October 8, 2012
Public customer Perez filed a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim in February 2011 asserting, among other causes of action, breaches of contract and fiduciary duty; failure to supervise; and negligence in connection with the purchase of various Puerto Rican bank-issued preferred stocks in his account. Although Claimant Perez initially sought $264,000 in compensatory damages plus fees and costs, by the hearing's close he had reduced his demand to between $95,606.01 and $133,550.67. In the Matter of the FINRA Arbitration Between Carlos Lopez Perez, Claimant, vs. Citigroup Global Markets, Inc., and Juan Carios Estarellas Sabater, Respondents (FINRA Arbitration 11-00758, October 4, 2012).
Respondents Citigroup Global Markets, Inc. and Estarellas Sabater generally denied the allegations and asserted various affirmative defenses. Respondents also sought the expungement of this matter from the Central Registration Depository record (the "CRD") of Respondent Estarellas Sabater.
The FINRA Arbitration Panel found Respondent CGMI liable and ordered it to pay to Claimant Perez $25,000 in compensatory damages and a $300.00 in filing fee reimbursement.
Respondent Estarellas Sabater was found not liable and Claimant's claims against him were dismissed with prejudice. Further, the Panel recommended the expungement of the arbitration from Respondent Estarellas Sabater's CRD, and noted that:
The Panel heard clear and convincing evidence that not only did the registered person not recommend the subject investment product to Claimant, but had recommended alternative investment products and an alternative investment strategy to Claimant. It was clear to the Panel from the evidence presented at the hearing, that Claimant rejected the alternative investment strategy and products recommended by the registered person.
Bill Singer‘s Comment
According to online FINRA documents as of October 8, 2012, the issues involved in this arbitration are more fully explained as:
CLAIMANT ALLEGES THAT BEGINNING IN 09/06 THROUGH 11/5/07, He RELIED ON MR. ESTARELLAS' ADVISE [SIC]. CLAIMANT PURCHASED EQUIRY [SIC] AND OTC STOCKS AND GOVERNMENT AND MUNICIPAL BONDS. SUBSEQUENTLY, THE VALUE OF THE INVESTMENTS DECLINED. CLAIMANT ALLEGES UNSUITABLIILTY, NEGLIGENCE, VIOLATION OF PUERTO RICO'S REGULATION #6078 AND MISREPRESENTATION
Okay, why the Arbitration Decision couldn't present us with at least as much relevant background as FINRA's online broker database escapes me but it's a common complaint that I raise - so I'm not exactly surprised. Regardless, given the fairly horrific charges that for over a year Claimant Perez was, in essence, victimized by Respondent Estarellas Sabater's allegedly unsuitable and negligent misrepresentations, it's shocking that the outcome of this case presents a very, very different version of events.
Despite the public customer's finger pointing at Estarellas Sabater, the arbitrators found that the stockbroker didn't recommend the subject investment products to Claimant. Even more in the way of refutation, the arbitrators concluded that the public customer had rejected the alternative investment strategy and products recommended by Estarellas Sabater. I'm not sure how much further any FINRA arbitration panel could have gone to exonerate any given stockbroker. Frankly, notwithstanding the monetary award to the public customer as solely against Respondent CGMI - we seem to have two distinct victims: the public customer Perez and the stockbroker Estarella Sabater.
I can hazard any number of scenaria supporting an outcome in which a public customer wins against a respondent brokerage firm but not against the servicing stockbroker. Of course, in order to come up with some possible explanation requires me to take on the role of a contestant on a quiz show, which ought not be the game rules for a FINRA Arbitration Decision. Truly, I wish that this Arbitration Panel had explained in some detail why it awarded $25,000 to the public customer but exonerated the stockbroker? What exactley was misrepresented and by whom to the customer?
Ultimately, I have no doubt that Respondent Estarellas Sabater was wrongly named because the Decision says as much. Which leads me to wonder why he also didn't counterclaim against the public customer for damages. It's one thing if the dispute presented "debatable" allegations by the customer against the stockbroker but here, the Panel tells us that it wasn't even close. In this case, the Panel says that:
- the stockbroker did not recommend the securities at issue; and
- the stockbroker's recommended strategy and products were pointedly rejected by the public customer.
I ask, yet again, why didn't the stockbroker sue the customer by way of counterclaim?