Breakaway Morgan Stanley Broker’s Expungement Attempt Fizzles
(Adds alleged comments from customer in sixth paragraph.)
Thomas H. Kirk was riding high last fall with a new independent advisory firm after more than a 25-year wirehouse career, so he thought he’d give expungement a chance when a lawyer called to suggest cleaning his regulatory record.
The Wichita, Kansas-based advisor, whose 13-person team had been managing more than $2 billion at Morgan Stanley, had two annoying complaints dating back 26 and 22 years respectively. One was dismissed after Prudential Securities supported his denial of churning in margin accounts and a second that asserted sale of unsuitable unit investment trusts was settled for $10,000 by his PaineWebber manager in “the interest of client relations,” according to Kirk’s BrokerCheck statement.
“I didn’t really have a dog in the fight anymore, but when the law firm reached out to me I thought I’ve got an RIA now and it would be nice not to have anything showing up on my record,” Kirk said.
On Friday, after a single telephone hearing in which his former employers participated without contesting his expungement requests, an arbitrator denied Kirk’s requests “in their entirety.”
Informed of the decision Monday morning, Kirk said he was surprised since the woman who received the settlement—who he said was the divorced wife of a former client— had emailed his lawyer at AdvisorLaw in Broomfield, Colorado, to say the settlement was water under the bridge.
“If expungement makes him feel better, fine,” the woman wrote, according to a copy of an email to his lawyers that Kirk provided. “It doesn’t make him a person who put my financial interests before his own gain. But it is not anything that is significant to me 30 years later.”
The arbitrator, Mark S. Foster in Omaha, did not explain his reasoning (and Kirk’s lawyers did not request an explained decision). The award statement said that the customer filed two written responses contradicting the factual basis for the request for expungement. One was sent the same day as the email to Kirk’s lawyers.
Foster could not be reached for comment and the alleged customer did not immediately respond to an e-mailed request for comment.
Armin Sarabi, a lawyer at AdvisorLaw, said he could not comment on specifics of the decision but that the firm is reviewing it to decide if Kirk might challenge it in state court. Such challenges are rare and particularly difficult in older cases where documentation is typically scant, he said. The complaints on Kirk’s Central Registration Depository records were brought in 1993 and 1999.
Kirk is out $6,000 in legal fees, not a big amount for an advisor who said he is celebrating a “fabulous” first year as a registered investment advisor in which his AUM have increased by $500 million, but the case is another illustration of the vicissitudes of expungement.
In 2016, 67% of arbitration requests for expungement were granted, according to Securities Arbitration Commentator, a New Jersey-based award research service, and this year through the end of June, 65%.
“A lot of these cases are fairly clear cut, especially when there are frivolous complaints, but nothing is a home run,” Sarabi said. “The outcome depends on specifics of the arbitrators and their experience in the industry and, of course, the intent of the customer coming into the process. Not many customers actually challenge (expungement requests).”
— Mason Braswell contributed to this story.