Three-Arbitrator Panel Expunges 2019 Dispute From LA Advisor’s Records

In 2019, after nearly two decades with a spotless career, a Los Angeles-based financial advisor faced his first blemish on his otherwise-pristine BrokerCheck record. A client wrongly accused him of executing unauthorized trades over the previous two years — a claim swiftly rejected by his firm. Despite the denial, the accusation lingered on the advisor’s record until he enlisted HLBS Law to spearhead his expungement efforts.

In September 2018, the customer became a client of the advisor at Morgan Stanley. The customer was dissatisfied with his previous advisor's heavy focus on master limited partnerships (MLPs), which had declined by about 50% and caused significant losses. The customer sought a change, and he advisor worked with him to assess his investor profile. The customer recognized the need to reposition his portfolio for a better risk-to-reward balance and reduced volatility, though he hesitated to alter many of his existing investments.

In early December 2018, the customer revealed that his previous advisor had triggered substantial capital gains, leaving him with a $42,000 tax bill. To mitigate this, the advisor recommended harvesting tax losses from the customer’s underperforming MLPs. That process required the termination of the investment manager to manually execute the trades. The customer understood and, after a week of consideration, instructed the advisor to proceed. Between December 18th and 27th, he orally authorized the manager’s termination and the sale of specific positions over the phone.

Despite the advisor presenting multiple reinvestment options at the time, the customer declined to reinvest the cash or rehire the manager, leaving his account with uninvested cash. When the market surged shortly thereafter, he missed out on potential gains. On January 6, 2019, the customer directed the advisor to make various purchases. Then, in June 2019, the customer claimed ignorance about his cash having sat idle and filed a dispute, alleging unauthorized trading between December 2018 and January 2019 and seeking $67,935 in damages for the gains he believed he missed. 

Morgan Stanley conducted a thorough investigation and denied the claim. The customer did not pursue it further in arbitration or court. That episode marked the advisor’s first complaint after nearly 20 years, and it lingered on his BrokerCheck® record until he sought expungement with the help of HLBS Law.

A three-arbitrator panel convened a recorded videoconference hearing in FINRA Dispute Resolution to address the advisor’s request to expunge customer dispute information from his Central Registration Depository (CRD) records. The advisor, represented by Austin Davis, Esq., participated alongside the Respondent, Morgan Stanley, which did not oppose the expungement. The customer whose complaint initiated the dispute did not attend, despite being served with relevant documents. An authorized representative from California’s state securities regulator also participated and opposed the request, making it a contested hearing.

The Panel reviewed pleadings, the advisor’s testimony, and exhibits from both the advisor and the California regulator, finding no prior ruling or settlement related to the dispute. The customer had accused the advisor of failing to reinvest proceeds after a tax-loss sale — a claim deemed false, as the customer’s nondiscretionary account required customer direction, which he had not provided. A subsequent list of allegations lacked evidence and was contradicted by trade confirmations as well.

After deliberation, the Panel awarded expungement of the occurrence from the advisor’s CRD records, citing FINRA Rules 2080(b)(1)(A) and (C). The decision reflects a thorough evaluation of evidence, balancing the advisor’s request against the regulator’s opposition, with the customer’s non-participation noted but not determinative. 

Upon court confirmation of the award, the Panel’s award to expunge the claim will remove the sole blemish from the advisor’s records — effectively restoring his perfect BrokerCheck® and CRD history. 

Facing a similar situation? Contact our team today for a complimentary consultation to evaluate your case. Our experts will assess the viability of expungement and guide you through the process.