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Award Date: August 14, 2023
Claimant Representatives: Dochtor Kennedy, MBA, J.D.
Respondent Firms: Merrill Lynch, Pierce, Fenner & Smith Incorporated and Capitol Securities Management, Inc.
Five customer disputes, dating back as far as 1994, were muddying the records of a Florida-based advisor who has been in the industry since 1983. Knowing that customer dispute expungement through FINRA arbitration will soon become far more difficult to achieve, the advisor hired AdvisorLaw to seek expungement of the disclosures.
In November 1993, a couple who had been customers of our advisor for about five years requested recommendations for investments that would provide higher returns. So they followed our advisor’s recommendation to purchase various funds. All details were explained to the customers, and they signed all required paperwork. By January 1994, the funds had increased by more than $11,000. In February 1994, the Federal Reserve began raising short-term interest rates, which led to a worldwide decline in bond values. The customers’ bonds experienced a relatively-minor decline. In August 1994, the customers alleged unsuitability, and Merrill Lynch settled with them for $20,000.
The second customer enrolled in Merrill Lynch’s Consults managed account program around 1994. In addition to the recommended investments, the investor directed an unsolicited purchase of stock in Tenneco, Inc. In the summer of 1998, domestic stock markets experienced a sharp decline, and the investor’s managed account declined along with the markets. The investor then told our advisor that he wanted those losses to be reimbursed. Our advisor explained that he could not reimburse customers for market losses. The customer then lodged a dispute, alleging that the Tenneco stock and three other stock purchases had been unauthorized. He sought $70,000 in damages, and the firm settled with him for $10,000 as a business decision.
The third investor was a close family friend and sophisticated investor who worked with our advisor between 1988 and 1999. Over that time, her portfolio increased by approximately $76,000, and she took withdrawals of approximately $140,000. In early 1999, the customer’s portfolio was transferred to a new advisor. That December, the customer filed for arbitration against the new advisor, as well as our advisor. She sought $450,000 in damages, and the firm settled the claim for $282,500.
The fourth investor became a client of our advisor in 1995. In 2011, the investor formed a relationship with a man from her church, and she became Trustee of his trust. The man passed away, and the customer sought to increase the taxable income that she was receiving from the trust. She purchased master limited partnerships (MLPs) against our advisor’s recommendation. Around 2015, the trust’s value declined by approximately $40,000 as a result of market volatility. The customer’s tax advisor recommended that she swap the MLPs that had underperformed for other, similar MLPs. The customer directed those swaps on an unsolicited basis, as well. Subsequently, the deceased owner of the trust’s family took issue with the fees that the customer was charging for administering the trust, and they took her to court. Then, in September 2016, the customer filed for FINRA arbitration on behalf of the trust, alleging unsuitability and seeking $167,000 in damages. Capitol settled with her for $110,000.
The fifth dispute was lodged by the same family. This time, that customer’s son took issue with a Section 1035 annuity exchange that she had executed in 2016. The exchange had provided her with better options, and the new annuities were profitable for her. The customer’s son, however, filed a claim alleging unsuitability after his request for the surrender of the customer’s annuities without surrender charges was declined by the annuity company. The son’s claim was denied.
Both firms participated in the FINRA Dispute Resolution hearing, though none of the customers chose to participate. After listening to our advisor’s testimony and the arguments offered by Dochtor Kennedy, MBA, J.D., the Arbitrator recommended expungement of all five of the customer disputes.
In her executed award, the Arbitrator explained that “The investments in the portfolios of the [first] customers were consistent with their defined objectives which they signed,” and that “The customers declined all of Claimant’s recommendations.”
Regarding the second claim, the Arbitrator noted that “The customer made unsolicited suggestions of stocks and authorized their purchase” and that he had “also invested in a discretionary program for which his approval was not needed.”
The Arbitrator wrote that “Information presented during the hearing affirmed that the investment objective was suitable for the [third] customer,” that “She never said her investment profile information was incorrect,” and that she did not complain to the advisor.
For the fourth customer’s first claim involving the trust, the Arbitrator pointed out that, “Against [our advisor’s] recommendation not to heavily invest in master limited partnerships…the customer invested more income into [them].” Regarding her second claim, which her son lodged, the Arbitrator determined that the claim was false and erroneous, as well.
With the upcoming expungement of all five of the customer disputes on our advisor’s records, his BrokerCheck profile will soon show zero customer disputes, for the first time nearly 30 years.