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Award Date: May 2, 2022
Hearing Site: Hartford, Connecticut
Respondent Firm: LPL Financial LLC
Claimant Representative: Dochtor Kennedy, MBA, J.D.
A 36-year veteran of the industry received three customer dispute disclosures between 2018 and 2020. All three involved investments in real estate investment trusts (REITs) and two of the claims had been settled by the firm. The advisor sought AdvisorLaw’s help to seek expungement of the disclosures through FINRA Dispute Resolution.
In 2014, an investor sought out our advisor for the express purpose of purchasing a specific REIT. Our advisor confirmed that the investor’s profile was suitable for the REIT and provided him with all of the information and disclosures. The investor purchased the REIT and signed all documents acknowledging its suitability, as well as its limited liquidity. Four years later, our advisor was hit with a complaint from the investor, accusing her of failing to disclose the REIT’s liquidity restrictions and making an unsuitable recommendation. The advisor hadn’t even recommended the investment, and the firm denied the claim, yet our advisor was stuck with the disclosure on her public record for four years.
The second dispute came from a customer to whom our advisor had recommended a balanced and diversified portfolio of mutual funds, bonds, annuities, and REITs. The advisor and the investor met regularly and updated the investor’s profile for suitability purposes at each meeting. In 2012, the investor liquidated a variable annuity and used the resulting funds to purchase a REIT. Our advisor assisted the investor with completing the REIT paperwork, with the investor’s authorization and in her presence. Over the course of the following eight years, the investor purchased three more REITs through our advisor. After liquidating the first REIT for a gain of over $17,000, the investor complained that the REIT had been unsuitable, that risks had not been disclosed, and that inaccurate information regarding her net worth had been entered on the REIT documentation after the customer had signed it. The firm settled with the customer for approximately $36,000 and did not ask our advisor to contribute to the settlement.
The third dispute came from the previous investor’s brother, who was referred to our advisor because he wanted to purchase the same REIT that his sister owned. Our advisor made recommendations for a balanced and diversified portfolio, but the customer only wanted to purchase the REIT. Our advisor provided the customer with all information and assisted him with completing the documentation, as she had with his sister. The customer received dividends from the REIT of over $3,000, over the course of approximately 15 months. About one week after his sister lodged her claim, this customer lodged his own, with nearly identical allegations. The firm settled with the customer for over $60,000 and did not require a contribution from our advisor.
Doc Kennedy J.D., MBA, represented our advisor at the FINRA expungement hearing. With the first dispute, the Arbitrator determined that the testimony and documents provided at the hearing showed that the customer was a friend of the owner of the REIT in which she invested and that she had sought our advisor for the specific purpose of investing in the REIT. The Arbitrator added that the “Documents and testimony also showed that, based on the information available, it was a good investment at the time that it was made.” The customer had completed and signed documents and was qualified and suitable for the investment, which constituted a “very small percentage” of his net worth.
Regarding the second and third disputes, the Arbitrator determined that the testimony and evidence indicated that both customers had been provided with all documentation disclosing all aspects of their REIT investments. Specifically, the Arbitrator noted that our advisor “was not involved in the decision whether the [customers] would qualify to buy alternative investments. That decision was based upon the financial requirements of the REITs and the [customers’] assets and liquid net worth.” The second customer “testified very credibly that she took the document to open the REIT home to her husband to get his signature and returned the blank pages to the brokerage firm. However, [our advisor] also testified credibly that the printing on the document was not, in fact, her handwriting.” While it is unknown who completed the documents in question, the Arbitrator determined that it was not our advisor and that, therefore, the disclosures met the standards of Rule 2080(b)(1)(B), which allows expungement, because the advisor was not involved in the sales-practice violation.
With a recommendation for the expungement of all three disputes, our advisor will soon be rid of all three disclosures.
If you’d like to learn more about AdvisorLaw’s FINRA Disclosure Expungement services, please fill out the contact form below. Our consultations are complimentary, and our services were created exclusively for financial advisors.
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