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Award Date: January 11, 2024
Claimant Representatives: Dochtor Kennedy, MBA, J.D. and Peter Lindholm, J.D.
Respondent Firm: Purshe Kaplan Sterling Investments
Case Objective & Summary:
In 2021, this Georgia-based advisor was closing in on 20 years in the industry with a perfectly-clean record, when he was hit with a customer dispute alleging unsuitability and misrepresentation. The firm settled the claim for just under $100,000, and the advisor’s record was marred by his first customer dispute disclosure. Seeking to restore the perfect records he had maintained for nearly two decades, the advisor hired AdvisorLaw to bring him through FINRA Dispute Resolution’s expungement process.
Summary:
In 2009, a 29-year-old investor who worked in the pharmaceutical industry became a customer of the advisor. The customer held numerous brokerage accounts with various firms. He directed his trading and sold covered calls to generate income.
Around 2015, the customer had become an executive with Google. He was then a sophisticated and accredited investor with more than 20 years of experience with public and private market investments, including REITs and BDCs. He told the advisor that he sought exposure to a non-correlated private equity investment that offered distribution payments of approximately eight percent per year.
The advisor made various recommendations, including GBP Holdings, LP, which was a diversified fund with holdings in debt strategies, information technology, healthcare, and automotive retail. The customer received all of the GBP LP’s written documents and signed all paperwork, attesting to his knowledge of all of the investment’s details and risks. In February of 2015, the customer purchased the GBP LP for $150,000.
In January 2016, the customer purchased GBP Cold Storage LP after the advisor recommended it, and the customer reviewed all of the product materials. The customer invested another $150,000 in the Cold Storage LP. Together, the two GBP LPs constituted approximately 2.3% of the customer’s investable assets.
In early 2021, GBP executives were charged with fraud in connection with a $1.7 billion Ponzi-like scheme, and the LPs subsequently declined in value. The customer had received over $70,000 in distributions from the two investments, and when coupled with the current share valuations, the total value of the investments was approximately $301,500, after a $300,000 investment.
Even though the investor did not lose money on the investments, he filed for FINRA arbitration, alleging unsuitability and misrepresentation of the GBP LPs. The firm settled with him for $96,000.
Result:
The firm participated in the advisor’s FINRA arbitration hearing and did not oppose his request for expungement of the claim. The customer did not participate in the hearing. The advisor testified, and Dochtor Kennedy, MBA, J.D., and Peter Lindholm, J.D. provided their arguments in favor of expungement. The Arbitrator reviewed the settlement documents and pleadings.
Upon consideration of all of the testimony, evidence, and arguments, the Arbitrator recommended the expungement of the claim from the advisor’s records. He provided a summary of the rationale for his recommendation in the expungement Award. Therein, the Arbitrator noted that the customer’s complaint had been directed at the firm and not at the advisor, and the customer had not accused the advisor of any wrongdoing. The Arbitrator ultimately concluded that “the investments at the core of the complaint…were suitable for the Customer’s stated goals at the time of the sale.” He stated that the “GBP Investments were vetted by clearing houses and other brokers within the financial industry” and that “The unfortunate fact is that the owners and managers of GBP have been sued by numerous entities and individuals for allegedly committing fraud and engaging in a Ponzi scheme.” The Arbitrator concluded that the claim, allegation, or information was false.
Soon this advisor will have achieved exactly what he went to AdvisorLaw to get — restoration of his perfect public record.