In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in June 2010, public customer Claimant Guide sought at least $250,000 in compensatory damages plus costs arising from what FINRA's Arbitration Decision describes as "unspecified securities." Gee, big help that is.
In furtherance of his claim about those unspecified securities, Claimant Guide asserted a whole host of causes of action, among which were, fraud, negligence, and breach of fiduciary duty. In the Matter of the Arbitration Between Richard Guide, Claimant, vs. Citigroup Global Markets, Inc., Respondent (FINRA Arbitration 10-02950, November 8, 2011).
Respondent Citigroup generally denied the allegations and asserted various affirmative defenses.
On September 9, 2011, the parties notified FINRA that they had settled the arbitration, and Respondent Citigroup requested an expungement of this arbitration from unnamed party Raffaele DeGruttola's Central Registration Depository record ("CRD"). DeGruttola is an associated person and employee of the Respondent.
Although notified of the expungement hearing, Claimant did not participate during the September 21, 2011 session(not an uncommon occurrence after a settlement). After conducting the hearing and reviewing the pleadings, testimony, and evidence, the FINRA Arbitration Panel recommended the requested expungement subject to the provisions of Notice to Members 04-16: Expungement.
The Panel explained that it had determined that Claimant Guide's allegations against DeGruttola were false. In reaching that decision, the Panel noted that Claimant had asserted his investment objective in the account at issue was "conservative income to live off." Notwithstanding that sworn assertion, the FINRA Arbitration Panel concluded that Claimant's objective was actually "growth of his portfolio for his heirs."
In reviewing the disputed investments, the Panel concluded that even after Claimant had ended his relationship with DeGruttola, that the public customer continued to invest in similar types of equities - apparently raising questions as to why a dissatisfied public customer would complain about certain recommended securities yet continue to invest in them after severing the relationship with the former brokerage firm.
The Panel was persuaded that DeGruttola did not engage in any misrepresentation or fraud, and that he presented to Claimant more conservative investment options, such as municipal bonds and corporate bonds - notwithstanding, Claimant rejected those additional choices as inconsistent with his investment preferences. As such, the Panel found that DeGruttola had, in fact, fulfilled his fiduciary duty to the customer.
Finally, the Panel offered a glimpse behind the curtains as to the focus of its deliberations and its rationale for ruling in DeGruttola's favor:
Claimant waived his appearance at the expungement hearing, and supported the request for expungement. We have reviewed the settlement agreement and considered the amount paid to Claimant, and other relevant terms and conditions of the settlement, and note that the settlement amount ($9,999.99) is approximately four percent of the claim.
That last nugget of a quote should educate some stockbrokers as to what it may take to move the needle in your favor when it comes to persuading a FINRA Arbitration Panel to grant your requested expungement - and it also serves as a warning as to the same elements that could weigh against you.
The appearance or non-appearance of the complaining public customer (even in cases such as this where the stockbroker was not a named Respondent) may influence many arbitrators. The mere fact that in this matter the absence of Claimant's attendance was noted at least confirms that for some arbitrators that factor is important.
Frankly, given my experience with Wall Street arbitrations, I'm not sure that a customers' non-appearance after a settlement has been reached is worth much, if anything; and that's all the more valid when that same customer didn't even name the stockbroker as a Respondent. Commonsense should tell us that once the customer gets the settlement dollars that there's not much motivation usually left to come to an expungement hearing and continue (rightly or wrongly) to slam the servicing broker.
Moreover, in this arbitration, the Claimant apparently not only declined to appear at the hearing but also indicated support for granting the expungement. For me, that's a far more important factor than any non-appearance. To that extent, I concur with the Panel that the customer's support was a positive check in the expungement column.
I was impressed to see that the FINRA Arbitration Panel compared the demanded damages of about $250,000 to the reported settlement of under $10,000, and deduced from that fact that there likely wasn't as much merit to Claimant's case as initially suggested in his Statement of Claim. Given that the Panel did the math and placed the settlement's worth at less than 4% of the damages sought, that further confirms that this was deemed an important consideration in favor of expungement.
The takeaways for stockbrokers named in FINRA arbitrations (either as respondents or merely negatively referenced in the non-party cast of characters) is that a settlement by your employer does not always mean that you too must simply throw in the towel and take your lumps. If you value your good name, you might want to press your demand for the expungement of your CRD. If the customer declines to show up at the hearing, if the customer decides not to oppose the granting of the expungement, and if the settlement dollars are a fraction of what was sought, you may get lucky and carry the day.