November 21, 2013
There's a lot of crap in the press lately about how the FINRA expungement process is unfair to the investing public and perverts regulation. Too much of the criticism is made by folks with little, if any, experience handling Wall Street arbitrations; and other commentators are, to use the prose of Wall Street, simply "talking their book." Which is not to say or even suggest that FINRA arbitration and the FINRA expungement process are fairly handled. To the contrary, there are many flaws in both the forum and the rules pertaining to expungements. Unfortunately, caught in that meat grinder of conflicts and unfair policies are the investing public and hundreds of thousands of individual registered men and women. The one actor in this play that doesn't quite seem to come away with too much to complain about is the FINRA member firm. Like what else is new?
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 2012 and as amended thereafter, public customer Claimant Mayer, appearing pro se, asserted claims for unauthorized trading and failure to transfer his account. Claimant Mayer ultimately sought $33,000 in damages plus $8,500 for attorneys' fees and costs. In the Matter of the FINRA Arbitration Between Siegfried W. Mayer, Claimant, vs. Ryan Patrick Duffie, Jeffrey Dean Jones, Synergy Investment Group, LLC, Brian Scott Weinberg, Respondents (FINRA Arbitration 12-01775, November 12, 2013).
SIDE BAR: It appears that Claimant Mayer was represented by counsel up to a July 15, 2013, withdrawal, which may account for his request for attorneys' fee despite proceeding pro se.
Respondents generally denied the allegations and Respondents Jones and Synergy asserted various affirmative defenses. A request for the expungement of this matter from the Central Registration Depository record ("CRD") of Respondent Jones was made coupled with a request for $8,500 in attorneys fee and costs.
On May 1, 2013, Claimant advised of his dismissal with prejudice of all claims against Respondent Duffie.
On May 21, 2013, Respondent Jones filed an unopposed Motion to Dismiss, which was denied without prejudice subject to the option of refiling after the conclusion of Claimant's case-in-chief. After Claimant's case-in-chief, the motion was again raised without opposition and granted by the sole FINRA Arbitrator "on the grounds that no evidence was presented that Respondent Jones had any involvement whatsoever in the Claimant's account, or the transactions involved in this matter."
The sole FINRA arbitrator found Respondent Synergy Investment Group, LLC and Respondent Weinberg jointly and severally liable ordered them to pay to Claimant Mayer $25,000.00 in compensatory damages.
The Arbitrator recommended the expungement of the matter from Respondent Jones' CRD based upon his finding that:
The registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds.
The Arbitrator has made the above Rule 2080 finding based on the following reasons:
Claimant stated that he had no basis on which to make a claim against Mr. Jones, that he now knows there was no theft or conversion of funds, and that he originally named Mr. Jones out of frustration and anger.
Bill Singer's Comment
Grrrrrr . . . I mean, okay, I get it and, frankly, been there and done that myself. A customer gets the runaround. You get the cold shoulder. Then you get pissed, really pissed. Then you name anyone and everyone just to make sure you got all your bases covered. Of course, if you're being honest, you're also relishing the chance to get in one good shot, just to let 'em all know what's it's like to be on the receiving end.
On the other hand, I've read too much nonsense lately about how there are far too many expungements in FINRA customer arbitrations and how the whole practice has taken on shady aspects of under-the-table deals. As with many things in life, there is likely quite a bit of accuracy in the assertion that FINRA's expungement process is counterproductive for the investing public -- but that's not the fault of many registered persons who get caught up in the meat grinder of false and/or unsubstantiated allegations about purported misconduct.
Keep in mind that just like public customers, the industry's registered persons are forced to arbitrate their disputes in a forum that is effectively controlled by the rulemaking authority of FINRA's member firms, which are the employers and management of those registered persons. How would you feel if you had to litigate every customer and employment-related dispute in a forum whose rules are submitted only to your boss for approval? Not a single registered male or female has a vote on any FINRA rulemaking or in any FINRA election. That prerogative is limited to the organization's member firms. Small wonder so many rules, regulations, policies, and protocols seem tilted against both the investing public and the industry's registered persons.
To those who would end or more severely limit expungements, please consider that the very same FINRA arbitrator who awarded $25,000 in damages to pro se public customer Mayer (the bulk of what he sought), that same arbitrator also found himself compelled to dismiss the claims against Respondent Jones because no evidence whatsoever was presented at the hearing as to his role in the cited transaction or the customer account at issue. Nada. Zilch. Zippo. Moreover, the Claimant conceded that he had "no basis" to sue Jones and did so solely "out of frustration and anger."
In the end, the expungement process may, in fact, be a disservice to the investing public but that doesn't mean that it is also not a disservice to the registered men and women who have become the victim of shotgun pleadings and frivolous suits. The fairer solution is to end the inherent conflicts in self-regulation by demanding an unbiased arbitration forum free and clear of both real and apparent conflicts for all parties: member firms, registered persons, and public investors.