Arbitrator Empathizes with Fired Broker over 251-Page Compliance Manual, Erases U5
A 22-year broker in Fort Collins, Colorado found empathy from an arbitrator over the length of his former firm’s compliance manual and secured expungement from his record of a 2016 termination from LPL Financial concerning unapproved loans from customers.
“While Associated Persons are expected to know and follow all the rules in their brokerage’s compliance manual, the Arbitrator finds Claimant’s testimony that he was not aware of this rule when he received the loans and he did not intentionally violate the rule, which was buried in a 251-page Compliance Manual, credible,” wrote the arbitrator, Anita Rae Shapiro. “No customers were harmed and the loans had no relationship to the customers’ accounts.”
Leaving the disclosure language on Thompson’s registration records “would serve no regulatory purpose,” wrote Shapiro, who found it “defamatory in nature.” She recommended that the reason for Thompson’s termination be changed to “Voluntary” and that the explanation be deleted in entirety and appear blank. She also noted there were no client complaints involved in the underlying matter.
Arbitrators have broad leeway in determining what should be cleared, especially given there is “very little framework” for events that did not involve customer harm, explained Max Schatzow, a New Jersey-based attorney with Stark & Stark, who was not involved in the case.
Brian Hamburger, chief executive of MarketCounsel, also not involved in the case, said not taking unapproved loans is “a pretty basic tenet of broker compliance” but one that trips up brokers too often. It’s a reminder firms also need to make sure brokers understand conduct codes rather than just dumping lengthy manuals on their desk, he said.
Thompson, now registered with Kovack Advisors/Kovack Securities, named LPL as the respondent to his October 2020-filed statement of claim. A publicly listed number for Thompson’s Colorado office was not in operation and Kovack spokespeople did not immediately respond on his behalf to a request for comment.
LPL in its March 2021 response denied Thompson’s allegations and “asserted various affirmative defenses,” according to the Finra letter. A spokesperson for LPL did not respond to a request for comment on the outcome or the arbitrator’s findings.
The disclosure event on Thompson’s BrokerCheck, dated May 18, 2016, referred only to an “infraction of firm policy concerning loans.”
Thompson, in his comments on the disclosure, said the separation was the result of “three small loans” made directly with a family member and two friends from 2012 to 2014. (The Finra letter had indicated the loans came from Thompson’s father-in-law and two friends, one who had brokerage accounts at LPL and another who did not.)
“Each short term loan has been paid back in full,” Thompson wrote, adding that only after he “shared the information” with LPL did he learn he should have sought prior approval.
Thompson’s attorney, Harris Freedman with HLBS Law in Westminster, Colorado, did not respond to a request for comment on the matter. Freedman also this month represented ex-Merrill Lynch superstar Phil Scott in unrelated unsuccessful attempts to clear his record of three financial crisis-era client disputes that had settled for about $3 million altogether.
Thompson started his career at Wells Fargo Brokerage Services/Wells Fargo Investments in 1999, moved to Primevest Financial Services in 2002, and joined LPL Financial in 2009, according to his BrokerCheck report. He joined Kovack upon his 2016 termination from LPL, according to the database.
There are four other pock marks on Thompson’s record, including a related Finra disciplinary action in 2017, rendering a $5,000 fine and 30-day suspension for his alleged acceptance of “two separate loans, collectively totaling $60,000, from his customers at his member firm without disclosing or seeking approval from the firm, at any point in time, for the loans.” The disclosure noted that Thompson, who did not admit or deny the findings, had repaid the loans.
Also on Thompson’s record is a denied dispute over alleged unsuitable investments in 2017, seeking $149,325, and two smaller-dollar suitability claims dating back to 2002.