by Bill Singer
In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in February 2011, the Moshars asserted, among other causes of action, breaches of fiduciary duty and contract, fraud, and failure to supervise in connection with what the FINRA Arbitration Decision characterizes only as “multiple investments in Exchange Traded Funds (“ETFs”).” Claimants sought full rescission or about $1,904,290 in compensatory damages, punitive damages, lost opportunity costs; profits generated, fees, costs, and interest. In the Matter of the FINRA Arbitration Between Hooman Moshar and May Moshar, Claimants, vs. Wells Fargo Advisors, LLC, Respondent (FINRA Arbitration 11-00556, January 9, 2013).
Respondent Wells Fargo generally denied the allegations, asserted various affirmative defenses, and sought the expungement of this matter from the Central Registration Depository record (“CRD”) of unnamed party Sylvia Szabo-Larson.
Decision
Bill Singer
The FINRA Arbitration Panel found Respondent Wells Fargo liable and ordered it to pay to Claimants $1,333,333 in compensatory damages; $600 reimbursement of filing fees. The requested expungement was denied.
Bill Singer's Comment
Maybe it’s just me — and, yeah, often it is — but, geez, when you got public customers seeking nearly $2 million in damages and arbitrators award over $1 million in damages, you’d sort of expect a tad more detail than what’s offered up in this bare-boned FINRA Arbitration Decision. I mean, c’mon, how do you rationalize outing the name of an unnamed registered party in the Decision but not providing the names of the subject investments, any meaningful details about the conversations and transaction at issue, or, frankly, enough background and explanation to make heads or tails out of this case?
In an effort to better understand the nature of this million dollar dispute, I did some digging. According to online FINRA records as of January 14, 2013, Wells Fargo Advisors, LLC characterized the Moshars’ complaint as alleging:
HUSBAND AND WIFE, CALIFORNIA RESIDENTS, ALLEGE BETWEEN APRIL 2008 AND SEPTEMBER 2009, FA AND FIRM APPROVED UNSUITABLE LOANS USING THEIR SECURITIES ACCOUNTS AS COLLATERAL, FAILED TO DISCLOSE THE RISKS OF COLLATERALIZING THEIR ACCOUNTS AND PURCHASED UNSUITABLE, LEVERAGED AND HIGH RISK ETF SECURITIES. CLAIMANTS ARE SEEKING DAMAGES OF APPROXIMATELY $1,904,290.00
In that same online FINRA document, a “Summary” following the firm’s characterization of the allegations states:
I DENY ALLEGATIONS OF WRONGDOING BY ME. CLAIMANTS BEGAN COLLATERALIZING THEIR BROKERAGE ACCOUNTS IN 2002 AT UBS AND USED THEIR BORROWING POWER OVER THE YEARS TO MAKE OUTSIDE INVESTMENTS, REAL ESTATE PURCHASES AND TO SUSTAIN THEIR LIFESTYLE WELL BEFORE TRANSFERRING THEIR ACCOUNTS TO WACHOVIA IN 2008. LOAN TERMS AND RISK DISCLOSURES WERE PROVIDED TO CLAIMANTS. THE DROP IN CLAIMANTS’ PORTFOLIO VALUE AND LOSSES WERE DUE TO UNPRECEDENTED FINANCIAL MARKET CONDITIONS AND SIGNIFICANT WITHDRAWALS BY CLAIMANTS TO MEET THEIR LIFESTYLE NEEDS AND FINANCIAL OBLIGATIONS. ETF RECOMMENDATIONS WERE SUITABLE AND CONSTITUTED A REASONABLE PERCENTAGE OF OVERALL ASSETS.
Also READ these ETF columns on “Street Sweeper“;