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Award Date: April 29, 2022
Hearing Site: Houston, Texas
Respondent Firm: G.F. Investment Services, LLC
Claimant Representative: Dochtor Kennedy, MBA, J.D.
Case Objective:
In 2019, our advisor was hit with two disclosures — one customer dispute and one investigation — both pertaining to an investment made by a man in his 70s. Our advisor sought AdvisorLaw’s help in seeking expungement through FINRA arbitration.
Case Summary:
In 2015, a customer in his early 70s approached our advisor seeking returns higher than those available in the current bond market. The advisor discussed high-yield bonds, CDs, real estate investments, and a conservative growth income portfolio with the customer. The customer selected a real estate investment trust (REIT), high-yield bonds, and a conservative growth income portfolio. The customer signed numerous documents in connection with the REIT investment, attesting to its suitability and his knowledge of the risks and details. The customer invested less than 12% of his portfolio in the REIT. Over the next four years, the REIT was revalued at a lower price several times, yet the customer continued to receive dividends and distributions from it and did not lose any money on the investment. The customer transferred his accounts in 2016 but contacted our advisor in 2019, inquiring about cashing out the REIT investment.
Even though our advisor was no longer working with the customer, he assisted the customer in obtaining the requested paperwork. REIT representatives later told the customer that he could only execute partial liquidations of the REIT on a quarterly basis. The customer filed a complaint with the Texas State Securities Board, and our advisor ended up with a customer dispute disclosure on his record with allegations of misrepresentation and unsuitability. The customer sought more than $35,000 in damages, and the complaint was closed with no action taken.
Result:
The customer did not participate in the hearing but did submit a document restating his allegations that were “given considerable consideration” in the Arbitrator’s decision. After reviewing the exhibits and listening to the advisor’s testimony, the Arbitrator determined that the customer’s allegations were clearly erroneous. The Arbitrator noted that the customer’s signatures and initials were present on documentation reflecting the risks and illiquid nature of the REIT and attesting to its suitability. The customer had received the prospectus/private placement memorandum 18 days prior to his purchase of the REIT and had ample opportunity to review the documents and consult with outside parties. The Arbitrator went on to state that the exhibits showed that the advisor “went out of his way to assist the Customer seeking information pertaining to the REIT even after the Customer terminated his business relationship” with the advisor. Finally, the Arbitrator noted that the customer’s complaint was the sole complaint in our advisor’s career spanning nearly two decades and servicing approximately 225 clients.
The Arbitrator recommended expungement so that our advisor will soon have a record free of customer complaints.
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