- SEC’s Enforcement: RIAs Under Scrutiny For Marketing Rule Compliance
- Illinois Advisor Wins Expungement Of 2016 Termination Disclosure
- Rising Tide: The Urgent Call For Advisor Succession Planning
- Arizona Advisor Achieves Expungement Of 2011 Customer Dispute
- Why RIAs Should Consider Outsourced Chief Compliance Officers
*If you’re under FINRA or SEC investigation, or if you have a meritless disclosure on your BrokerCheck, CRD, IARD, or IAPD record, call us right now at (720) 797-0357.
Award Date: February 9, 2023
Hearing Site: New Orleans, Louisiana
Respondent Firm: A.G. Edwards & Sons, Inc. and FSC Securities Corporation
Claimant Representative: Doc Kennedy, MBA, J.D.
An advisor out of Louisiana approaching a quarter of a century in the industry had three customer disputes on his records. Two of the disputes had been lodged around 2010, and one had been settled for more than $300,000 after the customers filed for arbitration. While the second dispute was originally denied, the customer refiled the claim 12 years later, which resulted in a third disclosure for the advisor. With three customer disputes now on his public records, the advisor sought the help of AdvisorLaw with seeking expungement through FINRA Arbitration.
The first dispute involved three separate customers who all became clients of our advisor in or around 2006.
The first customer had a friend who was also a client of our advisor. The friend owned a variable annuity, and the new customer sought a similar investment. Our advisor recommended a suitable annuity based on the customer’s specific request and investor profile. After the annuity declined amid the market turmoil surrounding 2008, the customer then claimed that he did not want to own an annuity.
Our advisor recommended a diversified portfolio of suitable investments for the second customer, which the customer purchased. The portfolio declined with the market around 2008. Once it began to recover in early 2009, our advisor recommended investing in a certain exchange-traded bond fund and using a stop-loss order. The customer purchased the bond fund, and the stop-loss order triggered its sale the following day, at a loss of approximately 18%. The customer demanded that the advisor reverse the trade, but the advisor informed him that was not possible. The customer grew threatening, and the advisor reimbursed him with personal funds in an effort to avoid an altercation. The customer remained unsatisfied.
Our advisor recommended a diversified portfolio of stock mutual funds, balanced stock, and bond mutual funds to the third customer. The objectives for the recommendation were diversification and risk mitigation. The customer also purchased a variable annuity with approximately 30% of his retirement savings. As with most investors at the time, the customer’s portfolio declined around 2008, and he transferred his accounts away from our advisor in 2009.
In August 2009, all three customers filed jointly for FINRA arbitration, alleging unsuitability and seeking $200,000 in compensatory damages. In January 2011, the respondent firms settled with the group for just shy of $350,000. Our advisor was not asked to contribute.
In 2007, the fourth customer became a client of our advisor. He sought to profit from investing in the stock market. Our advisor recommended a diverse portfolio of various common stocks and mutual funds. The customer purchased the portfolio and held it for a couple of years, before directing our advisor on an unsolicited basis to liquidate his mutual funds to purchase more individual securities. Our advisor complied with the directive and purchased common stocks, some of which were recommended by the advisor and others that were selected by the customer. The customer authorized all trading in his portfolio.
When his portfolio value declined in 2008 and 2009, the customer lodged a claim alleging that the advisor had churned his accounts when he sold mutual funds to purchase stocks — which had been done in direct compliance with the customer’s unsolicited directive. FSC denied the claim, and the customer did not pursue it for over a decade.
About 12 years later, the advisor filed with FINRA Dispute Resolution, seeking expungement of the disputes on his record. Upon notice of the advisor’s filing, the customer refiled his original complaint with FINRA. That filing was reported as a second dispute by the same customer. Subsequently, the customer withdrew the claim.
Both firms participated in the FINRA expungement hearing. FSC deferred to the Arbitrator’s ruling on the advisor’s expungement request, and A.G. Edwards took no position. None of the customers participated. The FINRA Arbitrator reviewed the settlement documents, exhibits, and submissions. He listened to Dochtor Kennedy, J.D., MBA present his case, as well as to the advisor’s testimony.
The Arbitrator determined that “During the relevant time, [the first three customers] executed applications and objectives that were consistent with the accounts that [the advisor] placed them in” and that they “only expressed displeasure with their accounts after the 2008 financial crisis.” Therefore, the Arbitrator found their allegations to be clearly erroneous or false.
The Arbitrator similarly found that the fourth customer had also “executed applications and objectives that were consistent with the account” in which he was placed during the relevant times and that that customer “also did not express displeasure with his account until after the 2008 financial crisis.” The Arbitrator added that the firm had found the first claim to have no merit, that the second claim was not lodged until 12 years later, and that the customer later withdrew the second claim.
The Arbitrator found the disclosures to be factually impossible, clearly erroneous, or false, and he recommended the expungement of every one of the disclosures referenced in the matter.
If you’d like to learn more about AdvisorLaw’s FINRA Disclosure Expungement services, please fill out the contact form below.
- Illinois Advisor Wins Expungement Of 2016 Termination Disclosure - September 25, 2023
- Arizona Advisor Achieves Expungement Of 2011 Customer Dispute - September 15, 2023
- FINRA Crackdown — Outside Business Activities - September 7, 2023