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Award Date: July 8, 2022
Hearing Site: Los Angeles, California
Respondent Firm: Gold Coast Securities, Inc.
Claimant Representative: AdvisorLaw
One customer dispute sat on this L.A.-based advisor’s public record for 12 years. While he had no other disclosures listed, the claim included a slew of allegations against the advisor and had been settled for over $100,000. Having lived with the disclosure for long enough, the advisor hired AdvisorLaw to take his shot at expungement.
In 2008, a CPA who was also a representative with the firm recommended a Medical Capital (MedCap) promissory note to his customers. The CPA directed the customers to our advisor for the specific purpose of purchasing the MedCap note. The customers held investments in other accounts and were only interested in speaking to our advisor about MedCap.
The note provided a fixed rate of interest and return of principal upon maturity. Our advisor explained to the customers that the note would be illiquid for two years and that it was not guaranteed. He reviewed all of the details and disclosures regarding the note and explained that MedCap’s disclosed strategy was to invest the money generated by the notes into discounted purchases of accounts receivable. When it was collected on those accounts receivable, the funds were reinvested into others. It was through that strategy that it generated the high interest that the note paid.
Our advisor reviewed the customers’ information and investor profiles, and he was able to ensure that they were suitable investors for the note. The customers reviewed all of the note’s written materials and signed paperwork attesting to their knowledge of the risks and details, etc. In August of 2008, they purchased $200,000 of the MedCap note in their trust, of which the note constituted approximately 20%.In July of 2009, the SEC filed an action against MedCap, and it was later found to be a Ponzi scheme. Its president and COO had misappropriated funds, defrauding more than 700 investors of nearly $49 million. The SEC placed MedCap into receivership, and many of the broker-dealers that had sold the notes went out of business due to the massive costs of investor suits.
Our advisor’s customers filed for FINRA arbitration, alleging unsuitability, misrepresentation, breaches of fiduciary duty and contract, and securities laws violations. They sought $200,000, and the firm settled with them for $133,500.
The firm participated in the FINRA Dispute Resolution hearing and did not oppose our advisor’s request for expungement. The customers did not participate. The Arbitrator considered the exhibits and documents submitted, the advisor’s testimony, and the arguments presented by AdvisorLaw. The Arbitrator noted that the investment’s failure to perform as it had reasonably been expected to be due to what “was ultimately adjudicated as fraudulent activity of key officers of MedCap, which at the time the investments were made by the Customers , was unknowable by anyone outside of MedCap.”
Speaking to the allegation of unsuitability, the Arbitrator found that the evidence showed that the notes had met the customers’ stated objective of income, their time horizon of 6-10 years, and their moderate risk tolerance. He found the allegation of misrepresentation to be false, as well, as the customers had received and acknowledged MedCap’s representations in writing. The Arbitrator found the remaining allegations clearly erroneous, citing that “[t]he evidence indicates that key representatives of MedCap were found criminally responsible for [P]onzi-related activities in subsequent criminal proceedings.”
With the Arbitrator’s recommendation for expungement of the claim, our advisor will soon have the 12-year-old stain wiped clean from his public record.
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.