FINRA Expungement Award:
6 FINRA Customer Disputes Expunged Dating Back To The 1990s
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Award Date: February 25, 2022
Hearing Site: Dallas, Texas
Respondent Firm: Dominion Capital Corporation and VSR Financial Services, Inc.
Claimant Representative: Dochtor Kennedy, MBA, J.D., and Zachary Morse, J.D.
Our advisor in this case had a pristine record since 2009. However, six customer complaints that were lodged between 1997 and 2008, all alleging unsuitability, were misleading investors and potential employers by painting an alarming scene of a problematic past in the advisor’s career. Looking to clear his good name, the advisor hired AdvisorLaw to seek expungement of the FINRA disclosures.
The first investor specifically requested a high-yielding note that his parents had recommended to him. While the advisor recommended diversification instead, the investor ignored the advice and placed the entirety of his portfolio in the high-yielding note. He did not purchase any other investments through the advisor. When the company that issued the note later went bankrupt, the investor suffered a dramatic loss and lodged a claim. The complaint evolved into arbitration with the investor seeking $64,000 in damages, and the firm settled it for just under $15,000.
The second investor had retired and sought investment advice. Our advisor recommended a variety of balanced, diversified investments that included an annuity that was suitable for the investor and his wife. They purchased the recommended investments and subsequently took repeated withdrawals from the annuity. The advisor consistently advised the investors to reduce their spending, but the investors were using borrowed money to pay off other debts. When their portfolio declined even further due to market instability, they lodged a complaint alleging that the investments were unsuitable and that they had suffered about a 48% loss. The firm determined that no wrongdoing had occurred and denied the claim.
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More than three years following the previous claim, a second dispute from the same investors was reported to our advisor’s CRD and BrokerCheck records, also alleging suitability and now seeking $200,000 in damages. The firm settled the claim as a business decision for $55,000, and the advisor’s errors and omissions carrier contributed to the settlement.
The third investor held a portfolio outside of the firm that was concentrated in stock in British Petroleum (BP). The advisor recommended liquidating most of the stock and creating a balanced portfolio of a variety of diverse investments. The investor agreed. However, she repeatedly claimed that she had a high risk tolerance and regularly rejected the advisor’s recommendations for more conservative investments. The investor concentrated her portfolio in aggressive and growth investments, including a REIT. About a year after moving her account away from our advisor, the investor filed for civil litigation and then for NASD arbitration, alleging unsuitability. The firm settled for about $97,000, and the advisor contributed $5,000 to the settlement.
The fourth investors held a portfolio that contained a variety of diversified investments, including mutual funds, an annuity, and a $10,000 REIT investment. The advisor spoke to the investors regularly and endeavored to provide them with excellent service. The investors never expressed any dissatisfaction with the advisor. For about seven years, the investors took regular withdrawals from their portfolio. In 2007, the advisor and investors discussed an investment that was suitable for the investors that they ultimately decided not to purchase. They did not complain to the advisor, but just a few months later, they lodged a claim of poor service and unsuitability. The firm closed the claim, and the investors did not pursue it further.
The last investor was partially retired and sought growth and tax advantage with an aggressive risk tolerance. The advisor recommended a variety of investments for a diverse portfolio, including two annuities and mutual funds. The investor purchased the recommended investments after reviewing and signing all of the written materials. She then took repeated, sizeable withdrawals from her portfolio for the next five years, despite being warned by the advisor to curb her spending and reduce her withdrawals. When the investor’s part-time job was ending, she indicated a need for income. The advisor’s recommendations at that time included REITs. The investor invested an appropriate portion of her portfolio in the REITs, and they provided regular, monthly income for four years. Despite the investor’s regular withdrawals, her portfolio value increased. The investor’s son then became involved. He directed the liquidation of the investor’s annuities and transferred her portfolio away from the firm. Despite the overall profitability of the investor’s portfolio, her son lodged a customer dispute alleging unsuitable investments.
Neither the firms nor the customers participated in the FINRA Dispute Resolution hearing. The Arbitrator reviewed all of the applicable settlement documents and exhibits and listened to the advisor’s testimony, as well as arguments by Dochtor Kennedy, MBA, J.D. and Zachary Morse, J.D.
In the first claim, the Arbitrator found the allegations to be false and clearly erroneous and cited the fact that the advisor, “on many occasions, counseled the Customer to diversify and advised against investing into one, unsolicited high-risk investment.”
For the second and third customer disputes that were lodged three years apart, the Arbitrator based his decision that the allegations were false and clearly erroneous on the fact that the advisor “had a reasonable basis to believe that the investments [ ] were suitable and [ ] based on the Customer’s investor profile.” He added that the advisor “repeatedly advised the Customer to reduce spending and adhere to the long-term plan.”
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The Arbitrator’s decision regarding the third investor included mention of the fact that, “Contrary to earlier discussions regarding risk profiles…the Customer completed and signed various risk profile questionnaires and account forms which stated her investment objectives as growth with a moderate to high risk tolerance.” He added that, despite the advisor’s “recommendations to diversify into more conservative investments, the Customer continued to pursue a high concentration of aggressive growth investments.” The Arbitrator found the allegations to be false and clearly erroneous, because the advisor “repeatedly warned the Customer to diversify with more conservative investments,” she “insisted on purchasing a high concentration of aggressive growth investments,” and she “rejected [the advisor’s] more conservative investment recommendations.”
In considering the fourth claim, the Arbitrator mentioned that the investor “did not express any dissatisfaction with the portfolio for over 8 years.” The Arbitrator stated that he “found the Customer’s allegations of poor service to be false and clearly erroneous[,] because [the advisor] provided excellent service to the Customer at all times.” He found the unsuitability claim to be false and clearly erroneous, as well, because “the investment recommendations were based on [the advisor’s] due diligence and were congruent with the Customer’s investment objectives.”
Regarding the last claim, the Arbitrator noted that the advisor made various recommendations and that the investor signed documents affirming her understanding of the investments. He noted that “The Customer began to make excessive withdrawals by liquidating certain investments,” that she “initiated a portfolio transfer to another brokerage,” and that, one year later, “the Customer filed a claim alleging unsuitability.” The Arbitrator found the allegations to be false and clearly erroneous, because the advisor “had a reasonable basis to believe that the recommended investments were suitable” and that “The investment recommendations were based upon an investor profile and the Customer’s investment objectives.”
With a recommendation of expungement for all six customer disputes, this advisor will soon have a record that accurately represents his stellar career in the financial services industry.
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