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Award Date: May 16, 2022
Hearing Site: Jersey City, New Jersey
Respondent Firm: J. B. Hanauer & Co. and Wells Fargo Clearing Services, LLC
Claimant Representative: Dochtor Kennedy, MBA, J.D.
An advisor in New Jersey who has been in the industry for nearly 30 years sought expungement of four, settled customer disputes that dated back to 2000. He hired AdvisorLaw to bring his case through FINRA’s Dispute Resolution Forum.
The first complaint came from a customer who had become a client of our advisor around 1996, seeking to invest in iridium bonds. The advisor determined that the bonds were suitable and explained all details to the investor. The investor purchased the bonds and lodged a complaint of unsuitability about a year or two later after the bonds defaulted. He sought $60,000 in damages, and the firm settled the claim in the interest of client relations, for $25,000.
The second customer complaint arose after a couple purchased variable-rate bonds from our advisor in 2013. The recommendation was suitable, and the couple was informed prior to purchase that the bonds could fluctuate and would mature at par value if held to maturity. In 2017, the bonds began a decline that became sharper decline the following year. In 2018, the couple filed for FINRA arbitration, alleging that the bonds had been unsuitable and that the advisor had exercised discretion in their account without approval. They sought about $150,000 in damages. Without admitting any liability or requiring a contribution from the advisor, the firm settled with the customers for $72,000.
The third customer purchased the same bonds around 2013. She then proceeded to spend excessively, despite warnings from the advisor, and she later liquidated the bonds prior to maturity. In 2018, the customer complained of unsuitable recommendations. The firm settled with her for $35,000 and did not require the advisor to contribute.
The fourth customer also purchased the same bonds in 2013. After they declined, she filed for FINRA arbitration, alleging unsuitability and overconcentration and seeking $200,000 in damages. The firm settled with her for $160,000 to avoid further costs, and the advisor was not required to contribute to the settlement.
The Arbitrator in the FINRA expungement hearing on the matter reviewed exhibits and listened to testimony from both the customers and the advisor. He heard the arguments presented by Dochtor Kennedy, MBA, J.D. The Arbitrator determined that the first customer had specifically “wanted to invest in iridium bonds” and that the advisor had “explained [that they] were high[-]risk investments.” Additionally, he noted the small percentage of the customer’s portfolio that the bonds had comprised.
Regarding the second dispute, the Arbitrator noted the customers’ significant investment experience and the fact that the recommendation had addressed their objectives. Further, the Arbitrator specifically stated that “the facts demonstrate[d]” that the customers had approved every transaction in their account and received monthly statements.
The Arbitrator stated that the third customer’s portfolio had originally been concentrated in a single stock holding and that the advisor had recommended the bonds for diversification. Additionally, the interest rate at the time was “in an ideal position to allow the customer to take advantage of the market and receive the desired goal of a monthly cash flow.” The customer held the account for years and admitted to not reviewing her statements, and it was only after the account lost money that she became concerned. The Arbitrator determined that the customer was “an experienced investor, [who] was simply seeking to recover [ ] losses” that had resulted from market events and not from any bad advice from the advisor. Finally, the customer liquidated the bonds against the advisor’s advice.
The Arbitrator drew similar conclusions in the fourth instance, and he recommended the expungement of all four customer disputes. The four customer dispute disclosures, two of which sat on the advisor’s record for more than two decades, will soon disappear from BrokerCheck and the CRD.
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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