Debbie Newhouse
An investment advisor representative who began her career in the mid-1980s. Debbie is no longer a broker registered with FINRA, but continues to have a customer dispute disclosure publicly disseminated by FINRA’s BrokerCheck. What began as how do we get this into FINRA arbitration, turns into avoiding the uncertainties that can come with FINRA arbitration.
Situation
Debbie, like many other Investment Advisor Representatives, practices diversification and recommended a balanced portfolio by reducing a position slowly over a couple years. Client agrees and a couple of years later, those reduced positions increased over-night due to a merger, client files a complaint.
Unprecedented bubble
In the early 2000s, the tech bubble exploded causing havoc in the market. Those who survived the tech bubble know how important it is to have diversification. Clients who were over allocated in tech positions lost their fortunes overnight. After the tech bubble, diversification was a critical tool to protecting client’s wealth from unforeseen circumstances in the market.
But what happens if that position rises?
The answer is sometimes simple as Debbie knows, you get a customer complaint alleging the reductions in a position were without client’s knowledge or permission. However, any advisor in the industry knows why this was filed: the client could have made more money because the position went up in value a couple of years later due to an unforeseen merger.
Debbie’s record takes a hit and impacts her ability in the future to transition firms
The customer complaint was without merit and denied by the registered investment advisor firm because everything was in writing and well documented. However, 15 years later after changes in the law by FINRA and state regulators, this innocuous disclosure was a ticking time bomb for Debbie’s future if she wanted to move firms.
Bringing on the HLBS team
The reason Debbie could not pursue expungement in FINRA Arbitration is because at the time of the complaint filed by her client, Debbie was not registered with FINRA. Debbie was instead registered with the State of Virginia as an Investment Adviser Representative (“IAR”). When Debbie filed for expungement in FINRA, FINRA denied her access to FINRA’s arbitration system for that reason. This is a common occurrence in our industry because FINRA publishes the information, why would Debbie not go to FINRA Arbitration? The proper channel is to go file the expungement with the appropriate regulatory body.
HLBS Law knew that we could file for expungement in a special forum called the Virginia State Security Commission designed for Investment advisor representatives seeking expungement. HLBS was able to seamlessly negotiate with the Virginia Division to remove the disclosure.
Again, it doesn’t appear on its face as to why the Virginia Division can remove the disclosure. Short answer is they can’t remove it from the CRD. However, FINRA will always follow the recommendation of a state regulator recommending expungement. In Ms Newhouse’s case, the State of VA found there was sufficient evidence to remove the disclosure. HLBS Law sent a letter to FINRA to have them remove it from the CRD and FINRA complied with the State of Virginia. States have exclusive control and authority over IARs registered in their state, which includes disputes between IARs and clients.
Success
The Virginia Commission agreed after conversations explaining how ridiculous the complaint was in light of overwhelming evidence. The disclosure was removed and Debbie was able to avoid a hearing and serving the underlying customer which is required in FINRA arbitration. Debbie’s CRD, BrokerCheck, and IAPD no longer reflect any customer disputes. Ms Newhouse’s BrokerCheck record is clean and her reputation is unharmed.