February 7, 2012
In a Financial Industry Regulatory Authority ("FINRA") ArbitrationStatement of Claim filed in September 2010, public customer Claimant Reddy asserted that Respondent E*Trade had negligently handled his account when it came to the purchase of Inverness Medical options. Claimant sought $22,059.19 in compensatory damages plus 10% interest on the principal balance, for approximately $24 265.10. In the Matter of the FINRA Arbitration Between Peter P. Reddy, Sr.,Claimant, vs. E*Trade Securities LLC, Respondent(FINRA Arbitration 10-04395, February 3, 2012).
Respondent E*Trade generally denied the allegations and asserted various affirmative defenses.
The sole FINRA Arbitrator hearing this case decided that:
- Respondent E*TRADE was 75% responsible for the damages; and
- Claimant was 25% responsible.
In netting the contributory responsibilities, the FINRA Arbitrator found Respondent 50% liable to Claimant and, accordingly, awarded 50% of the sought damages of $24,265.10 (the sum of $12,132.55) plus interest in the amount of $1,102.97. NOTE: Inherent in the Arbitrator's determination is that 25% of the responsibility for the damages was not assigned to either party.
The basis for the Arbitrator's apportionment of responsibility was explained in the Decision as follows:
[W]hile "smart alerts" regarding cancellation of options were e-mailed to Claimant, a "hard" mailing or telephone communication to Claimant was required in order to truly inform Claimant of prospective cancellation problems. The Arbitrator finds this was not done because of Respondent's desire for internal cost savings and avoidance of increased costly paper complexity issues at Respondent's places of business. The Arbitrator also feels that that Respondent had a duty to give Claimant much more clear and concise instructions (than they did) on how to exercise his options.
Additionally, Claimant, himself, was not blameless and was, in the Arbitrator's opinion, responsible for 25% of his loss of option profit because of his failure to proceed as a reasonable investor. The Claimant began reasonably enough by depositing wire-transferred funds with Respondent which he then mistakenly assumed was also the exercise of his stock options. Thereafter, he proceeded unreasonably by ignoring the contents of Respondent's Exhibits A, B, C, and D which were "hard" mailed to him. Consequently, the $22,059.19 and the interest of $2,205.91 amounted to lost profit totaling $24,265.10. . .
Bill Singer's Comment
Compliments to this FINRA Arbitrator for undertaking the thorny task of apportioning liability rather than opting for an either/or choice. The fact is that losses are sometimes the sole fault of the Claimant, sometimes the sole fault of the Respondent, and, quite often, a mixed bag of responsibility. It's refreshing to see a FINRA Arbitrator wrestle with the division of blame yet justifying his result with a compelling rationale.
I particularly noted the Arbitrator's disapproval of E*Trade sending notice to the customer via only email - which was apparently utilized as the sole means of notification because of economy considerations by the brokerage firm. In fairness to E*Trade, I have often complained that when I'm trading online that I prefer online notices (of which email would be one) rather than snail mail or telephone alternative. Guess it just goes to show you that there's no pleasing everyone. In defense of the Arbitrator,however, there appear to have been additional negatives with E*Trade's email notice, of which the need to convey clear and concise instructions about how to exercise options was a paramount factor.
On the other side of the equation, the Arbitrator depicted Claimant as arguing from a position that came off as a bit of a denial of a number of facts. Pointedly, the Arbitrator asserts that Claimant unreasonably ignored the contents of at least 4 snail mails.