with the customers for the amount sought.
In 2006, while our advisor was with Lincoln, he met with two customers and their CPAs. Our advisor and his new partner recommended investments for a diversified portfolio, which included Rye Investment Funds and other hedge funds managed by a third-party manager. The customers purchased the recommended funds. However, the Rye Fund was primarily invested through Bernie Madoff. In 2009, once it had come to light that Mr. Madoff was running a Ponzi scheme, the couple filed for FINRA arbitration, alleging an unsuitable recommendation. Lincoln settled with the couple for $2.25 million, and our advisor did not contribute to the settlement.
Result:
Both firms participated in our advisor’s expungement hearings, though neither opposed his request for expungement. None of the customers participated. The Arbitrator reviewed all settlement documentation, submitted documents, and our advisor’s reports. He listened to our advisor’s testimony, in addition to the arguments presented by Harris Freedman, J.D.
Regarding the first claim, the Arbitrator pointed out that the customer had “agreed to forego the original dollar-cost average investing plan due to market conditions and make a larger first-month investment, contrary to the allegation.” The Arbitrator found that the second customer’s “allegation that Optica stock was purchased without authorization is false as the purchase was in the asset allocation that was agreed to[.]” Finally, the Arbitrator noted that, during the time of the third customer’s investment, “Madoff’s fraud was unknown,” and those customers “knew of the fee and were advised of the investments in their allocation plan.” The Arbitrator concluded that “The Rye fund was suitable at the time the investment was made.”
With the Arbitrator’s recommendation for the expungement of all three of the disclosures on his public BrokerCheck and CRD records, this advisor will soon have a perfectly clean public profile for the first time in over 20 years.