An irreverent Wall Street Blog
by Bill Singer
Join BrokeAndBroker blog on Facebook  Follow the BrokeAndBroker blog on Twitter  Connect with BrokeAndBroker on LinkedIn  Join Bill Singer on Google+  Subscribe to RSS Feed

Kink In Merrill Lynch ARMOR Loses $Million Customer Arbitration
Written: December 13, 2012

suit of armor

In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in February 2011 and as thereafter amended, public customer Couturier asserted causes of action including breaches of fiduciary duty and contract, suitability, and negligence in support of her claim for $2,500,000 in compensatory damages plus interest, costs, attorneys’ fees, rescission, and treble damages. In the Matter of the FINRA Arbitration Between Clair R. Couturier, Jr.,Claimant, vs. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Walter Schlaepfer, and The Phil Scott Group,Respondents (FINRA Arbitration 11-00867, December 10, 2012).

Respondents generally denied the allegations , asserted various affirmative defenses, and sought the expungement of the matter from Respondent Schlaepfer’s records.

Respondent Phil Scott Group is not a member or associated person of FINRA, did not voluntarily submit to arbitration; and, accordingly no determination was made pertaining to that entity.


The FINRA Arbitration Panel denied the requested expungement , found Respondents jointly and severally liable, and ordered them to pay to Claimant Courterier:

  • $1,100,000.00 in compensatory damages;
  • $540,144.00 in attorneys’ fees;
  • $74,341.00 in costs.

Bill Singer’s Comment

Alas, this case truly set up as an intriguing one but in keeping with far too many FINRA arbitrations, we find ourselves begging for more facts and left with the nagging feeling that we have been left out in the dark.  What securities were in dispute? Dunno. What were the relevant dates or transactions? Dunno.

SIDE BAR: An online FINRA document as of December 13, 2012, characterizes the customer’s allegations in this arbitration as follows:


Why then did I publish this “Street Sweeper” commentary?  Frankly, it was to note the intriguing “Findings” section of this Decision, which I set forth in full text for your . . . well, okay, not exactly your “edification” but how about we agree to call it your “consideration?”


In finding for the Claimant, the Panel was particularly concerned by the following actions of Respondents:

1. Misrepresentations and omissions were contained in the unrestricted marketing materials supplied by Respondents to Greg Porter, who in turn, having been cloaked with apparent authority by Respondents, presented the misleading materials to Claimant. This wrongdoing was caused by Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s inadequate supervision before the fact and aggravated by its failure to take corrective action after it received notice of the communications.

2. Respondents’ manner of using the Personal Investment Advisory Questionnaire as a disclosure device was misleading and had the capacity to deceive. Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s continuing approval of this use constitutes inadequate supervision.

3. Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated’s failure to comply with its own ARMOR report procedures constitutes a breach of its duties toward Claimant and another example of inadequate supervision.

This list is not all-inclusive but is intended to give Respondents the benefit of some of the Panel’s conclusions so Respondents can modify their conduct accordingly.

In Galarneau v. Merrill Lynch Pierce, Fenner & Smith Inc. (1st Circuit Court of Appeals, 06-2410, October 12, 2007), the federal appeals court offers the following explanation of the ARMOR system on pages 5-6 of its Opinion:

[T]he firm uses a computer-generated monitoring system called Armor review, which automatically notifies the Merrill Lynch compliance officers of accounts with unusually active trading. The Armor alert may be accessed from either a financial advisor’s computer or a compliance officer’s computer. It provides background information about the targeted account, including a summary of the frequency and dollar value of trades (with links to data for individual trades), a comparison of the value of trades versus the commissions earned on the account (the “velocity” of trading), and the commissions for the trading.

The arbitrators certainly called out Merrill Lynch for failing to properly utilize its trade-monitoring software — and that’s a warning that should be heeded by all Wall Street compliance departments.  Certainly the folks in supervision at Wells Fargo, JP Morgan, Morgan Stanley, UBS, Schwab, and elsewhere are on notice. Of course, an odd aspect of this case is that given the arbitrators obvious dissatisfaction with Merrill Lynch’s supervision, why wasn’t a formal referral made to FINRA’s regulatory side?


