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Award Date: June 27, 2024
Claimant Representatives: Dochtor Kennedy, J.D., MBA, and Alex Padla, J.D.
Respondent Firm: Rhodes Securities, Inc.
Case Objective:
After more than 20 years in the financial services industry, this advisor had a single customer dispute on his CRD and BrokerCheck records. In hopes of restoring his perfect record, the advisor hired AdvisorLaw to guide him through the FINRA Dispute Resolution expungement process.
Summary:
In 1995, a registered representative joined the advisor’s firm. The advisor’s family owned the firm, and the advisor was the President of the firm. The representative brought numerous clients along with him, all of whom were invested in the advisor’s hedge fund. One of the representative’s clients was the investment manager for all of her family’s accounts, and she granted the representative discretion over her accounts.
In 2014, the representative was placed on heightened supervision due to excessive trading in discretionary accounts that was due to block trading. At that time, his discretionary authority was suspended. However, the representative continued to use discretion, and he was ultimately terminated for doing so. Subsequently, the Dow experienced extreme volatility and a steep decline.
The client of the representative filed a claim on behalf of her entire family’s accounts, lodging several allegations and seeking $2 million in damages. The firm settled with the family for about $800,000, as a business decision, and the advisor did not contribute to the settlement. However, he was left with a settled customer dispute that sat on his records since October 2017.
Resolution:
None of the nine customers who comprised the family of investors participated in the advisor’s expungement hearing. Dochtor Kennedy, J.D., MBA, and Alex Padla, J.D. laid out their arguments in favor of expungement on the advisor’s behalf. The advisor testified, and the FINRA Arbitrator reviewed all documents and exhibits that were submitted.
The Arbitrator justified her reasoning for her decision in a lengthy award. Therein, she summarized the background of the investor family, as well as of the registered representative who had brought the family to the firm. She then reviewed each of the allegations published in the complaint and explained why she had found them to be clearly erroneous or false.
Regarding the allegation of a breach of fiduciary duty, the Arbitrator stated that “Based on the investor profiles, stated objectives and instructions made by the Customer, there was reasonable basis to conclude the investments were suitable” and that, “Additionally, [the advisor] was neither involved in the making of the recommendations [ ] nor personally responsible for determining their suitability.”
She concluded that “No evidence details any failure by [the advisor] to live up to his standard of care, or any failure to honor contract terms with the [ ] family.”
In addition to determining that the allegations were false or erroneous, the Arbitrator also determined that the advisor had not been involved in the alleged investment-related sales-practice violation. She closed, ordering that the claim “be expunged from [the advisor’s] records and that all Disclosure Reporting Pages accompanying the underlying claim be deleted.”