Depending upon whether you look at the damages demanded in the initial FINRA Arbitration Statement of Claim or the revision presented at the arbitration hearing, we got two really, really unhappy campers suing Wells Fargo Advisors LLC. Unhappy as in two Claimants seeking in the neighborhood of $30 million. In the end, it's a seven-figure payday. In the end, however, it's really a victory for the forces of darkness on Wall Street.
Case In Point
Under consideration in today's BrokeAndBroker.com Blog are two Financial Industry Regulatory Authority ("FINRA") Arbitration Statements of Claims:
Bruce Howard Tuchman and Michelle H. Tuchman, Claimants, vs. Frank Kirk Dyer and Wells Fargo Advisors, LLC, Respondents (FINRA Arbitration 13-02939, March 3, 2016); and
Wells Fargo Advisors, LLC, Claimant, vs. Bruce Tuchman, Respondent, vs. Frank Dyer, Third-Party Respondent (FINRA Arbitration 13-02581, March 3, 2016).
Claimants Bruce and Michelle Tuchman
Filed in September 2013, the Tuchmans's FINRA Arbitration Statement of Claim (13-02581) asserted wrongful termination; retaliation; defamation; conversion; breaches of contract, and of the implied covenant of good faith and fair dealing; intentional interference with contractual relations and prospective economic advantage; unlawful and deceptive business practices; and severe emotional distress.
The Claimants Tuchmans sought:
$416,445.59 in compensatory damages for Bruce Tuchman; or, in the alternative, the forgiveness of any money due Wells Fargo on his promissory note;
the return of $128,241.25 allegedly illegally converted from Bruce Tuchman's Wells Fargo brokerage account;
the return to Michelle Tuchman of $81,131.63 allegedly illegally converted from her Wells Fargo brokerage account;
the payment of $2,850,000.00 (10 years' of commissions, bonuses, other compensation, and benefits that Bruce Tuchman allegedly would have earned at Wells Fargo);
$8,550,000.00 for the allegedly "pointless and reckless damage and injury" to the Tuchmans's reputation, for emotional distress, for the unnecessary humiliation and embarrassment they experienced, for pain and suffering, and emotional anguish;
punitive damages in the amount of $4,275,000.00;
expungement of Bruce Tuchman's Central Registration Depository record ("CRD");
attorneys fees, costs, and expenses.
At the conclusion of the hearing, Claimants Tuchmans requested:
$2,987,470.00 compensatory damages;
$17,918,820.00 punitive damages;
$128,241.25 and $81,131.63 recruitment bonus reimbursement;
cancellation of the remaining balance of the promissory note of $204,834.43;
$1,000,000.00 for defamation;
$4,479,705.00 for emotional distress;
$250,000.00 for conversion;
$44,040.00 for the loss of the Wachovia Securities Performance Award Plan;
$100,000.00 Discovery sanctions;
$619,502.00 legal fees;
$56,233.00 expert fees;
FINRA costs and fees;
statutory interest; and
expungement of Bruce Tuchman's Uniform Termination Notice for Securities Industry Registration (the "Form U5").
Respondents Dyer and Wells Fargo generally denied the allegations and asserted various affirmative defenses.
Claimant Wells Fargo
Filed in October 2013, the Wells Fargo FINRA Arbitration Statement of Claim (13-02939)asserted breach of promissory note; conversion, and unjust enrichment. Claimant Wells Fargo sought $204,834.43 compensatory damages; interest at the rate of 5.06% per annum from June 21, 2013 until paid; costs of collection; expenses; reasonable attorneys' fees; and post-judgment interest.
Respondent Bruce Tuchman generally denied the allegations, asserted various affirmative defenses, filed a Counterclaim, and filed a Third-Party Claim against Frank Dyer. In Tuchman's Counter- and Third-Party Claims, he asserted wrongful termination; retaliation; defamation; conversion; breaches of contract and of the implied covenant of good faith and fair dealing; intentional interference with contractual relations and prospective economic advantage; unlawful and deceptive business practices; and severe emotional distress.
In his Counterclaim and Third-Party Claim, Bruce Tuchman largely sought the damages noted in his case against Wells Fargo and Dyer.
By Order dated April 7, 2014, the FINRA Arbitration Panel consolidated the Tuchmans and Wells Fargo arbitrations.
SIDE BAR: In characterizing the status of the various parties, the FINRA Arbitration Decision for the consolidated case offers this:
Nature of the Dispute:
13-02939 Associated Person and Customer vs. Associated Person and Member
13-02581 Member vs. Associated Person vs. Associated Person
FINRA BrokerCheck records as of March 11, 2016, disclose that Bruce Tuchman was first registered in 1981. Consequently, it appears that Bruce Tuchman was a registered representative and Michelle Tuchman was merely a customer. As to what, if any, relationship exists between Bruce and Michelle Tuchman (spouses, father-daughter, etc.) is not set forth in the Decision; however, there is a single reference in the Decision to a "Mrs. Tuchman" as in:
In his Counterclaim and Third-Party Claim, Respondent requested . . . the return to Mrs. Tuchman
of $81,131.63 illegally converted from her Wells Fargo brokerage account. . .
