September 19, 2016
Let's face it, these days there just ain't a lot of folks all that sympathetic to the plight of a stockbroker. And while we're on that topic, let's also be honest: Wall Street made that bed and it's tough to scrounge up much, if any, sympathy for an uncomfortable night's sleep for the hundreds of thousands of registered representatives in the financial services community. On the other hand, let's all agree that we live in a world of unfairness and injustice and the greatest challenge of all is finding a way to right the wrongs suffered by the least popular among us. All of which comes off as yet another insufferable public service announcement, which I routinely sneer at when it interrupts my all important sporting event on television. So much for truth, justice, and the American way. In any event, consider this recent litigation against PNC and Wells Fargo seeking the clearing of one registered rep's name.
In a Financial Industry
Regulatory Authority ("FINRA") Arbitration Statement of Claim filed
in June 2015, former Wells Fargo Advisors and PNC Investments registered
representative Kukowski asserted that his former employers had posted false,
defamatory, misleading and erroneous statements on Amended Forms U5. Claimant
Kukowski sought $5,000 in compensatory damages, $10,000 in exemplary damages
from each Respondent, expenses, and an expungement of of his Uniform Termination Notice for Securities Industry Registration ("Form U5"). In the Matter of the FINRA Arbitration Between Walter Rocco Kukowski, Claimant, vs. Wells Fargo Advisors, LLC, and PNC Investments LLC, Respondents (FINRA Arbitration 15-01370, September 2, 2016).
Although both Respondent Wells
Fargo and PNC requested that Claimant's defamation claim be denied, only Wells
Fargo neither opposed nor rejected Claimant's expungement
Following Claimant's dismissal with prejudice of his claims against Respondents, on June 28, 2016, the sole FINRA Arbitrator conducted an expungement hearing.
Respondent Wells Fargo did not oppose the requested expungement and did not attend the expungement hearing. Respondent PNC Investments opposed the requested expungement but the FINRA Arbitration Decision fails to indicate whether the firm attended the expungement hearing.
In recommending the expungement of Forms U5 filed by Respondents, the sole FINRA Arbitrator offered, in part, this compelling rationale:
Claimant Walter R. Kukowski sought expungement of a Form U5 amendment and a second Form U5 amendment issued by Respondent PNC Investments four years after Claimant voluntary resigned from its employ effective March 6, 2009.
An amended Form U5 was issued following a writing alleging wrongful conduct submitted by a customer on or about February 26, 2013. The customer asserted that, during a 2008 transaction, an unidentified PNC Investments representative misrepresented that preferred shares of Federal National Mortgage Association Preferred Stock, Series T 8.25% were government backed. PNC Investments concluded that one possible representative was Claimant Kukowski. It further concluded it was possible two other representatives were involved. The customer had no recollection of who made the purported misrepresentation during a telephone call five years earlier.
A trade confirmation attached to the written complaint identified internal fee splitting arrangement (Code 10RJ) among Claimant and two other PNC Investments representatives.. Because the trades were attributed to split commission code 10RJ, PNC Investments determined that the written complaint should be interpreted as having been advanced against all three participants. In March 2013, PNC Investments reported the customer's complaint on separate Forms U5 for each individual partner, i.e., Claimant and two other representatives. The Form U5 filed for Claimant summarized the customer's complaint as follows: "Client alleges that representative misrepresented that preferred shares were backed by government."
The customer claimed losses of $43,393.00, and later received a settlement from PNC Investments in November 2013. A release was tendered to the customer in connection with this payment. Respondent PNC Investments represented that the customer executed this document releasing all claims and actions in connection with the sale of the aforementioned preferred shares of Federal National Mortgage Association Preferred Stock.
PNC Investments then filed a Second Amended Form U5 reporting payment of the settlement amount, and republishing that the customer alleged Claimant had misrepresented the shares as having government backing.
Claimant asserted PNC Investments failed to investigate the customer's allegation with due diligence, that the allegation and claim are false, and finally that he was not involved with the alleged misconduct. He presented proof supporting this position during his testimony at the hearings.
Thereafter, pursuant to the Arbitrator's July 22, 2016 Order, the customer was afforded an opportunity to advise FINRA and Respondent PNC Investments of any position that he might wish to take on the expungement request. This notice was transmitted to the customer by certified mail, return receipt requested. The customer did not file a reply.
Expungement is granted since the allegation is clearly erroneous as being imperfect and incomplete. The customer who reported speaking on the telephone with a sole unseen man after several years, generally alleged wrongful conduct, which was not individually linked to Claimant.
Claimant denied being involved with the challenged transaction in the account which was opened through another PNC Investments representative on April 4, 2007.
Expungement is also granted since the record shows Claimant was not involved in any misconduct associated with the wrongful conduct alleged in connection with the investment-related sales practice.
Wells Fargo Advisors, LLC received a letter dated September 15, 2014 from an individual who alleged that his mother asserted that Claimant "stole, hid, lost, or otherwise mishandled $25,000 to $40,000 of her money." The letter wrongly identified Claimant as the Branch Manager of Wells Fargo Bank's North Brunswick, NJ office. Wells Fargo did not investigate these assertions. On or about October 17,2014 Wells Fargo filed an amended Form U5 reporting "Client alleges that former Financial Advisor was involved in theft, loss, misappropriation or other mishandling of an unspecified amount of funds." Claimant denied the allegations.
