February 21, 2017
Today's BrokeAndBroker.com Blog covers another expungement case. Frankly, there's not that much to tell: the Claimant advisor is angered by the blot on his record concerning what he feels is a baseless customer complaint. A somewhat refreshing aspect of the case is the candid response by Respondent Wells Fargo Advisors, LLC that essentially amounts to a shrug and a bit of a sheepish grin. The unsettling thing about the outcome, however, is that you feel like you've attended a well-rehearsed but not particularly entertaining play; and, worse, that one of the key actors (the former employer) doesn't particularly want to be on stage and is sort of going through the motions.
Case In Point
In a Financial Industry Regulatory Authority
("FINRA") Arbitration Statement of Claim filed in September 2016,
former Wells Fargo Advisors registered representative Magruder sought an expungement from his Central
Registration Depository records ("CRD") of what he alleged was a false 2015 customer
complaint, which purportedly alleged
that Magruder had misrepresented and failed to disclose advisory fees. In the
Matter of the FINRA Arbitration Between Michael Edwin Magruder, Claimant, vs. Wells
Fargo Advisors, LLC, Respondent (FINRA Arbitration 16-02701, February 1, 2017).
Our Hands Are Tied
Respondent Wells Fargo asserted that it had a duty to report
all customer complaints "whether thought to be true or false by parties to this arbitration,
and Respondent did not have a position in regard to Claimant's request for
expungement." Although Respondent Wells
Fargo participated in the expungement hearing, it did not contest the requested
relief. The customer involved in the underlying complaint waived his right to
appear at the expungement hearing.
In considering Claimant Magruder's petition, the FINRA
Arbitration Panel characterized the settlement paid to the customer as "nominal"
and noted that Claimant " was not involved in the settlement, did not
contribute to the settlement agreement, and that the settlement was not
conditioned on an agreement to not oppose an expungement."
SIDE BAR: Online FINRA BrokerCheck records as of February 21, 2017, disclose that the September 11, 2015, customer complaint sought unspecified damages but that the firm settled for $2,750 on December 1, 2015.
In deciding to recommend expungement, the FINRA Arbitration
Panel explained that:
The allegedly undisclosed fee information was disclosed in
the documents provided by Wells Fargo to the customer. In addition, Claimant
testified that he explained the nature of the fee, in some detail, to each of
his clients, specifically including the customer that made the complaint.
Bill Singer's Comment
And the curtain drops on our play to tepid applause as a partially-filled house empties. Not so much great drama as a paycheck.
It's hard to walk away from this Wall Street theater without recalling that Respondent Wells Fargo had asserted it had a duty to report all customer complaints, regardless of whether the employer thought them to be true or false. Alas . . . life on Wall Street is but a walking shadow:
That struts and frets his hour upon the stage,
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury,
What idiocy! To think that what passes for effective Wall Street regulation is to burden an already over-burdened regulatory system with filings about seemingly "false' complaints and then, in an excess of more idiocy, to burden an already over-burdened arbitration forum with expungement hearings where no party opposes the request and the evidence clearly underscores that the complaint is largely full of sound and fury signifying nothing.
Sure, you're right, who's to say whether a customer complaint is true or false. I'm not going to disagree with you. What I am going to question, however, is why the industry doesn't provide for fair procedures to more effectively nip the bad-faith, the bogus, the dubious complaints in the bud.
Why isn't there an opportunity for an earlier regulatory intervention when evidence sincerely questions the truthfulness of a customer complaint?
Why is the financial burden of pursuing an expungement of a false complaint solely placed upon the victimized industry employee?
Why is there no one at FINRA championing a substantive reform of the expungement process?
No, not every customer complaint is deserving of expungement -- in fact, the vast, vast majority are honest and credible and should not be removed from CRD. On the other hand, let's not pretend that every customer complaint is pristine or that the motivation behind some complaints isn't anything more than to prompt and motivate a financial settlement from the member firm or registered rep.
The Expungement Rulebook
Read the BrokerAndBroker.com Blog "Expungement" Archive
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.