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Award Date: October 1, 2024
Claimant Representatives: Dochtor Kennedy, MBA, J.D. and Harris Freedman, J.D.
Respondent Firms: National Planning Corporation and Madison Avenue Securities, LLC
Case Objective:
This Missouri-based advisor had accumulated four customer disputes on his public BrokerCheck record since entering the industry in 2011. All four disputes had been settled, and the advisor felt that the marks were holding him back, career-wise. He decided to hire AdvisorLaw to seek expungement of all four of the disputes in FINRA Dispute Resolution.
Summary:
The first dispute was lodged by customers who became the advisor’s clients in late 2015. The advisor made various investment recommendations to customers for a diversified portfolio that included business development companies (BDCs) and a real estate investment trust (REIT). The customers purchased several of the recommended investments, which ultimately comprised less than 20% of their liquid net worth. After the advisor transferred to a new firm in 2017, the customers filed for FINRA arbitration, alleging unsuitability, breach of fiduciary duty, and failure to supervise and seeking $80,000 in damages. The firm settled with the customers for about $10,000 and did not require the advisor to contribute.
The second customer lodged a similar claim with a slew of allegations regarding certain recommended alternative investments, as well. He sought $45,000 in damages, and the firm settled for just over $8,000.
A customer who had become a client of the advisor in 2013 was responsible for the next claim on the advisor’s record. The customer initially had nearly $300,000 that he wanted to invest for growth without additional market exposure. The advisor discussed a certain fund, REITs, BDCs, and a strategy of utilizing downside-protection strategies with the customer. The customer purchased the recommended fund, which represented less than seven percent of his net worth. After the advisor left the firm, the fund’s value declined, and the customer lodged a claim alleging overconcentration. The firm settled with the customer for $7,500 and did not require the advisor to contribute.
In 2011, a couple became clients of the advisor, seeking to earn more on their significant cash holdings without market exposure. The couple directed their trading. After the advisor transferred firms, in 2018, he made several fund recommendations to the couple. They purchased the investments and signed numerous documents attesting to their knowledge of the risks and the investments’ suitability. When one of the funds later declined after its sponsors were charged with fraud, the couple filed for FINRA arbitration, alleging unsuitability, breach of fiduciary duty, gross negligence, etc., and seeking $70,000 in damages. The firm settled with the for $23,500 and didn’t require a contribution from the advisor.
Resolution:
The FINRA Arbitrator reviewed the documents submitted at the hearing, and she listened to Dochtor Kennedy, MBA, J.D.’s and Harris Freedman, J.D.’s arguments, as well as the advisor’s testimony.
Regarding the first claim, the FINRA Arbitrator determined that “The customer signed many disclosure documents addressing illiquidity, risk, no guarantee of cash flow, etc.” and that the advisor had “reviewed all the disclosures, [s]ubscription [a]greement, and suitability questions with the customer, and the customer signed off.”
The Arbitrator found that the second customer had been “a sophisticated investor [who] sought alternative investments from a seminar that he attended.” She mentioned that the advisor had again “reviewed all the subscription documents for alternative investments with the customer” and that the “customer signed off acknowledging risk, illiquidity, and investment objectives in line with the particular product.”
In the third claim, the Arbitrator simply stated that “The allegation [of overconcentration] is false,” as “The value of the investment was below the firm’s policies[,] as well as state law.”
After reviewing the fourth dispute, the Arbitrator noted that the advisor had “recommended growth and income options to diversify the portfolio” and that the “customer filled out numerous documents, read each prospectus in detail, and reviewed the disclosures with [the advisor] prior to purchase.”
With the Arbitrator’s finding that all of the allegations contained in the four disclosures were false and her recommendation for expungement, this advisor will soon have a perfectly clean record for the first time since 2018.