Securities Lawyers Blog
Recently, Sandeep Varma’s (Varma) attorney reached out to our firm to inform us that our post on Varma was inaccurate. The post detailed that Varma had been subject to five customer and that the majority of these complaints involved the recommendation of unsuitable and misrepresented variable investments including CRTs and life insurance policies.
The post also detailed how in January 2018, FINRA found that Varma misrepresented a real-estate planning strategy involving Charitable Remainder Trusts (CRTs) to 70 potential customers by providing misleading claims about the nature of deferred capital gains taxes, risks, and rewards that are involved in CRTs. In addition, Varma recommended that the sale of appreciated assets should be invested into variable annuities and into premiums for an insurance policy. While recommending these investments, Varma failed to disclose that the premium payments for the life insurance policy were dependent on performance of investments in the CRT and that this yielded risk for lapse in the insurance policy. FINRA found that Varma’s positive projection of the performance of investments in the CRT and life insurance policy was exaggerated in a promissory manner because it didn’t disclose the reasonable possibility of negative investment performance. In February 2018, Varma was suspended for 10 days and fined $15,000. Without admitting or denying the findings, Varma consented to the sanctions and to the entry of findings.
Varma’s attorney has brought it to our attention that Varma has succeeded in using FINRA’s flawed expungement process system to remove two complaints from his BrokerCheck record that resulted in settlements totaling $1.2 million. As shown in Varma’s expungement “award”, Varma sued his own employer, LPL Financial LLC (LPL Financial) for damages of $1.00 due to the placement on his record of two customer complaints. The “hearing” that took place appears to have been perfunctory at best. The hearing concerning two customer complaints took only one hearing session to complete. Usually there are two hearing sessions a day – meaning in this case two cases were probably decided in time for the arbitrator to catch lunch. The total cost to Varma by FINRA to expunge two customer complaints from his record was $100 – excluding any fees he privately paid his counsel.
During this less than four hour hearing to decide two cases, LPL Financial did not contest the request for expungement. In FINRA expungement cases, brokerage firms like LPL Financial profit from being sued by their own brokers to clean their records. In this “proceeding” none of the investors participated in the short hearing or had any evidence presented to the arbitrator that LPL Financial found so compelling to pay them $1.2 million.
Without any significant opposition, the arbitrator found that “The claim, allegation, or information is factually impossible or clearly erroneous.” In other words, the arbitrator found that Varma has been the subject of lies by multiple clients of his – all of which astonishingly appear to have told the same or similar lie concerning Varma’s investment advice. Further, even though FINRA sanctioned Varma for making “exaggerated” claims that appear to relate to the same issues raised by the investors the arbitrator expunged the complaints anyway. It appears from the record that the arbitrator made this determination without ever speaking to a single client or examining the complete evidence.
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 and a regulatory action concerning the same or similar issues to all have no truth or merit.
The case study of Varma’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 Varma 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.