FINRA Form U5 Expungement Award:
Dallas Advisor Wins Expungement Defamatory Termination
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Award Date: October 27, 2022
Hearing Site: Dallas, Texas
Respondent Firm: Momentum Independent Network Inc.
Claimant Representative: Doc Kennedy J.D., and Samantha Pastor, J.D.
About halfway through a near-40-year career in the industry, a Texas-based advisor was hit with a termination disclosure alleging that he had reallocated a customer’s subaccounts without authorization. He lived with the stain on his records for almost two decades before he’d had enough. Finally, he decided to try to get the disclosure expunged through FINRA Dispute Resolution with the help of AdvisorLaw.
In 2002, the advisor started his own registered investment advisor (RIA). About six months later, he joined the broker-dealer firm, Momentum. While the BD didn’t allow discretionary accounts, the advisor had a clearing contract with Southwest Securities, Inc. (SSI) for advisory services. He maintained discretion in the SSI accounts and used that discretion for periodic rebalancing of accounts. During the time while he was registered with Momentum, he became its highest-producing advisor.
In December of 2004, the advisor sent letters to clients of SSI, informing them of the upcoming rebalancing of their accounts and requesting to be contacted with any objections to the proposed strategy. The advisor carried out the planned rebalancing, exercising the discretion that he had been granted by the customers. However, one customer subsequently complained.
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Momentum soon terminated the advisor and published a Form U5 amendment stating that it had allegedly investigated whether the advisor had reallocated the customer’s subaccounts without prior consent, which would constitute a violation of firm policy.
Regardless of the fact that the client had granted the advisor consent by authorizing discretion, the false allegations published with the termination disclosure, as well as a second internal review disclosure, marred the advisor’s records since the time when the Form U5 was filed — in early 2005.
At the hearing on the matter, the FINRA arbitrator read the pleadings and evidence submitted, as well as any post-hearing submissions. The advisor testified, and Dochtor Kennedy, MBA, J.D. and Samantha Pastor, J.D. presented their arguments as to why the allegations painted the advisor in a negative light.
After consideration of the matter, the arbitrator determined that all references to the termination and internal review disclosures should be deleted in their entirety and “appear blank.” He ordered that the “Reason for Termination” be changed to “Voluntary” and that any “Yes” answers on the advisor’s records should be changed to “No,” as applicable. The Arbitrator cited the “defamatory nature of the information” as the basis for recommending expungement.
Finally, after dedicating his career to the industry and living with defamatory-in-nature allegations on his public records for half of that time, this advisor can move forward, free of the negative language and its impact upon his business.
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