FINRA Expungement Award:

Texas Advisor Clears His Public Records With Expungement Of Two Customer Disputes


FINRA Expungement Award:

Texas Advisor Clears His Public Records With Expungement Of Two Customer Disputes


 

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Award Date: August 26, 2022
Hearing Site: Albuquerque, New Mexico
Respondent Firm: Investors Capital Corp. and NYLife Securities LLC
Claimant Representative: Doc Kennedy, MBA, J.D.


Case Objective:

After 26 years in the industry, an El Paso-based advisor had two customer disputes on his record. Seeking a clean slate, he hired AdvisorLaw to help him win expungement of the disclosures through FINRA arbitration.


Case Summary:

Our advisor and another advisor had formed an advisory partnership that ended in 2003. The following year, a client of our advisor’s former partner purchased an annuity through the former partner. While the client had technically been associated with our advisor for less than one year through the former partnership, our advisor never worked with the client, and he left the firm about six months following her annuity purchase.

Then in October of 2007, the former partner’s client alleged that she had received misinformation about her annuity. Despite the facts that: (1) our advisor had never worked with the client; (2) he had not made any representations to her about any investment; and (3) the annuity hadn’t even been purchased until after the partnership had ended, the client’s dispute was reported to our advisor’s records. The disclosure then sat on our advisor’s CRD and public BrokerCheck profiles for 15 years.



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The second customer dispute was lodged by a longtime acquaintance of our advisor who had become a client in the fall of 2015. Because the client was highly concerned about market volatility, our advisor recommended mutual funds, ETFs, an annuity, and the American Realty Capital (ARC) Hospitality Trust.

At the time of the recommendation, the ARC Trust was liquid and could be redeemed. However, our advisor informed the client orally and with written materials that the ARC Trust might lack liquidity in the future. Having acknowledged that risk in writing, the client purchased the ARC Trust with about 16% of his total investable assets.

Just over a year later, the ARC Trust suspended all distributions and redemptions and subsequently declined in value. When the client then requested a total liquidation of his portfolio, our advisor explained that the ARC Trust could not be liquidated.

About five months later, the client alleged that our advisor had failed to comply with his request to liquidate the ARC Trust, that he had failed to disclose material information, and that the ARC Trust had been unsuitable because of its then-current lack of liquidity. The client sought $100,000 in damages, and the firm settled with him for $125,000 to avoid arbitration and in the interest of customer satisfaction. Our advisor and a colleague each contributed $62,500 to the settlement, and our advisor received another disclosure on his BrokerCheck and CRD records.


Result:

Prior to the FINRA Dispute Resolution hearing, both firms submitted statements of answer, and neither one opposed our advisor’s expungement requests. While NYLife took part in the FINRA expungement hearing, neither ICC nor the customers participated. The FINRA Arbitrator reviewed the documents submitted, including the settlement agreement for the second dispute. He listened to our advisor’s testimony and the arguments offered by Dochtor Kennedy, MBA, J.D.

In regard to the first dispute, the Arbitrator pointed out that the customer had been extended an offer from the annuity company and that she had “simply walked away from her complaint.” He mentioned that our advisor’s role in the events that had led to the complaint “was totally hands off,” that he “gave no information to [the customer] and certainly, not erroneous information,” and that he therefore “was not involved in the alleged investment-related sales practice violation.” Due to those facts, the Arbitrator found that our advisor’s “CRD and BrokerCheck® records are clearly erroneous and false” and that the claims are eligible for expungement under all three FINRA Rule 2080 standards.

The Arbitrator found that the second dispute was clearly erroneous and false and therefore eligible for expungement under FINRA Rules 2080(b)(1)(A) and (C). In support of his finding, the Arbitrator noted that the customer had been “provided with documents that clearly delineated the risk of illiquidity.” He stated that our advisor had “reliably explained that in order to avoid the cost of arbitration and more importantly, to maintain a social and business relationship, he chose to settle [with the customer].” Specifically, the Arbitrator wrote that, “[b]ecause [our advisor] did not fail to comply with [the customer’s] request, fully and accurately represented the [ARC Trust], made a suitable recommendation, and performed his duties as a representative in a thorough, ethical, and professional manner, the public disclosure of the false allegations does not offer any public protection and has no regulatory value.”

With both customer disputes expunged and no other disclosures on his record, our advisor’s stellar public reputation will soon be restored.



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