An irreverent Wall Street Blog
UBS Stockbroker Expungement in Lehman Bond Case
February 6, 2015
In reading through the Complaint
of a customer's lawsuit, the stockbroker is
somewhat relieved: The caption does not contain my name and I'm not
even mentioned by name anywhere in the document! Unfortunately, a
few days later, you are informed by your employer that because you were
"involved" in the case, your regulatory disclosures must be updated
to reflect that. You protest that you weren't even the servicing stockbroker
but merely some shlub who picked up the telephone when the customer called to
complain -- or you merely recommended what turned out to be a toxic product
that was on the firm's "Approved List." In today's BrokeAndBroker.com Blog we consider an arbitration in which a customer didn't name
the stockbroker as a respondent and the circumstances suggest that the customer
may not have been all that angry with the registered person. Nonetheless, an ordeal ensues.
Case In
Point
In a Financial Industry Regulatory
Authority ("FINRA") Arbitration Statement of Claim filed in July 2013, public
customer Claimant Schwartz alleged causes of action including
misrepresentation, negligence, and breaches of fiduciary duty and contract in
connection with his investment in UBS Willow Fund L.L.C. and a Lehman Brothers
bond. Claimant sought about $80,000 in alleged losses, punitive
damages,interest, fees, and costs. In the Matter of the FINRA
Arbitration Between Edward Schwartz, Claimant, vs. UBS
Financial Services Inc., Respondent (FINRA
Arbitration 13-02221, January 20,
2015).
Settle
Down
Respondent UBS generally denied
the allegations and asserted various affirmative defenses. In August 2014,
Claimant advised FINRA Dispute Resolution that the arbitration had settled.
SIDE BAR: Online FINRA BrokerCheck records as of February 6, 2015 (these may be subject to expungement per the above Arbitration Decision) disclose that the Claimant initially sought $36,000 in damages (increased to $80,000 in the arbitration Complaint) based upon allegations that:
CLAIMANT ALLEGES MISREPRESENTATION AND UNSUITABLE RECOMMENDATION IN REGARDS TO THE PURCHASE OF A STRUCTURED NOTE. TIME FRAME: DECEMBER 2007.
In response to the customer's allegations, the unnamed Registered Representative's &("Registered Rep's") BrokerCheck response states:
I DENY THE ALLEGATIONS AND BELIEVE THEM TO BE WITHOUT MERIT. THIS INVESTMENT WAS RECOMMENDED AND PURCHASED IN 2004 AT WHICH TIME I EXPLAINED THE FUND AND THE RISKS ASSOCIATED AT THAT TIME
The online disclosures further noted that the matter settled for $36,000 without any contribution from the registered representative.
Expungement
In November 2014, Respondent UBS
petitioned for expungement of the arbitration from the Central Registration
Depository record ("CRD") of an unnamed party: the Registered
Rep.
SIDE BAR: Although the Registered Rep is named in the FINRA Arbitration Decision, given the circumstances and in the sole discretion of the BrokeAndBroker.com Blog, that individual's name will not be disclosed in this article.
The sole FINRA Arbitrator
considering the expungement application reviewed an email from Claimant
Schwartz's legal counsel that confirmed the public customer did not object to
the petition and, further, that he did not anticipate participating in any
expungement hearing. In fact, when the Arbitrator conducted a telephonic
hearing in January 2015, the Claimant did not appear or respond to the
petition. In considering the petition, the Arbitrator also reviewed a current
FINRA BrokerCheck report for the Registered Rep, the
submitted exhibits, and the Registered Rep's testimony. Pointedly, the
Arbitrator noted that the Registered Rep did not contribute to the settlement
between Claimant and Respondent.
The Arbitrator recommended the
CRD expungement based upon the following rationale (NOTE:
The name of Registered Rep was disclosed in the Decision but
redacted from in this article):
1. The Arbitrator determined that Claimant's Statement of Claim did not make any specific claim or allegation or state any information alleging any violation of FINRA rules or U.S. securities laws by non-party [name redacted]2. [name redacted] was not involved in any investment related sales practice violation(s).3. The claim, allegation or information was false with respect to non-party [name redacted]4. The Arbitrator notes that Claimant has remained a client of non-party [name redacted].5. At all material times, Claimant was a sophisticated investor.6. Claimant's alleged investment losses involving Lehman Brothers investment products resulted from the unprecedented failure of Lehman Brothers and the prevailing adverse financial and economic conditions throughout the United States.
Bill Singer's Comment
An instructive FINRA Arbitration
Decision on several levels. First, we see that an
investment, which the Registered Rep asserts was made in 2004 but the Claimant
ascribes to 2007, was the basis for a Statement of Claim
filed in 2013. One must wonder whether Respondent UBS raised an issue with
FINRA's
six-year eligibility rule. On the other hand, the arbitration asserts
two claims: one for an investment in an LLC and another in a Lehman bond;
consequently, it's unclear whether the 2004/2007 date discrepancy involves both
or only one investment.
In this arbitration we have the
unique result of no losers. The public customers seems to have recovered all
losses and the unnamed registered party secures the recommendation of an
expungement. In recommending the
expungement, the Arbitrator provides a helpful punchlist for non-parties
seeking such
relief:
- There was no allegation that the non-party had been involved in any violation of industry rules, regulations, or laws;
- The complaining public customer was a sophisticated investor, who remained a customer of the non-party; and
- The underlying circumstances that prompted the claims presented issues indicating that the losses were not caused by the conduct of the non-party but, for example, by political, financial, or economic events.
The confluence of exculpatory
and mitigatory facts in this case do not frequently occur; however, industry
non-parties should at least consider the gist of the Arbitrator's rationale in
recommending the expungement:
- the lack of material involvement in the alleged misconduct by the non-party, and
- the negative impact of outside factors that suggest a falling tide lowers all boats.