Stockbroker Expunges Complaint About Profitable Investment

May 1, 2017

Before you read today's Blog, our publisher Bill Singer wants you to understand that he is NOT blaming the public customer for asking questions, lots of questions. Similarly, Bill sees nothing wrong with anything that the stockbroker did. What Bill sees in today's expungement case is enough not being enough. Reduced to its basics, we have a failure of expectations. Distilled even further, the dispute boils down to enough just not being enough.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2016, former Merrill Lynch employee Claimant Maile sought $1 in compensatory damages and an expungement of a "customer dispute occurrence" from his Central Registration Depository records ("CRD"). In the Matter of the FINRA Arbitration Between Rolf Maile, Claimant, vs. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent (FINRA Arbitration 16-03061, April 17. 2017).

Buck Off

Respondent Merrill Lynch asserted various affirmative and other defenses, and objected to the $1 compensatory damages and "any and all other relief that the Arbitrator deems just and equitable." Notwithstanding that position, Respondent "did not take a position as to Claimant's remaining relief requests" and, pointedly, did not oppose Claimant's request for expungement. Respondent stated that it did not intend to participate in the final hearing.

Although notified of the proposed expungement hearing, the customer who had filed the complaint at issue did not appear. During the expungement hearing, Claimant Maile withdrew his request for $1 in damages.

Expungement Recommendation

The sole FINRA Arbitrator granted Claimant Maile's request for expungement of all references to the underlying customer event.  The Arbitrator offered this rationale in pertinent part:

After approximately 30 meetings with Claimant, the customer in the Underlying Claim ("Customer") elected to invest 30% of his portfolio totaling $20,000.00 in the disputed mutual fund. Following the aforementioned investment, the Customer discussed the investment with Claimant on approximately 25 separate occasions.

The disputed mutual fund performed positively for the duration of Claimant's relationship with the Customer and at one point had increased in value to $26,000.00. When the disputed mutual fund decreased in value to $24,000.00, the Customer believed that he had lost value on the investment, despite the fact that the fund had increased by $4,000.00 from his initial investment.

Following the $2,000.00 loss, the Customer sent a complaint letter to Merrill Lynch. Merrill Lynch investigated the claim and found that the Customer's allegations were without merit and deemed all investments suitable. Merrill Lynch sent one response letter to the Customer, closed the complaint and requested that the Customer transfer his account. The Customer did not pursue his complaint in arbitration or court. As of January 9, 2007, the dispute status is listed as "Closed/No Action" in Claimant's BrokerCheck Report

Bill Singer's Comment

Online FINRA BrokerCheck files as of May 1, 2017, disclose that Maile was first registered in 1994 with FINRA member firm Merrill Lynch, where he remained until January 2009, at which time he joined UBS Financial Services, Inc.

As of May 1st, under the heading of "Customer Dispute - Closed No Action/Withdrawn/Dismissed/Denied" is one disclosure consisting of a May 2001 unsuitability allegation involving a mutual fund by a client that was "Closed/No Action" on what appears to be January 9, 2007.

The FINRA Arbitration Decision asserts that Maile had met about 30 times with the complaining customer (likely in 2000 and/or 2001 if the customer is the one referenced in the BrokerCheck records) before that customer opted to invest $20,000 in a mutual fund. After the purchase of the fund, the customer then spoke to Maile about another 25 times.

As the FINRA arbitrator recommending expungement noted, the customer had invested $20,000, saw it rise to $26,000, and then complained when the investment was valued at $24,000. The customer was up $4,000; but the customer was focused on the $2,000 devaluation from the fund's high.

Adding up the communications between Maile and his customer, we have 55 discussions concerning a $20,000 mutual fund investment -- not saying that's too many conversations about an investment, not saying that the dollars at risk are minimal. The number of conversations is, however, a red flag in terms of whether a given customer will be "comfortable" with a proposed investment. Sometimes, the best thing for a registered representative to do is walk away from such a proposed transaction. At some point, maybe a given customer requires too much hand-holding and it may be best to end that relationship. Ultimately, I like what Merrill Lynch did in response to the customer's complaint: "Merrill Lynch sent one response letter to the Customer, closed the complaint and requested that the Customer transfer his account."

Don't misunderstand: Public customers have every right to ask questions, to demand comprehensive answers, and to undertake due diligence before plunking down a single dollar. Similarly, registered representatives have every right to protect their reputations and to ensure that a given customer does not make excessive demands upon their time. Few relationships in life take on more importance than the one between an investor and an investment professional. The likes of Bernie Madoff can destroy a family's retirement. The pump-and-dumpsters will wipe out your child's college tuition or that planned vacation house by the lake.

Frankly, if the facts set forth in the FINRA Arbitration Decision are correct, then the customer relationship just wasn't a good fit. In the end, neither the stockbroker nor the customer were wrong. Neither did anything inappropriate. Shake oil and vinegar all you want: they will continue to separate. This was a doomed relationship from the beginning.

Perhaps this customer should have opened a brokerage account with an discount brokerage firm or with a smaller firm or with a different stockbroker or used the services of a Registered Investment Advisor. Similarly, Maile has a spotless industry record after nearly a quarter of a century. His persistence in seeking to clear his name after a decade strongly suggests that he is an honorable man who was bothered by what he likely viewed as an unwarranted public disclosure.