Advisor Expunges Three Heavily-Settled Customer Disputes

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Award Date: January 13, 2022
Hearing Site: Boca Raton, Florida
Respondent Firm: 1st Discount Brokerage, Inc.
Claimant Representative: AdvisorLaw, LLC

Case Objective:

A California-based, veteran advisor of more than 25 years had incurred three customer disputes in October of 1998. The claims alleged negligence and failure to supervise in relation to fraud perpetrated by a rogue, independent representative of the firm. All three claims had been settled for around $100,000 each. Ready to clear her record of the publicly-published, alarming allegations and substantial settlements, she hired AdvisorLaw to seek expungement through FINRA Dispute Resolution.

Case Summary:

Between 2002 and 2008, a representative was registered with the respondent firm as an independent contractor. Our advisor joined the firm in 2004 as Chief Compliance Officer. Unbeknownst to the firm and our advisor, the independent rep had set up a sham company that operated as a Ponzi scheme. Because of the sham company’s illegitimacy, it was not registered with the SEC or any state, and no records of its existence were available to the firm.

The independent rep made recommendations to firm customers to place their assets in the sham company. He then fabricated fraudulent statements reflecting trades that had not taken place and high returns that had not been achieved, and he provided those statements to the customers. When the firm discovered the scam in 2008, the independent rep wrote letters to the customers, admitting that their accounts had no value and informing them that he could not return their assets.

Several lawsuits were filed against the independent rep, in addition to investigations by the FBI, SEC, USPS Inspection Service, Tennessee Bureau of Investigation, IRS, and FINRA. All individuals in executive positions with the firm were subject to the suits, including our advisor. She participated in interviews with the SEC and FBI and was exonerated. The independent rep was found guilty and sentenced to 96 months in prison. Most of the defrauded customers of the independent rep entered into a global settlement with the firm. Despite the fact that none of the customers were ever clients of our advisor, she did not participate in the customer settlements, and her role as CCO did not include any supervisory responsibility over the independent rep, she ended up being hit with three disclosures on her public records.


During the FINRA arbitration hearing, our advisor provided testimony, as did one of the customers who lodged the disputes. The Arbitrator listened to testimony and arguments and reviewed the written documents and exhibits presented. In the Award, the Arbitrator noted the circumstances of the fraud found to have been perpetrated by the independent rep. The Arbitrator determined that the information presented “indicated that [our advisor’s] role as [CCO]…did not include any supervisory responsibility for the [independent rep] or his activities” and that “[n]one of the customers…were clients of [our advisor].” Our advisor’s exoneration by the FBI, SEC, and FINRA and the independent rep’s conviction, fine, and censure were mentioned, as well as our advisor’s non-participation in the settlements. The Arbitrator declared the allegations to be false, factually impossible, and clearly erroneous. He determined that our advisor was not involved in the fraudulent activity, and he recommended the expungement of all three claims from our advisor’s records.

After over a decade of shouldering the burden of the three serious disclosures, our advisor may now boast a clean and clear record.

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Expungement Award