March 3, 2017
It's very frustrating to report about successful FINRA expungement cases because, in so doing, I am forced to re-publicize the names of individuals who were victimized by false accusations and, in a sense, to mitigate the benefit of having won an expungement recommendation from a FINRA arbitrator. On the other hand, based upon the mail and phone calls that I receive from industry participants, there is an equally substantial benefit in publicizing those very facts because they help others wage similar battles. Added into that mix of considerations is the ongoing availability of the underlying customer arbitration on FINRA's Arbitration Awards Database and legacy entries on the Central Registration Depository and BrokerCheck. Today's BrokeAndBroker Blog presented me with yet another episode of this ongoing dilemma of weighing the benefits and the harm.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2016, registered representative Claimant Canell sought $1 in compensatory damages and the expungement from his Central Registration Depository records ("CRD") of a customer complaint. In the Matter of the FINRA Arbitration Between Jay Barry Canell, Claimant, vs. Citigroup Global Markets, Inc., Respondent (FINRA Arbitration 16-02457, February 7, 2017).
Notice of the expungement hearing was attempted upon the complaining customer but that individual apparently died in 2012. In considering the requested expungement, the Arbitrator relied upon the pleadings, the testimony of the Claimant, Claimant Canell's BrokerCheck Report , and the Settlement Agreement between the Respondent and the customer.
At the hearing, the Claimant withdrew his request for compensatory damages.
The sole FINRA Arbitrator recommended expungement and offered the following rationale:
Evidence was presented at the hearing that led the Arbitrator to believe that Claimant did not perform the wrongdoing that was alleged in the customer's Statement of Claim, and thus expungement is granted pursuant to Rule 2080. First, as to the suitability claims: the record is clear that the customer provided her son with discretionary authorization of her account, that the Claimant continuously communicated his opinion that the son's trades were against his advice, that the Claimant discussed and reviewed the customer's account statement with the customer on at least a quarterly basis, and finally that the customer was aware of Claimant's dissent with her son's investment strategy. The transactions characterized as unsuitable were made by the customer's son, per her authorization, and made against the Claimant's advice. The Arbitrator reviewed the Settlement Agreement, considered the amounts paid to the customer and the conditions of settlement in reaching this decision.
Bill Singer's Comment
According to online FINRA BrokerCheck records as of March 3, 2017, Canell was first registered in 1993. After nearly a quarter of a century on Wall Street, the only disclosure on his Canell's industry record is the above-referenced settled customer complaint in which the public customer sought $1.13 million in damages. That claim was settled solely by Citigroup on November 30, 2011, for $265,000, to which Canell contributed not a single penny. As his BrokerCheck "Broker Statement" asserts:
THE MATTER SETTLED IN CONSIDERATION OF LOSSES CLAIMANT SUSTAINED AWAY FROM CGMI/MSSB AFTER CLAIMANT DIRECTED IN WRITING THE TRANSFER OF FUNDS TO CLAIMANT'S ACCOUNTANT. TO THE EXTENT THAT THERE WERE ADDITIONAL LOSSES, THEY RESULTED FROM UNSOLICITED TRANSACTIONS MADE BY CLAIMANT IN CONJUNCTION WITH HER ADULT SON AND NOT BASED UPON THE FINANCIAL ADVISOR'S RECOMMENDATION.
As set forth by the FINRA Arbitrator, the record of the customer dispute is purportedly "clear" as to the fact that the customer had "provided her son with discretionary authorization." On top of that circumstance, the Arbitrator found that Canell advised against the son's trades and that the "customer was aware of Claimant's dissent." In as succinct a conclusion as can be made, the Arbitrator found that the disputed trades were "made by the customer's son, per her authorization, and made against the Claimant's advice."
Why the hell -- given such dramatic and clear-cut findings by an independent arbitrator -- was Canell required to go through the costly and time-consuming charade of the legal fiction of suing Respondent Citigroup? Even if you come up with an answer, won't you admit that it is a tortured explanation, at best? Won't you admit that the expungement process is overly cumbersome and non-responsive to the legitimate needs of many industry participants when they are seeking redress of obvious or nearly obvious wrongs? And, no, I am not arguing that all expungements are justified or should be put on a fast-track. Many expungements are unjustified and should be denied to protect the investing public.
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?
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.
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.