February 14, 2017
What happens when a stockbroker doesn't do something because he thought that he was doing exactly what he was told to do by his customer and, as such, the stockbroker wasn't doing what his customer didn't tell him to do; however, the customer's nieces, who became the executors of her estate, think that it should have been obvious to the stockbroker that he needed to do something that the customer seems to have told him she didn't want done; and, to make things even more complicated, even if the customer who should have said something to the stockbroker but didn't say anything had wanted to say something, it appears that she became disabled and would not have been able to say whatever it is she didn't or should have? Confused? Welcome to the club. Welcome to the FINRA arbitration!
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2015, the Estate of Helen M. Sondey alleged breach of fiduciary duty and negligence in connection with the beneficiary designation of Claimant's account. Claimant sought $98,000 in compensatory damages plus attorneys' fees. In the Matter of the FINRA Arbitration Between Estate of Helen M. Sondey, Claimant, vs. Robert Andrew Roth, Respondent (FINRA Arbitration 15-02455, January 19, 2017).
Respondent Roth generally denied the allegations and asserted affirmative defenses. At the conclusion of the hearing, Respondent Roth sought an expungement of the matter from his Central Registration Depository records ("CRD") and attorneys' fees.
The FINRA Arbitration Decision asserts that a telephonic expungement hearing was conducted and that Claimant's counsel was present in opposition to the request.
SIDE BAR: FINRA Rule 2080: Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System
(a) Members or associated persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.
(b) Members or associated persons petitioning a court for expungement relief or seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents unless this requirement is waived pursuant to subparagraph (1) or (2) below.
(1) Upon request, FINRA may waive the obligation to name FINRA as a party if FINRA determines that the expungement relief is based on affirmative judicial or arbitral findings that:
(A) the claim, allegation or information is factually impossible or clearly erroneous;
(B) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
(C) the claim, allegation or information is false.
(2) If the expungement relief is based on judicial or arbitral findings other than those described above, FINRA, in its sole discretion and under extraordinary circumstances, also may waive the obligation to name FINRA as a party if it determines that:
(A) the expungement relief and accompanying findings on which it is based are meritorious; and
(B) the expungement would have no material adverse effect on investor protection, the integrity of the CRD system or regulatory requirements.
(c) For purposes of this Rule, the terms "sales practice violation," "investment-related," and "involved" shall have the meanings set forth in the Uniform Application for Securities Industry Registration or Transfer ("Form U4") in effect at the time of issuance of the subject expungement order.
FINRA Code of Arbitration Procedure for Customer Disputes Rule 12805: Expungement of Customer Dispute Information under Rule 2080
In order to grant expungement of customer dispute information under Rule 2080, the panel must:
(a) Hold a recorded hearing session (by telephone or in person) regarding the appropriateness of expungement. This paragraph will apply to cases administered under Rule 12800 even if a customer did not request a hearing on the merits.
(b) In cases involving settlements, review settlement documents and consider the amount of payments made to any party and any other terms and conditions of a settlement.
(c) Indicate in the arbitration award which of the Rule 2080 grounds for expungement serve(s) as the basis for its expungement order and provide a brief written explanation of the reason(s) for its finding that one or more Rule 2080 grounds for expungement applies to the facts of the case.
(d) Assess all forum fees for hearing sessions in which the sole topic is the determination of the appropriateness of expungement against the parties requesting expungement relief.
The sole FINRA Arbitrator hearing the case denied Claimant's claim and granted Respondent's request for an expungement. In offering his rationale for granting the expungement, the FINRA Arbitrator explained in pertinent part that:
The co-executors (Cathey Moss Hooper and Cindy Moss Jameson) of the Estate of Helen M. Sondey claim that Mr. Roth owed them a fiduciary duty, as holders of power of attorney for their disabled aunt Mrs. Helen M. Sondey, to change the beneficiary designation of an annuity account from Mrs. Sondey's step children, from a former marriage, to the co-executors themselves. The evidence in the case showed that Mr. Ross [Ed: "Ross" in the Decision likely should be "Roth"] did review this account with Mrs. Sondey prior to her disability and Mrs. Sondey instructed Mr. Roth to keep the death beneficiary the same and that she specifically wanted a portion of her estate left to her stepchildren. The coexecutors informed Mr. Roth that their aunt, Mrs. Sondey had written her will leaving everything to them, as they were her closest family and had taken care of her. At this time Mrs. Sondey was disabled and unable to make any decisions for herself. The co-executors did receive the assets in their aunt's account with Mr. Roth. However, the assets with a death beneficiary passed outside the will. The coexecutors did not know of this account until after their aunt's death. However, they believed that Mr. Roth should have advised them of this particular account and changed the death beneficiary to themselves in their belief that their aunt's will would control the actions of Mr. Roth. In this belief they were in error. As holders of a power of attorney for their aunt, they had a fiduciary responsibility to act for their aunt as she would have acted for herself. The evidence presented showed that the aunt wanted this part of her estate to go to her stepchildren and was set up in an account that went directly to them outside her will. The co-executors were in error to believe that their aunt's will gave Mr. Ross [Ed: "Ross" in the Decision likely should be "Roth"] the power to change the death beneficiary in this account.
