- Rising Tide: The Urgent Call For Advisor Succession Planning
- Why RIAs Should Consider Outsourced Chief Compliance Officers
- FINRA Crackdown — Outside Business Activities
- Georgia Advisor Restores Public Record With Termination Expungement
- Is FINRA’s small firm governor election process truly fair and transparent?
*If you’re under FINRA or SEC investigation, or if you have a meritless disclosure on your BrokerCheck, CRD, IARD, or IAPD record, call us right now at (303) 952-4025 to talk with an attorney and receive a priority consultation at no charge.
Award Date: November 3, 2022
Hearing Site: New York, New York
Respondent Firm: Gilder Gagnon Howe & Co. LLC
Claimant Representative: Doc Kennedy J.D.
As he approached half a century of service in the financial services industry, a New York advisor hired AdvisorLaw to seek expungement of a 23-year-old customer dispute. The client had alleged several sales-practice violations and sought $1.25 million in damages. With the help of AdvisorLaw, this advisor was awarded expungement through FINRA Dispute Resolution.
Around 1990, this advisor utilized a specific investment strategy. While the strategy had the potential to be quite profitable, it incorporated small-cap equities that could be highly volatile. A couple approached the advisor, seeking to invest a small portion of their assets with the advisor’s strategy. The advisor explained the high risk involved and ensured that the customers could afford to invest assets in that manner. The customers qualified for the strategy signed trading authorizations and other documents, and they invested. On a quarterly basis, the advisor wrote letters to his customers who used the strategy. The letters contained the advisor’s view on the market, as well as average account performance. He also hosted client-based conference calls to explain his approach and reasoning. The advisor invested his own, personal assets with the strategy, as well.
Between 1998 and 2000, the strategy included shorting internet companies. However, the drastic increase in the prices of such positions led to losses that, while extreme, were unrealized for investors who did not liquidate at that time. The couple in question, however, chose to liquidate and realize losses.
In January of 2000, the couple filed for FINRA arbitration, alleging rule violations, breach of fiduciary duty, churning, and unsuitability. They sought $1.25 million in compensatory damages.
By mid-2000, the technology positions that had increased began to decline, and the advisor’s strategy yielded extreme profits for its investors.
In February 2001, the firm settled with the customers for $250,000, and the advisor did not contribute to the settlement.
AdvisorLaw’s Dochtor Kennedy, MBA, J.D. submitted documents at the hearing, and they presented their arguments for expungement to the Arbitrator. The Arbitrator listened to the advisor’s testimony and reviewed his BrokerCheck record.
Finding that the claim did, in fact, meet the FINRA Rule 2080(b)(1)(A) standard for expungement, as it was factually impossible or clearly erroneous, the Arbitrator recommended expungement. He explained in his award that he had based his decision on the underlying events. Specifically, he mentioned that “the customers invested in discretionary accounts, [ ] the markets turned extremely volatile in 1999,” and “these customers (and none other) withdrew their investments and commenced an arbitration for [$1.25 million].” The Arbitrator noted that the advisor had “explained his philosophy of investing for the long term and that by agreement with customers, all accounts are discretionary.” He had “offered evidence in the form of a chart published to its customers that indicate the performance of [his] business,” and the chart “shows that had the customers continued with [the advisor], their investments based on [his] long-term philosophy would have returned to growth in the following years.”
With an award from the FINRA arbitrator recommending expungement, this advisor can pass the 50-year mark of his career free from this old, erroneous customer dispute.
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.
- FINRA Crackdown — Outside Business Activities - September 7, 2023
- Georgia Advisor Restores Public Record With Termination Expungement - September 5, 2023
- Is FINRA’s small firm governor election process truly fair and transparent? - August 29, 2023