Arbitrator Cures Ex-Smith Barney Broker’s ‘Jack Grubman’ Headache

Summary of Keypoints

• A long-standing customer complaint was expunged from Frank Voli’s record: An arbitrator granted expungement of a 2005 complaint alleging unsuitable and over-concentrated investments, which had been the only blemish on the former Smith Barney broker’s regulatory record for more than a decade.
• The arbitrator found the claims against Voli to be false: In a detailed Rule 2080 decision, the arbitrator concluded that Voli did not engage in any sales practice violations and had no involvement in forgery, theft, or misrepresentation related to the investments at issue.
• Responsibility was attributed to Smith Barney and analyst Jack Grubman: The decision stated that both Voli and his client were misled by Jack Grubman’s telecom research, which had promoted companies such as WorldCom and Global Crossing before Grubman was later barred by the SEC.
• The customer viewed Voli as an advocate, not a wrongdoer: Evidence showed the client described Voli as “caring and concerned,” and acknowledged they were led into the investments by false information from the firm, not by Voli’s conduct.
• The case highlighted expungement timing and evolving FINRA standards: Voli’s successful expungement occurred amid proposed FINRA rule changes that could impose time limits on such claims, changes that likely would have barred the case if already in effect.

For more than a decade, Frank Voli endured a single blemish on his regulatory record, a 2005 complaint from a customer alleging over-concentrated and unsuitable portfolio positions. The customer asked for $100,000, and the complaint was settled for $21,750, according to the North Carolina-based advisor’s BrokerCheck record.

An arbitrator this week not only absolved the former Salomon Smith Barney broker of wrongdoing by finding the claims against him false, but explained in her decision granting his request for expungement that Voli was an advocate of the client and that both were duped by Jack Grubman, the firm’s one-time star telecom analyst.

The arbitrator, Muriel Desloovere, reserved her strongest scorn, however, for the unnamed lawyer who brought the underlying complaint. The customer initially sought $42,000 from Smith Barney to recoup losses from investments in WorldCom and Global Crossing that Grubman notoriously recommended to firm brokers and customers, but the lawyer amped up the complaint, she wrote.

“The attorney who brought the underlying arbitration case not only added Voli as a respondent, but also alleged the usual litany of claims: unsuitability, breach of fiduciary duty and misrepresentation, among others, demanding $100,000. None of these were contemplated by the customer’s original request,” Desloovere, who held hearings in Raleigh but who is based in St. Pete Beach, Fla., wrote in her unusually detailed May 14 award decision.

She cited a letter produced in the underlying case in which the customer referred to Voli as “caring and concerned for our financial welfare.” The customer also noted that he and the broker had “been led to these investments by falsehoods” perpretrated by Smith Barney and its analyst.

“Voli had no involvement in the alleged investment-related sales practice violation, if it can even be identified as such,” Desloovere wrote in explaining her finding that the claims that included forgery and theft, along with sales violations, were false.

Voli, a 28-year brokerage industry veteran who has worked at RBC Wealth Management in Wilmington, N.C., since leaving Smith Barney in 2009, did not return a call for comment.

He was represented in the case by Michael Bessette of AdvisorLaw, a Colorado firm that has been encouraging brokers to attempt to clean up their records before tightened standards on expungement proposed by Finra are approved. The proposal would impose time constraints, similar to statute of limitations, that would likely have prevented Voli’s complaint from being filed.

Desloovere, the arbitrator, did not respond to a request for comment at her listed phone number about what motivated her detailed explanation of her expungement finding. Finra has been encouraging arbitrators to explain their “Rule 2080” fact findings, and Desloovere added information about the underlying Grubman case that are not included on Voli’s BrokerCheck record.

Grubman was permanently barred from working in the securities industry in 2003 and fined $15 million by the Securities and Exchange Commission for providing misleading research and concealing information about his tight relationships with executives of companies such as Worldcom and Global Crossing. Citigroup, Smith Barney’s parent, agreed at the time to pay investors $75 million, without admitting or denying wrongdoing.

May 17, 2018 by Jed Horowitz

https://www.advisorhub.com/arbitrator-cures-smith-barney-brokers-jack-grubman-headache/