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Each year since 2015, a San Juan-based advisor’s BrokerCheck profile had shown more and more customer disputes — all having arisen from investors who had purchased Puerto Rico bonds. Of the 14 current disclosures, all but 2 had gone to arbitration and had resulted in hefty settlements for the customers. The advisor hired AdvisorLaw to take his one shot at expunging the disclosures and clearing his public record.
As Puerto Rico’s current debt crisis began to take hold and upon the downgrading of Puerto Rico bonds to junk status, a San Juan-based advisor’s record accumulated a stack of customer disputes, each with a slew of allegations. Six of the customers who lodged the claims were not even clients of the advisor, yet the disclosures ended up on his record nonetheless.
At the time when the advisor had recommended Puerto Rico bonds and funds to his customers, the products were investment-grade and well-rated by the agencies. Puerto Rico bonds were very popular, due to a “triple tax exemption” that exempted interest payments from the bonds from federal, state, and local income taxes. For decades, Puerto Rico continued to issue bonds, regardless of its account balances. It began using debt to fund its expenses and repay older debt, and it refinanced its debt at higher interest rates. Eventually, Puerto Rico amassed $71 billion in debt, which resulted in Puerto Rico bonds being downgraded to junk status in February 2014. Between 2015 and 2020, customers of the advisor and the firm lodged complaints, filed for arbitration seeking substantial damages, and received significant settlements related to their Puerto Rico bond investments. The advisor was not named in any of the claims and contributed no funds to any of the settlements.
During the FINRA Arbitration expungement hearing, the Arbitrator reviewed settlement agreements and other documents and listened to the advisor’s testimony.
Typically, an arbitrator’s reasoning for granting expungement is conveyed through a drawn-out and detailed explanation. In this case, Harris Freedman, J.D. and Dochtor Kennedy, J.D., MBA made a case for the advisor’s complete lack of any wrongdoing that was so compelling, the Arbitrator granted an expungement of all 14 disclosures and explained his reasoning in just three sentences.
Six of the claims were recommended for expungement because the advisor had not been the customers’ broker and therefore couldn’t have been involved in the alleged sales-practice violations. The Arbitrator recommended the expungement of the remaining eight disclosures based on the fact that the advisor had “reasonably relied” on the information provided by the firm when making the recommendations and that the securities had “suffered losses because of the turmoil in the Puerto Rico economy.”
The advisor’s public record will now be decluttered and pristine — an accurate representation of his dedication to his customers over his 17-year career.
Contact us to discuss AdvisorLaw’s Disclosure Expungement services. The consultation is complimentary, and our services were created exclusively for financial advisors.
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