by Bill Singer
In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in November 2010, public customer Charles alleged in connection with unspecified options transactions:
- fraud;
- negligent misrepresentation;
- breach of fiduciary duty;
- breach of the covenants of good faith and fair dealing;
- negligent supervision;
- breach of contract;
- violations of Section 20 of the 1934 Act; and
- respondeat superior.
That’s a lot of bird shot loaded into a shotgun of causes of action – perhaps Claimant thought that at least one of those claims would find their market. Claimant Charles sought $250,000 in compensatory damages and various fees. In the Matter of the FINRA Arbitration Between Deborah Charles,Claimant, v. PNC Investments, LLC, Respondent (FINRA Arbitration 10-05380, June 28, 2012).
Bill Singer
Respondent generally denied the allegations and asserted various affirmative defenses.
Settlement
On or about February 22, 2012, the parties settled and, thereafter, Respondent PNC requested an expungement hearing for unnamed party Frank Petrone. The Expungement Hearing was held on June 5, 2012, but Claimant did not appear despite having been notified.
The FINRA Arbitration Panel recommended the expungment of the customer arbitration from Petrone’s Central Registration Depository records (“CRD”), based on the following reasons:
Frank Petrone is an Investment Adviser Representative with PNC Investments, LLC on the account maintained by Deborah Charles. This case was settled by PNC Investments, LLC for the nominal value of $17,000.00 per the settlement agreement, a copy of which was produced at the expungement hearing and reviewed by the Panel who considered the amounts paid to any party, and considered any other relevant terms and conditions of the settlement. No part of the settlement was paid by Frank Petrone. Neither Claimant nor her representative appeared at the hearing, nor did they make any objections to Frank Petrone’s request for expungement.
Frank Petrone testified at length concerning his handling of the account in question. It appeared from the record that Claimant was herself a registered person in the securities industry, knew the responsibilities of a registered person with respect to handling securities accounts, and had extensive experience trading all manner of equity options apart from simple covered call writing strategies. The record also demonstrated that Claimant’s options trades were unsolicited by Frank Petrone, who merely executed orders as requested by Claimant or provided pricing information to her which she used to make her own decisions. Finally, the record indicates that Frank Petrone attempted, on numerous occasions, to persuade Claimant to curb her activities and take money off the table, which advice was ignored. . .
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.
For starters, poor Frank Petrone was NOT NAMED AS A RESPONDENT.Please don’t gloss over the fact. Claimant Charles did not name Petrone as a Respondent in her Arbitration Statement of Claim. Notwithstanding that critical omission, Petrone is deemed “involved” in the underlying matter either as a result of having been referenced by Claimant as a non-party in the statement of facts or by virtue of his purported servicing of the account. Consequently, Petrone was required to undertake regulatory disclosures about his role as an “involved” person in the customer complaint.
Despite the paltry settlement and the FINRA arbitrators’ barbed disdain for Petrone’s having been dragged into the case, Petrone is now obligated to go through an absurd process of notifying FINRA and petitioning the courts to have his name 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 Petrone had been laid off by Wells Fargo, UBS, JP Morgan, Citigroup, or Bank of America, say in 2010 or 2011, remained unemployed, had lost his home, saw his marriage dissolve, and found himself in the same hard luck that millions of Americans were relegated to?
I have no knowledge whatsoever of Petrone’s financial or family situation and no knowledge as to whether he was 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.
Also see these “Street Sweeper” columns:
Wells Fargo Registered Persons Victimized By Abandoned Customer Arbitration And Expungement Process (June 21, 2012
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)