The FINRA Arbitration Panel found Wells Fargo liable and ordered it to pay to the Tuchmans $522,903.20 in attorneys' fees plus:
$81,131.63 in compensatory damages with 5% interest from June 21, 2013, until paid
$128,241.25 in compensatory damages with 5% interest from June 21, 2013, until paid; and
$1,157,302.00 in compensatory damages with 5% interest from June 21, 2013 until paid, which represents the amount of compensation he would have earned in commissions, commission bonuses, and other compensation and benefits, between his termination date and the date that he likely would have actually retired, but for the termination at issue.
Having found as "defamatory in nature" the cited language on Bruce Tuchman's Form U5 as filed on July 12, 2013, by Wells Fargo Advisors, the FINRA Arbitration Panel recommended the expungement of the Reason for Termination in Section 3 of the Form U5 and that the redact ion be changed to "Other." Also, the Panel recommended that the Termination Explanation be expunged and replaced with "Terminated Without Cause."The Panel recommended further conforming changes.
Bill Singer's Comment
Really? Are you F#@*ing kidding me?
One of Wall Street's biggest players -- a household name, a frequent advertiser in all sorts of media, the source of so many talking heads -- gets sued by a former registered representative and a former customer for nearly $30 million and a FINRA Arbitration Panel not only awards over $1 million in damages but also order an expungement of the registered rep's regulatory records but we don't know jack about what happened here or why the arbitrators made the awards that they did!
Tell you what, here is the direct link to the FINRA Arbitration Decision:
After you have read the Decision, how about you answer just a few questions:
What were the facts constituting the alleged "wrongful termination"?
How did Wells Fargo purportedly retaliate against the Tuchmans?
What were the basic terms of the disputed Promissory Note?
What constituted the alleged illegal conversions of the Tuchmans's account by Wells Fargo?
What was the Panel's rationale for the awards rendered and how were the sums computed?
Why, you may ask, does any of the above matter? I'm happy to answer that question. It matters because Wall Street's brokerage firms have concocted a lovely little private system by which public customers and industry participants (hundreds of thousands of men and women employed by the member firms) are essentially forced to submit their disputes to FINRA Arbitration. There's a term for this so-called alternative-dispute-resolution process; and that term is "Mandatory Arbitration." I laugh when apologists for FINRA's arbitration system characterize it as an "alternative" to the courts. Funny, isn't it, when you juxtapose "alternative" with "mandatory." I never quite understand why the passionate supporters of alternative-dispute-resolution don't believe that the merits of FINRA arbitration should be sufficient to compel folks to want to freely choose to have their cases heard in that forum rather than in a court or other arbitration forum. Why do you need to force the issue if the alternative is more affordable, quicker, and just as fair?
As readers of the BrokeAndBroker.com Blog know, I am a passionate critic of mandatory arbitration and a somewhat dyspeptic gadfly of the FINRA version. In particular, I regularly complain about the lack of "content and context" in FINRA Arbitration Decisions, and today's offering is but another example.
It's bad enough when the industry gets to wash its dirty laundry involving registered and associated persons in the relatively hidden FINRA washing machines; it's another thing when, as in today's cases, we have a public customer's complaints largely pulled from public scrutiny and adjudicated without much rationale. If these disputes were adjudicated in a court, we would be able to read the complaints, the answers, the motions, the transcripts, and the rulings. No, not all court proceedings are public and many aspects are kept under seal but that's normally subject to an obligation by the party seeking such confidentiality to move the court for the desired result, which is not always granted and often selective in its application.
Why does any of this matter?
Why is the degree of secrecy inherent in FINRA arbitrations often harmful?
Why is the lack of "content and context" such a big deal?
As famed Supreme Court Justice Louis Brandeis so aptly remarked: "Sunshine is the best disinfectant." If ever an institution needed sunshine, that would be Wall Street. Yes, I agree, there are times when fairness dictates that an entire case or aspects of it be sealed from public scrutiny. On the other hand, that should not be the default mode for litigation as it inhibits other potential litigants from learning of the prior bad acts and practices of a common defendant. Moreover, reform is not promoted and regulation is not furthered by the lack of a public, published record detailing what allegedly happened and why fault (if any) was found.
In the cases of the Tuchmans and Wells Fargo, consider what was alleged and what was likely at stake. There are charges, which I deem serious, that the FINRA member firm converted the brokerage account of a public customer but we know nothing about the underlying facts. There are charges that a FINRA member firm retaliated against a nearly 35-year industry veteran registered representative, but we know none of the details of that troubling allegation. Moreover, the independent FINRA arbitrators hearing the case were compelled to find a regulatory filing by Wells Fargo as "defamatory in nature" and the panelists recommended substantive changes. Let the sunshine in!