Previous Entries
April 18, 2014
We just made it through another tax season. The good news is that you filed and are fully paid up -- or, the bad news is that you didn't file or you h... Read On
April 17, 2014
In this digital age there are still folks who physically cut-and-paste. How quaint. Of course, quaint or not, when you start using the terms "cut-and-... Read On
April 16, 2014
Here's an interesting cocktail of facts: an IRA, a mother, powers of attorney, and a stockbroker son. Add into that mix questions about whether a $60,... Read On
April 15, 2014
Stockbroker, Compliance, Legal, and Regulatory JobsFor a full listing of current job openings, visit the BrokeAndBroker Employment Page ... Read On
April 14, 2014
Auction Rate Securities are the unwanted gift that keeps on giving. In today's Blog, we report about yet another bit of collateral ... Read On
April 12, 2014
Citicorp Loses Bizarre Motion To Compel Class Action ArbitrationApril 11, 2014As part of the terms of his employment, former Citicorp Credit Services,... Read On
April 11, 2014
As part of the terms of his employment, former Citicorp Credit Services, Inc. employee Keith Russell had agreed to arbitrate “all employment-related d... Read On Job Search
Related Topics
Tag Cloud
Internet FINRA Bear Stearns Bloomberg SEC NASD NYSE Money Laundering Due Diligence Waiver Forbes China Chepucavage Broy Woody Allen Madoff NAC NPR Marketplace Stanford UBS Ketchum Antitrust NASDAQ RRBDLAW Schapiro Bill Singer BrokerAndBroker USERRA Morgan Keegan Arbitration Khuzami BrokeAndBroker Aleynikov Goldman Sachs brokeandbroker Promissory Note U4 Bill SInger EFL CFTC Huffington Post Flash Crash arbitration RBC Ponzi Affinity Fraud Wachovia Raymond James Expungement Fraud Securities Fraud Outside Business Activity Registered Rep Magazine FOREX FBI Banc of America Pro Se Supreme Court Morgan Stanley Smith Barney E*Trade Margin email Galleon Penson U5 Defamation Protocol Wells Fargo Punitive Damages Citigroup Merrill Lynch ARS Employee Forgivable Loan Street Legal Morgan Stanley AWC Fidelity Bankruptcy Broke And Broker HFT David Sobel Day Trading Ameriprise Commissions Spouse Schwab CRD Kenneth Starr IRS CNBC Complaint ATM Skimming Hacking Phishing Malware Naskovets Poteroba Koval Lincoln Financial Selling Away Outside Business Activities Rakoff 2nd Circuit Second Circuit IRA 401k Forgery Tax Email Netschi Moore Whistleblower Street Sweeper Tran Bharara Facebook Online Severance Bonus Eligibility Rule TD Ameritrade Hedge Fund SAC 1099 Smith Barney Lehman Brothers IC3 Scottrade Lehman JPMorgan Chase Hertz Insider Trading Bank of America Elles Bribe Auction Rate Securities Raiding Spam Edward Jones Medicare Diabetes Dow Schumer Walter Bid Rigging Real Estate Discrimination Wall Street Statutory Disqualification Form U4 Form U5 Indictment Boyland DOJ Corruption bill singer FTC Do Not Call FINRA Arbitration Costa Rica Settlement LIBOR Varney Plea Rule 8210 RRBDlaw Appeal Fowler LPL Johnson US Airways Reg D MSSB Vault Loan SunTrust Discovery Employment Rosenthal Recruiting Lawyer Trading Platform JP Morgan Employment Tuesday Wrongful Termination Bank Guarantee WaMu Solicitation REIT Martin Credit Cards Away Account Credit Repair PN Advisor Placement Group Forex Mortgage Private Placement Moon Merrill Anderson Exam Lee Borrowing Tax Lien Conversion Oppenheimer Wedbush Felony Misdemeanor Expenses ING Lien OTR Estate Jobs Florida Credit Card Elderly Flash Drive Annuity FNMA BrokeAndBroke TIC DWI Promissory Notes Suitability Will POA Power of Attorney Casino NSF MF Global Counterfeit Preet Bharara Corzine Hacker Prison NASAA Aguilar FCPA Identity Theft Gold Dell Bar Injunction Bank Deutsche Bank God HSBC Private Placements Eric Stein Wire Fraud CCO Joshua Brown Backstage Wall Street Obstruction of Justice Retaliation Variable Annuity Outside Account Options Telephone Wine Social Media ADA Pacifico Non-Prosecution Agreement Confirm Tax Fraud Retirement OBA Equity Indexed Annuities EIA MetLife Continuing Education Impersonation Annuities BBVA Business Expenses OIP ETF JOBS Act Mail Fraud Parking Variable Annuities Signatures BitTorrent Wire Transfer Wire Crowdfunding Nasdaq Away Accounts WSP Laptop Dodd Frank Checks PST Solicited Unsolicited Congress SRO Wife Discretion Non-Solicitation Restaurant Commodities Private Securities Transaction Offer of Settlement employment jobs Great Recession Chase Investment Services Barclays Willful Apple Time And Price T&P Husband Letter of Authorization LOA Knight Test Practice Sale Unfair Competition Signature Judgments Undisclosed Settlement Trainee Fee Trust Laser Side Bar Mattera Female Sales Assistant Kennedy Argentina Judgment Bank Fraud TSSB Trustee Frumento 6th Circuit Proctor Beneficiary NYAG Schneiderman Gallagher White Compromise Website Supervision Piwowar Tax Liens signature VA
Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+