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Award Date: March 6, 2024
Claimant Representative: Dochtor Kennedy, MBA, J.D. and Peter Lindholm, J.D.
Respondent Firm: LPL Financial LLC
Case Objective & Summary:
An advisor in Texas, in the middle of a now 33-year career in the industry, was hit with a customer dispute in 2020. He hired AdvisorLaw to seek expungement of the disclosure in FINRA Dispute Resolution.
Summary:
In 2016, a customer became a client of the advisor, seeking assets with limited stock market correlation. The customer already owned a portfolio of stocks and mutual funds with another firm, which was valued at around $800,000. He sought out the advisor’s help with a different investment strategy, to diversify his portfolio.
Among the recommendations that the advisor made to this customer were a real estate investment trust (REIT) and a business development company (BDC). The advisor explained that the REIT and BDC had limited liquidity. The customer chose to allocate approximately 60% of his portfolio with LPL to corporate bonds, and he allocated the remaining 40% to the REIT and BDC. The customer invested $50,000 in each of the alternative investments in early 2017. About a year later, the customer was no longer a client of the advisor.
In 2020, the customer’s portfolio value declined due to the effects of the Covid pandemic on the market. In August 2020, the customer filed for FINRA arbitration, alleging unsuitability and seeking $65,000 in damages. The firm settled with the customer for a mere $2,500, but the advisor nevertheless ended up with a mark on an otherwise disclosure-free public record.
Result:
LPL participated in the advisor’s arbitration hearing and did not oppose his request for expungement. The customer did not participate. The FINRA Arbitrator reviewed the settlement documentation, the pleadings, and any post-hearing submissions. She also listened to the arguments in favor of expungement presented by Dochtor Kennedy, MBA, J.D. and Peter Lindholm, J.D., as well as the advisor’s testimony.
The Arbitrator determined that “While the Customer might be unhappy with the illiquid investments, the evidence does not show any wrongdoing on the part of [the advisor; t]he evidence showed that the Customer benefitted from the investments, which he then claimed did not meet his needs.” Additionally, she noted that “The testimony showed that the Customer’s claim was settled for a nominal fee but it was [the firm’s] intention to fight the claim and seek to dismiss it because the Customer’s claim contained inaccuracies and falsehoods.” Ultimately, the Arbitrator determined that “The allegation in the CRD is vague and simply inaccurate. Thus, the harm to [the advisor] for having this allegation in the CRD outweighs the benefit the public would receive from seeing it.”
With the Arbitrator’s recommendation for expungement of the meritless claim, this advisor will once again have impeccable records, as he approaches 35 years in the financial services industry.
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