Expungement Victory For Chicago Investment Adviser

Award Date: November 1, 2024
Claimant Representative: Harris Freedman, J.D.
Respondent Firm: UBS Financial Services Inc.

Case Objective

A current investment adviser and former broker based in Chicago, this individual has been active in the financial industry since mid-2007. Hoping to clear a customer dispute from his CRD, IARD, BrokerCheck, and IAPD records, he hired AdvisorLaw to help him through FINRA’s Dispute Resolution process.

Summary

In 2013, a couple became clients of the advisor’s advisory group. The couple sought financial planning and wealth management services. The husband, a high-ranking executive, and the wife, a retired sales professional, were sophisticated investors with significant wealth. They sought aggressive growth and income and were currently maintaining a diversified portfolio that included stock in the husband’s employer, private equity, and municipal bonds. With no immediate liquidity needs, their investment horizon was ten years.

In early 2017, the couple were introduced to the “Yield Enhancement Strategy” (YES), an options-based strategy designed to generate returns through premiums on the S&P 500 Index, though it carried high risks during market volatility. With a full understanding of the associated risks, the couple invested $2 million, which represented a small portion of their liquid assets. Initially, the YES Strategy performed well, but it incurred significant losses during market fluctuations in 2018, leading to a decline in the customers’ portfolio value.

The customers eventually terminated their YES Strategy account, in August of 2019, after continued poor performance. They subsequently filed a formal complaint against the advisory group, alleging multiple violations, and they sought over $1.6 million in damages. The arbitration case concluded in 2021, awarding the couple only $370,891.97. The advisor, not directly named in the arbitration, did not contribute to the award.

Resolution

The advisor submitted a Statement of Claim to initiate the arbitration process. The firm responded and objected to any damages that might be assessed against it. The customers had notice of the expungement hearing and chose not to participate

The FINRA Arbitrator reviewed the documents submitted. He also listened to the advisor’s testimony, as well as the arguments presented by Harris Freedman, J.D.

The Arbitrator noted in his award that “The basis for the Customers’ claims…is that the Customers were inadequately advised of the downside risks of engaging in the [YES strategy.]” He added that “The evidence at hearing demonstrated that the risk disclosure information provided to the Customers by the [advisory team] was [the same as that] provided to [the advisory team] by [the firm] and [that it] apparently excluded critical information in the possession of [the firm].” That information “would have placed the Customers on notice that the investment was much riskier in volatile markets than the disclosure actually given would have implied.” The Arbitrator noted that “This failure by [the firm] resulted in [a] very large award against them and a cease and desist order being entered with regard to the [YES strategy].” Notably, the Arbitrator stated that the advisor “was not part of that proceeding nor was he named as a party or in any way involved in the underlying proceeding brought by the Customers” and that “The evidence at hearing demonstrated no basis to find that he had any part in concealing from the Customers the information that was in the possession of the [firm] but not shared with Customers.”

The Arbitrator recommended the expungement of the customer dispute from the advisor’s records — a huge success for the advisor.

If you have a meritless, false, or clearly erroneous disclosure on your public record, contact us today for a complimentary consultation.