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Award Date: May 2, 2023
Respondent Firm: UBS Financial Services Inc.
Claimant Representative: Doc Kennedy, MBA, J.D.
FINRA Case Objective:
A 41-year industry veteran had a stellar public record — with the exception of a 2008 customer dispute. The claim had arisen out of auction rate security illiquidity in 2008. It was settled for nearly $300,000 and reported to the advisor’s record pursuant to a FINRA regulatory notice. With the opportunity for expungement through FINRA arbitration likely disappearing soon, the advisor reached out to AdvisorLaw to take his chance at expunging the mark.
FINRA Case Summary:
In 2005, a high-net-worth investor who was a new client of our advisor sought to maximize his short-term returns. He had more-than-sufficient liquidity in his current assets. Our advisor recommended auction rate securities (ARSs) because they met the investor’s profile and objectives. At the time, ARSs were regarded and sold throughout the industry as highly-liquid instruments. They were common products for high-net-worth investors seeking higher yields, and the auctions sustaining ARSs rarely failed, because the banks running them had historically stepped in with their own capital to prevent failures. In early 2007, the investor purchased ARSs with about five-to-ten percent of his net worth. Each week thereafter, the investor chose to renew his ARSs at the weekly auctions.
Beginning in February of 2008, ARS auctions began to fail when investors declined to bid on ARSs, and the four largest banks that marketed them declined to act as bidders of last resort, as they had in the past. In March of 2008, a customer dispute by the investor was reported to our advisor’s records. That December, the firm repurchased the investor’s ARSs, under a global repurchase agreement. Pursuant to FINRA Regulatory Notice 09-12, the repurchase of the investor’s ARSs was reported as a settled customer dispute to our advisor’s records.
The firm neither opposed the advisor’s expungement request nor participated in the hearing. The customer had since passed away, and the customer’s spouse declined to participate, as well. The FINRA Arbitrator reviewed the advisor’s BrokerCheck report, the August 8, 2008 Securities and Exchange Commission Release on ARSs, and FINRA’s Regulatory Notice, as well as other documentation. She listened to the arguments in favor of expungement that Dochtor Kennedy, J.D., MBA presented. In her award, the Arbitrator specifically “noted that [UBS] was ordered to make all customers of [ARSs] whole as part of a global repurchase agreement.” Specifically, the Arbitrator stated that our advisor “invested as instructed by the Customer; nothing else was invested” and that “The market took a[n] historical, unpredicted downturn that caused losses, yet the Customer still earned income from his investment and [UBS] provided liquidity and remediated losses.” The Arbitrator also pointed out that our advisor “has no other complaints on his record that reflect 41 years in financial services” and concluded that “The complaint [ ] is, therefore, erroneous and false.”
The Arbitrator recommended the full expungement of the claim and all references to it from our advisor’s records. With the expungement of a sole, 15-year-old stain on a record spanning 41 years, our advisor may now continue his career with a longstanding, perfect public record.
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