Thereafter, a Compliance Consultant from Wells Fargo held a telephone interview with the individual who filed the complaint. During their conversation, the individual withdrew the allegations against Mr. Kukowski indicating that his mother had informed him that her concerns about missing funds did not involve any activity by Mr. Kukowski.
In its Statement of Answer Wells Fargo averred it "neither supports nor opposes Claimant's Statement of Claim for expungement relief."
Claimant, in his Statement of Claim, denied the complaint wrongfully naming him as the Branch Manager whom the customer and her son believed had permitted wrongful transactions. The customer's son withdrew the allegation as to Claimant.
At the hearing and under oath, Claimant again denied participating in the purportedly wrongful transactions. Following his direct examination, the Arbitrator questioned Claimant to test his credibility and to gather additional testimony to resolve the expungement issue. His testimony was credible, expressed articulately, internally and externally consistent, and comported with common experience, and commonsense. It shed light on why the customer's son mistakenly recollected he was involved in the disputed transactions.
Thereafter, the customer's son, as representative and spokesperson for his mother was afforded an opportunity to advise FINRA, and Respondent Wells Fargo of any position that the customer might wish to take on the expungement request. This notice was served on him by certified mail, return receipt required. Neither he nor the customer replied.
Bill Singer's Comment
Although there are minor aspects of this FINRA Arbitration Decision that would have benefited from a tad more explanation or clarification, those shortcomings are largely about procedural matters and in no way detract from the overall excellence of the sole FINRA Arbitrator's presentation of the content and context of the underlying issues in this expungement proceeding. Compliments for a superb explanation of the rationale for recommending expungement.
Could Be . . . Maybe . . . Possibly
As the Decision underscores, the PNC customer complaint was only first submitted in writing to the firm some four years after Claimant Kukowski had voluntarily resigned. The customer complaint could, at best, only permit PNC to narrow down the possibilities of the allegedly responsible servicing registered representative to Claimant Kukowski and two others. Apparently complicating the narrowing down was the fact that the account was subject to a fee-split and the producing rep who took the subject customer telephone call and processed the disputed order was not specified in the available records. PNC opted to file three Forms U5 disclosing the customer complaint on the records of the three possible servicing producers.
What should not be lost in this flurry of PNC finger pointing is that the firm settled the customer's complaint in November 2013, which added insult to Claimant Kukowski's alleged injury because his Form U5 was amended to disclose the settlement, which further implied some guilt and attendant misconduct from the circumstance of settlement. Claimant Kukowski argued that PNC had not diligently investigated the customer claims because if the firm had, it would have been abundantly clear that he was not involved in the underlying matter and should never have been tarred with his former employer's somewhat broad regulatory and compliance brushstrokes on the original and amended Forms U5.
What should not be lost in a full consideration of the expungement case is that the complaining customer was notified of the requested expungement and afforded an opportunity to object and/or attend the expungement hearing but declined the offers. Further, after a full presentation of the facts at issue, the sole FINRA Arbitrator was convinced that Claimant Kukowski was not the servicing registered representative and that the account had been opened by another registered representative.
The Son of a Mother Customer
As to the Wells Fargo prong of this expungement case, we are initially confronted with the fact that the initiating complaint was not from a "customer" of the firm but, at best, from the alleged son of a customer. As to how or why Wells Fargo amended Claimant's Form U5 with the assertion that "Client alleges . . ." is not satisfactorily explained given the contradiction that the only purported "complaint" received by the firm was from a client's son and there is no indication that the actual client authorized that communication or subsequently adopted the allegations as her own.
As noted in the Decision, the son's letter misidentified Claimant Kukowski as the Branch Manager of the subject office, which he was not. In what smacks of a belated effort, Wells Fargo contacted the son, who withdrew the allegations and clarified that his mother's "concerns about missing funds did not involve any activity by Mr. Kukowski."
The sole FINRA Arbitrator examined Claimant Kukowski as to the Wells Fargo incident and found the stockbroker to be credible. Notably, neither the son nor the mother opposed the requested expungement or attended the hearing despite having been served with notice of the opportunities.
As a lawyer who represents both defrauded public customers and industry parties, I am saddened by many aspects of this case; not the least of which is the apparent unwillingness of Wells Fargo to have voluntarily amended Claimant Kukowski's Form U5 given the nature of the initiating complaint and the subsequent disclosure of facts by the son and by his mother, the actual client. There may be reasonable explanations for Wells Fargo's failure to step up and do the right thing here but they are not presented in the Decision and I can only go by what I know. I do not advocate for a mere rubber-stamping by arbitrators of expungement requests by registered reps. It's a bad practice that tends to sanitize the records of some truly bad folks and seems little more than an unsavory selling of one's birthright. That being said, injustice is injustice. As I noted in the opening to this commentary, the challenge is not how we handle ourselves with the easy cases but how we respond to those that that are edgy, uncomfortable, and appeal to the worst of our animal spirits.