Securities Lawyers Blog
Recently, Joseph Sturniolo’s (Sturniolo) attorney reached out to our firm to inform us that our post on Sturniolo was inaccurate. The post detailed that Sturniolo had been subject to at least eight customer complaints and that the many of these complaints involved the recommendation of unsuitable and misrepresented recommendations concerning tenants-in-common (TICs).
The post also detailed how TICs have virtually disappeared as an investment option because they are almost always unsuitable. According to InvestmentNews “At the height of the TIC market in 2006, 71 sponsors raised $3.65 billion in equity from TICs and DSTs…TICs now are all but extinct because of the fallout from the credit crisis.” In fact, TICs recommendations have been a major contributor to bankrupting brokerage firms. For example, 43 of the 92 broker-dealers that sold TICs sponsored by DBSI Inc., a company whose executives were later charged with running a Ponzi scheme, a staggering 47% of firms that sold DBSI are no longer in business.
TIC investments entail significant risks. A TIC investor runs the risk of holding the property for a significant amount of time and that subsequent sales of the property may occur at a discount to the value of the real property interest. FINRA has also warned that the fees and expenses associated with TICs, including sponsor costs, can, and in our opinion, do outweigh the any potential tax benefits associated with a Section 1031 Exchange. That is, the TIC product itself may be a defective product because its costs outweigh any potential investment value or tax benefit offered to the customer.
Sturniolo’s attorney has brought it to our attention that Sturniolo has succeeded in using FINRA’s flawed expungement process system to remove five complaints from his BrokerCheck record. Sturniolo’s “award” does not even detail how much Sturniolo’s employer paid to settle all of the claims. As shown in Sturniolo’s expungement award Sturniolo’s sued his own employer, Geneos Wealth Management, Inc. (Geneos Wealth) for damages of $1.00 due to the placement on his record of five customer complaints. The “hearing” that took place appears to have been perfunctory at best. The hearing concerning five customer complaints was stretched out over a one year period of time in which the arbitrator participated in four hearing sessions on non-consecutive days. Usually there are two hearing sessions a day – meaning in this case the five cases were heard on four half-day hearings stretched out over the course of a full year. The total cost to Sturniolo by FINRA to expunge five customer complaints from his record was $250 – excluding any fees he privately paid his counsel.
During these less than full day hearing sessions to decide five cases, Geneos Wealth did not contest the request for expungement. In FINRA expungement cases, brokerage firms like Geneos Wealth actually profit from being sued by their own brokers to clean their records. In these “proceedings” it does not appear that any of the at least five investors participated in the short hearings or had any evidence presented to the arbitrator.
Without any significant opposition, the arbitrator found that “The claim, allegation, or information is factually impossible or clearly erroneous” and that “The claim, allegation, or information is false.” In other words, the arbitrator found that Sturniolo has apparently been the subject of lies by multiple clients of his – all of which astonishingly appear to have told the same or similar lie concerning Sturniolo’s investment advice concerning either an annuity or a TIC products.
Expungement should only be granted in cases where the information is clearly erroneous and has no probative value – not when an arbitrator quickly decides an investment recommendation was suitable. Expungement is not simply a process to determine who would have won a claim absent a settlement agreement but a remedy to provide only when the complaint has no truth to it or arguable merit – a very rare circumstance. In our opinion it would be extraordinarily rare and in reality, impossible for multiple investor complaints concerning the same or similar issues or products to all have no truth or merit to the claim.
The case study of Sturniolo’s expungement proceeding highlights the easy manipulation and exploitation of a system that now hundreds of brokers appear to utilize to clear their records of valuable information the public needs for their protection. According to the PIABA Foundation, 1,078 expungement-only cases have been filed from 2015 to 2018. The study concluded that “The Finra [expungement] process is being systematically gamed, exploited and abused with one-sided hearings, manipulation of arbitrator selection, deletion of significant customer complaints and abusive (and possibly fraudulent) conduct to such an extent that it must be frozen until it can be repaired.” The public now has a right to question the legitimacy of FINRA’s BrokerCheck system that allows broker’s like Sturniolo’s to have clean records.
Investors who have suffered losses may be able recover their losses through securities arbitration. The investment attorneys at Gana Weinstein LLP are experienced in representing investors in cases of brokerage firms failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.