Financial Consultant Restores Perfect Record With Expungement

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Award Date: June 24, 2022
Hearing Site: Philadelphia, Pennsylvania
Respondent Firm: Merrill Lynch, Pierce, Fenner & Smith Incorporated
Claimant Representative: Doc Kennedy, MBA, J.D.

Case Objective:

A 35-year veteran of the industry had a single disclosure on his otherwise-perfect record. The nearly 17-year-old claim alleged an omission of facts, sought damages of about $8,700 and had been closed with no action. The financial consultant engaged AdvisorLaw to seek expungement through FINRA Dispute Resolution.

Case Summary:

Around the mid-1990s, a customer who held two accounts with the firm directed the financial consultant (FC) to purchase high-yield bond funds on an unsolicited basis. The FC confirmed that the funds were suitable for the customer’s investor profile and objective. However, the customer added money to the funds from time to time, which increased her concentration on the funds, against the FC’s advice.

Due to the elevated risk involved with the customer’s unsolicited purchases of additional funds, the FC had several cautionary discussions with the customer, and the customer’s accounts were subjected to enhanced scrutiny by firm compliance. The customer’s heavy concentration on the funds provided her with a high income, but the account suffered some losses, which caused her concern.

In the late 1990s, the funds dropped significantly. The customer was unwilling to diversify, however, because it would’ve resulted in a loss of income and a realized loss of principal. In 2001, the funds began to recover, and the customer’s account values peaked. At that time, the FC was able to persuade her to partially diversify into C-share mutual funds. The customer would incur no upfront fee, and the C-share funds had a commitment period of one year, during which their sale would result in a surrender fee.

In 2002, the customer’s remaining high-yield funds once again declined significantly. In late 2002, on an unsolicited basis, the customer directed the liquidation of a significant portion of her accounts, including the C-shares. While the FC explained that the customer could avoid the surrender charges on her C shares by postponing the liquidations for a few weeks, the customer chose not to wait, and she incurred the surrender charges. The FC explained that the losses realized were comprised of market declines and surrender charges on the liquidated C shares.

The customer then sought safer investments that provided income, and she purchased two, five-year, fixed annuity contracts recommended by the FC. The FC explained the five-year term, as well as the surrender penalty, all fees and commissions, and every detail of the annuities. The customer preferred the fixed annuity because it offered a higher rate than a CD, and the first year provided an additional one percent.

Three years later, the customer complained that facts were omitted regarding her contracts, and she sought damages of around $8,700. She did not pursue the claim further, and it was closed approximately 18 months later, with no action taken. Nevertheless, it remained on the FC’s record for nearly 17 years.


At the FINRA Dispute Resolution hearing on the matter, the Arbitrator reviewed the pleadings, exhibits, and evidence, as well as the customer’s complaint. She listened to the FC’s testimony and arguments from Dochtor Kennedy, MBA, J.D. Neither the firm nor the customer participated in the hearing.

The Arbitrator noted that the customer’s complaint had focused on the losses incurred prior to her annuity purchases, and it alleged that the FC had not explained how the losses occurred. The Arbitrator noted that there had been no financial settlement in the matter, and the customer had not pursued the claim. The Arbitrator deemed the customer’s claim that the FC had not explained the losses to her as false. Furthermore, the Arbitrator determined that “There were no [losses] in the [fixed annuity] investment due to any action or recommendation of the [FC]” and that “the allegation that facts were omitted regarding her contract is false.” Upon completion of the hearing, she recommended the expungement of the disclosure.

Finally, after nearly 17 years of living with this mark on his record, the FC will once again have a perfect public profile.

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Expungement Award