How about we make stockbrokers jump through idiotic hoops -- just for the hell of it!
Sometime in August 2009, The Lawrence W. Davis Revocable Trust, which apparently appeared through Janice L. Davis, filed a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim that named only Wells Fargo Investments, LLC as the Respondent in the caption. In connection with grievances about mutual funds' investments, the Claimant asserted
- breach of fiduciary duty;
- violation of California's Securities Act;
- negligent misrepresentation;
- common law fraud;
- breach of contract; and
- negligent supervision.
Someone did their homework because that's as close to a kitchen sink of causes of actions that could be raised in a customer complaint. Claimant sought $500,000 in compensatory damages plus punitive damages, and interest, attorneys' fee, costs, and other fees. In the Matter of the FINRA Arbitration Between The Lawrence W. Davis Revocable Trust, Claimant, vs. Wells Fargo Investments, LLC, Respondent (FINRA Arbitration 09-04863, June 19, 2012)
Respondent Wells Fargon generally denied the allegations, asserted various affirmative defenses, and requested the expungement of this matter from the Central Registration Depository records ("CRD") of unnamed registered persons Peter N. Bishop and Pablo R. King.
August 2009, when Claimant filed its claim, turns into August 2010, which, in turn, turns into August 2011. On August 2, 2011, Respondent Wells Fargo submitted a Motion to Dismiss Claimant's Arbitration for Lack of Prosecution.
What's that all about, you ask. Well, it seems that after filing the Statement of Claim, the trust sort of fell off the face of the FINRA arbitration Earth. In fact, Claimant didn't even respond to Respondent's August 2012 motion to dismiss.
On August 30, 2011, the Panel ordered the claim dismissed with prejudice in light of Claimant's "repeated failure to comply with discovery requests and otherwise to communicate with FINRA or opposing counsel. . ."
The FINRA Arbitration Decision fails to explain why over eight months passed until May 7, 2012, when Respondent notified FINRA of its desire to have Bishop and King's CRD expunged of the arbitration. While there could be many legitimate explanations for this delay, I would have appreciated learning of just one. Regardless, the FINRA Arbitration Panel conducted a recorded telephonic expungement hearing on June 11, 2012, which Claimant did not attend (gee, watta surprise!). Thereafter, the Panel recommended the expungement of of Bishop and King's CRD. I offer the Panel's own rationale for recommending the sought expungement:
Although Pablo R. King was not named as Respondent in the initial claim, he was referred to by name therein. At the time of his contact with the Claimant, he was a registered personal banker and his only role in this matter was referring the Claimant to Peter N. Bishop. Hence, the Panel determined any allegations regarding Pablo R. King are clearly erroneous.
Peter N. Bishop was also not named as a Respondent but he was the representative handling the Claimant's account. He testified that the initial amount in the account was $1,038,000.00 and that Claimant withdrew $980,000.00, which she was entitled to do as both the trustee and beneficiary of the trust. Given these substantial withdrawals and that she abandoned her claim; the Panel determined the allegations in the Statement of Claim are false.
Bill Singer's Comment
As proscribed in FINRA's Notice to Members 04-16: Expungement, those seeking expungement relief in an arbitration must obtain a ruling from the arbitrators in accordance with the standards set forth in FINRA Rule 2080:
FINRA Rule 2080. Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System
(a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.
(b) Members or associated persons petitioning a court for expungement relief or seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents unless this requirement is waived pursuant to subparagraph (1) or (2) below.
(1) Upon request, FINRA may waive the obligation to name FINRA as a party if FINRA determines that the expungement relief is based on affirmative judicial or arbitral findings that:
(A) the claim, allegation or information is factually impossible or clearly erroneous;
(B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
(C) the claim, allegation or information is false.
(2) If the expungement relief is based on judicial or arbitral findings other than those described above, FINRA, in its sole discretion and under extraordinary circumstances, also may waive the obligation to name FINRA as a party if it determines that:
(A) the expungement relief and accompanying findings on which it is based are meritorious; and
(B) the expungement would have no material adverse effect on investor protection, the integrity of the CRD system or regulatory requirements.
(c) For purposes of this Rule, the terms "sales practice violation," "investment-related," and "involved" shall have the meanings set forth in the Uniform Application for Securities Industry Registration or Transfer ("Form U4″) in effect at the time of issuance of the subject expungement order.
What lunacy!!! Consider that both Bishop and King were NOT NAMED AS RESPONDENTS in Claimant's Statement of Claim. Even so, these two registered persons were "involved" in the underlying matters either as a result of having been referenced by Claimant or by virtue of servicing the account. Consequently, regulatory disclosures were file that resulted in the complaint being disclosed on their respective CRD.
Notwithstanding the shredding of Claimant's case, Bishop and King are obligated to go through an absurd process of notifying FINRA and petitioning the courts to have their names cleared. Respectfully, who the hell is supposed to foot the legal bill for such silliness?
Before you're too quick to answer - how would you feel if one or both of the registered persons had been laid off by Wells Fargo, UBS, JP Morgan, Citigroup, or Bank of America, say in 2010 or 2011, remained unemployed, had lost their homes, saw their marriage dissolve, and found themselves in the same hard luck that millions of Americans were relegated to?
I have no knowledge whatsoever of Bishop's or King's financial or family situations and no knowledge as to whether they were asked to contribute to the legal costs of obtaining a court-ordered expungement. What I do know is that there are many Wall Street employees who find themselves similarly "involved" in these arbitrations and ultimately wind up exonerated but personally burdened with the legal costs of vindication.
Having been vindicated by the FINRA Arbitration Panel, Bishop and King are now faced with resort to the courts and the attendant costs. Bishop had no material role in any aspect of the alleged misconduct. The Panel found that Claimant's representative had withdrawn $980,000 of $1, 038,000.00 that had been deposited into the account, thus rendering her allegations dubious and/or doubtful. Also, the Panel found that Claimant had abandoned its claim. And, yet, inexplicably, the delays and costs pile up for two men in pursuit of exoneration.
UBS Broker Wins Expungement in FINRA Customer Arbitration Citing Loss of Potential Gains (January 17, 2012)
Unnamed UBS brokers Win FINRA Arbitration Expungement (June 2, 2011)
FINRA Arbitration Expungement for Wells Fargo Broker (December 1, 2011)