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Award Date: June 2, 2023
Claimant Representatives: Dochtor Kennedy, MBA, J.D.
Respondent Firms: Citigroup Global Markets, Inc. and Morgan Stanley
Case Objective:
A New York-based advisor approaching his 40th year in the industry had three customer dispute disclosures that were more than a decade old on his public BrokerCheck and CRD records. Wishing to attempt expungement prior to the new FINRA Dispute Resolution rule implementations, he hired AdvisorLaw.
Case Summary:
Around the late 1980s, an investor who our advisor had known for nearly 12 years became a client of our advisor. The investor had a high net worth and good investment experience, and he and our advisor met and spoke frequently.
Around 2007, the investor sought investments with high, tax-free income, and he made an unsolicited direction that the advisor invest in a fund on his behalf, using less than ten percent of his portfolio. Subsequently, the investment product was in the news due to an unusual decline over a short period of time.
Despite the fact that Citigroup chose to settle with all investors in the product, this particular investor opted out of the settlement and pursued arbitration on an individual basis through his attorney. He filed for FINRA arbitration and received a settlement in the amount of $340,000.
The second investor became a client of our advisor in 2008, and he enrolled in a balanced advisory portfolio with conservative growth. He and our advisor kept in frequent contact, as well. When the markets declined amid the 2008 financial crisis, the investor directed our advisor to liquidate his entire portfolio, against our advisor’s advice.
The investor then complained to Morgan Stanley in hopes of achieving a nuisance settlement. In March of 2010, a claim was reported to our advisor’s records, alleging a failure to follow instructions. When Morgan Stanley denied that claim, the investor filed for FINRA arbitration, and our advisor received a second customer dispute from the same investor on his records. Despite the fact that the FINRA arbitrators determined that the investments were suitable and that our advisor had not failed to follow instructions, and it denied the claim, the two separate customer disputes remained on our advisor’s records for more than ten years.
Result:
While both firms participated in the FINRA Dispute Resolution expungement hearing, none of the customers participated. The Arbitrator reviewed settlement documentation and all documents that were submitted, and she listened to the advisor’s testimony, as well as the arguments in favor of expungement presented by Dochtor Kennedy, MBA, J.D.
Regarding the claim made by the first customer, the Arbitrator concluded that “The credible testimony of [our advisor] demonstrated that the customer was an experienced and sophisticated investor, who was able to understand risk and who had requested that [our advisor] look into the possibility of investing in the particular fund.” She went on to state that “The investment, when made, was suitable for the customer’s investment objectives and income needs and, in fact, initially provided the customer with more income than [his previous investments] had provided.” Finally, the Arbitrator mentioned that “The customer’s losses were not the result of unsuitability or misrepresentations but occurred because of extraordinary market conditions in 2008.”
In the case of the second investor whose allegations had led to two separate customer dispute disclosures for our advisor, the Arbitrator determined that our advisor’s testimony “indicated that the portfolio was constructed in accordance with the discussion with the customer and his son, was suitable for the customer’s investment objectives, time horizon and risk profile, and, in fact, was more diversified and less risky than the portfolio the customer had at the previous firm[.]” She again pointed out that “The losses in the portfolio were the result of the extraordinary market events in 2009 and 2009 and the customer…chose to lock in those losses by liquidating the entire portfolio in March 2009.” Finally, the Arbitrator pointed out that “A three-person panel rejected the customer’s claims in their entirety.”
With the expungement of the only three marks that had been plaguing this advisor’s records for the past decade or more, our advisor may now continue his longstanding career with a record reflective of his years of impeccable service in the industry.