WASHINGTON – A Financial Industry Regulatory Authority arbitration panel this week approved the removal of a complaint about Puerto Rico bonds from a financial advisor's record after concluding the advisor kept the investor adequately informed of the risks posed by the bonds throughout their seven-year relationship.
The ruling, which detailed the advisor's communications with the investor about the bonds, illustrates the importance of guidance the Securities and Exchange Commission's investment management division released last week urging funds holding Puerto Rico bonds to continuously monitor and update disclosures about the risks associated with them.
The SEC division said that funds with such bonds should monitor the commonwealth's fiscal health and then inform customers of any significant observations through shareholder reports, website disclosures, letters, and other communications.
The arbitration panel found that the advisor, Dennis Coral, who was at Morgan Stanley at the time, promptly mailed purchase and sales transaction confirmations as well as monthly account statements for all three accounts to an unidentified female client over the seven years he worked with her. Coral also met with her each month at her residence to discuss the three accounts.
He said in his testimony before the panel that he had discussed all of the Puerto Rico bond purchases and sales with her as part of the monthly meetings, including impending ratings downgrades for the bonds in January 2014 when the sales took place.
The panel did not find evidence disputing Coral's testimony. It subpoenaed the client who had filed the complaint against the advisor, asking her to testify, but she never appeared and did not oppose the removal of the complaint.
The issue the panel considered began when Coral left Morgan Stanley in April 2014 and became registered with SunTrust Investment Services, Inc. He sent postcards to his former Morgan Stanley clients, including the woman, but did not have further contact with her.
In June of that year, the client filed a complaint with Morgan Stanley alleging that Coral sold her Puerto Rico bonds without her authorization in January 2014, causing her to suffer losses. Morgan Stanley disclosed the complaint on Coral's Central Registration Depository record without contacting him and decided to settle the dispute for a "nominal amount" within two weeks.
The FINRA panel found that the customer's complaints were "factually impossible or clearly erroneous" because of the work Coral did to keep her informed about the bonds in her account.
It also said it agreed to remove the complaint because it determined the customer had ample time to detect the issue and file the complaint before June 2014 but never did.