Bill Singer's Comment
Compliments to this sole FINRA Arbitrator for providing us with content and context sufficient to allow us to understand the underlying issues and the rationale for his ruling. Given the complexity of the issues, that accomplishment is all the more remarkable. That being said, FINRA's quality control should have caught the two errors of naming the Respondent stockbroker "Ross" when his name is "Roth."
Note that the FINRA Arbitration Statement of Claim was not filed by the original brokerage customer (Helen M. Sondey) but by the co-executors of her estate on behalf of the estate (not an unusual event). The co-executors, two nieces of the deceased customer, alleged that Respondent Roth owed to each of them a fiduciary duty arising from their having Helen M. Sondey's Power of Attorney: The purported owed-duty was that Respondent Roth should have changed his customer's designated beneficiary from the aunt's step-children from a former marriage to the two nieces. In support of their contention, the two nieces asserted that their aunt's will left everything to them because they were her closest family and had taken care of her during her disability. The nieces claims rest on the premise that Roth had, in essence, thwarted the desire of his customer to leave all of her assets to them.
The FINRA Arbitrator pointedly found that Respondent Roth did, in fact, review the brokerage account with Helen M. Sondey; and. moreover, that Roth had conducted said review before the aunt became disabled, at which time she had previously conveyed to Roth that she wanted a portion of her estate left to her stepchildren.
For readers of the BrokeAndBroker.com Blog, this is a teachable moment! Frankly, I'm not going to take sides with the nieces or Roth because I didn't read any evidence and didn't hear any testimony. That being said, this arbitration sets the stage at a point in time when Helen M. Sondey had apparently expressed her wishes to leave something for her stepchildren, and she opted to accomplish that gift by designating the children as beneficiaries in a brokerage account serviced by Respondent Roth. Subsequent to the creation of the designated-beneficiary account, Sondey apparently became disabled, and, at some point not clearly noted in the Decision, a Will was created leaving all her assets to her two nieces. It is not that rare to find that a deceased created a designated-beneficiary brokerage account but that a Will bequeaths "all of the deceased's assets" to individuals other than an account's designated beneficiary. Not all assets left behind by a deceased are disposed of by his/her Will; notably, insurance proceeds and "Transfer on Death" ("TOD") accounts typically fall outside of such disposition.
An interesting aspect of this dispute is that the aunt was not merely physically disabled at some point in time but, according to the FINRA Arbitration Decision: "unable to make any decisions for herself." Not specified in the Decision is whether the aunt was found by a court of law to be incapable of making financial decisions for herself or the extent to which the nieces were legally entitled to act on behalf of their aunt. We are told that the nieces had a Power of Attorney for their aunt and they received assets from at least one of their aunt's brokerage accounts serviced by Respondent Roth. Apparently, a separate account serviced by Roth -- the one at issue in the arbitration -- designated the stepkids as beneficiaries; and those assets were transferred by operation of law outside of the estate to the beneficiary stepchildren. The nieces asserted that they never knew about the designated-beneficiary account until after their aunt's death: Why they didn't know and whether they should have known is not set forth in the Decision.
The nieces claims against Roth are based upon their belief that their aunt's Will would control all dispositions of her estate and that Roth was somehow bound to acknowledge the inconsistency between the Will and the designated-beneficiary account. Further, the nieces argued that because they held their aunt's Power of Attorney, they were her fiduciaries and compelled to discharge their aunt's desires, among which they asserted was the elimination of the stepchildren as beneficiaries and their replacement by the nieces. Taken as a whole, the co-executors/nieces made some interesting, imaginative, and creative arguments. Unfortunately, the FINRA Arbitrator found that the aunt wanted the account at issue to fall outside of her Will. Further, the Arbitrator declined to find that the Will authorized or empowered Roth to change the death beneficiary in the cited account.
- Till Death And Redemptions Do Husband, Wife, Stockbroker, And Bob Marley Part (BrokeAndBroker.com Blog, December 19, 2014)
- Power of Attorney, Beneficiary, and Executrix Roles Slam Stockbroker (BrokeAndBroker.com Blog, November 25, 2014)
- Litigation After Death Haunts One Stockbroker (BrokeAndBroker.com Blog, December 26, 2013)
- Where There's A Will There's No Way (BrokeAndBroker.com Blog, December 13, 2013)
- Broker Rips Off Elderly Client and Church (BrokeAndBroker.com Blog, September 13, 2013)
- Broker Removed As Executor By Customer (BrokeAndBroker.com Blog, June 13, 2013)
- Husband's Unauthorized Withdrawals Land Stockbroker In Hot Water (BrokeAndBroker.com Blog, October 12, 2012)
- Stockbroker Victimized By Husband's Withdrawals From Wife's and Child's Accounts (BrokeAndBroker.com Blog, July 19, 2012)
- The Wife Dies of Cancer, The Husband Has Alzheimer's - And Their Stockbroker Is Barred (BrokeAndBroker.com Blog, November 2, 2011)