Even when advisors are genuinely invested in their customers’ interests and attentive to their customers’ needs, events that are fully outside of advisors’ control can leave them with complaints, disclosures, and even substantial settlements. Financial crises, such as those that occurred in the early 2000s and 2008, and criminal wrongdoing by previously-sound companies, like DBSI and MedCap, have wreaked havoc on advisors’ records. Arguably, among the worst of these disasters is the recent Puerto Rico bond crisis.
Prior to 2014, Puerto Rico bonds were a favorite of investors. The bonds were investment-grade and well-rated by the agencies. Their “triple-tax exemption” made them especially popular, as it exempted the interest payments from federal, state, and local income taxes.
For years, while amassing an increasing amount of debt, Puerto Rico continued issuing the bonds regardless of its ability to back them. This led to a veritable Ponzi scheme, as funds raised from the bonds were used to pay back loans and for other palliative measures.
In February of 2014, three bond credit-rating agencies downgraded many PR bonds to junk status. As a result, PR bonds suffered a catastrophic loss in value. Puerto Rico is now suffering the effects of an ongoing economic crisis, the effects of which are significantly impacting financial advisors.
Advisor’s Reputation Ruined
Between 2015 and 2020, a Puerto Rico-based advisor incurred 14 PR bond-related customer dispute disclosures on his record. He had made the recommendations when the bonds were well-rated. Six of the customers were not even clients of the advisor, and several were his own relatives. The firm had paid out large settlements related to the claims.
Needless to say, the advisor did not play a part in causing the Puerto Rico debt crisis, and he was not named in any of the customer claims — the disclosures were placed on his record simply because the customers had purchased PR bonds and sought to recoup their losses from the firm.
Hampered by the alarmingly-long list of disputes on his public record, the advisor hired AdvisorLaw to seek expungement of the disclosures through FINRA arbitration. The Arbitrator listened to the advisor’s testimony and reviewed the documents presented at the hearing. He, too, understood that it was clear that the advisor had played no part in causing the customers’ losses, nor had the advisor engaged in any wrongdoing. In a record-short, three-sentence explanation, the Arbitrator explained his basis for recommending expungement.
After 17 years in the industry, six of them spent with disclosures that were in no way reflective of the advisor’s character or level of service, he can now continue his career, unencumbered.