In today's BrokeAndBroker.com Blog, publisher Bill Singer, Esq. dissects a FINRA arbitration and two FINRA regulatory settlements involving a father and son. What ties these matters together is an allegation by FINRA that the father had lied under oath during his arbitration case against former employers and associates. This is a rare, a very rare, case in which FINRA regulatory action is taken against an arbitration Claimant/witness for lying under oath.
If FINRA the self-regulator is now going to act as a lie detector and bar registered representatives for perjury during arbitrations (as should certainly be the consequence), then such regulatory action will likely influence arbitration settlements and may also prompt more parties to demand regulatory referrals from arbitrators. Assuming that FINRA is now placing such arbitration-perjury matters on its regulatory agenda, the self-regulator must pursue such allegations with equal zeal against its member firms, who are often accused of lying during customer and industry arbitrations. Similarly, given FINRA's inability to "bar" public customers for perjury, the regulator must commit to referring such findings to local, state, and/or federal prosecutors.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2009, and as amended thereafter, Claimant William Garbarino alleged, in part, breaches of contract and the implied covenant of good faith and fair dealing, tortious interference with business relationship, and defamation. At the close of his arbitration hearing. Claimant withdrew the claims for defamation, conversion, and RICO violations against Respondent Nutmeg; and also withdrew the claim for RICO violations against Respondent RJFS. Claimant Garbarino sought at least $500,000 in damages plus punitive damages, interest, costs, and fees. In the Matter of the FINRA Arbitration Between William Francis Garbarino, Claimant, vs. Raymond James Financial Services, Inc., Nutmeg Investment Group, Charles Meade, and Frank Gavel, Jr., Respondents (FINRA Arbitration 09-04736, November 6, 2014).
Respondents generally denied the allegations and asserted various affirmative defenses. Respondents Nutmeg Investment Group, Meade, and Gavel (the "Nutmeg Respondents") counter-claimed citing defamation of character and breach of contract.
The FINRA Arbitration Panel found the Nutmeg Respondents jointly and severally liable and ordered them to pay to Claimant Garbarino $3,700 in plus 10% per annum interest until paid; $60,000 in attorneys' fees.
The FINRA Arbitration Panel found Claimant Garbarino liable and ordered him to pay to:
(1) the award was procured by fraud, corruption, or undue means; (2) the FINRA panel committed misconduct in refusing to postpone the hearing or in refusing to hear evidence pertinent to the arbitration; (3) the FINRA panel exceeded its powers or "so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made"; and (4) the award violates public policy. At oral argument before this court, counsel for the plaintiff waived plaintiffs claims that the award was procured by fraud, corruption or undue means and that the FINRA panel committed misconduct.
Page 4 of the Court's Memorandum
2017 FINRA AWC
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, William F. Garbarino submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of William F. Garbarino, Respondent (AWC 2014043695702, September 13, 2017).
The AWC asserts that starting April 2009, Matthew Garbarino became an unregistered sales assistant with FINRA member firm Lincoln Financial Advisors Corp., where he remained until his voluntary termination in October 2009. In May 2010, Matthew Garbarino re-associated with Lincoln as an unregistered sales assistant and became registered in June 2010. The AWC asserts that he has no prior disciplinary history in the securities industry.
As stated in the "Overview" section of the AWC:
In or about June and July 2009, Respondent obtained from at least five customers of his FINRA-regulated broker-dealer at least eight executed, but partially blank, signature pages from change of broker forms issued by several annuity companies. Respondent copied the signature pages and created at least 18 new change of broker forms by filling in numerous annuity contract numbers on the blank portions of the pages containing the photocopied signatures. Thereafter, Respondent submitted the falsified forms to the annuity companies as authentic, in violation of FINRA Rule 2010.
The AWC asserts that :
In or about June and July 2009, with the knowledge of WG, a General Securities Representative at Lincoln, Respondent obtained from at least five Lincoln customers at least eight executed, but partially blank, signature pages from annuity change of broker forms . . .
Also with WG's knowledge, Respondent copied the signature pages and created at least 18 new change of broker forms by filling in numerous annuity contract numbers on the blank portions of the pages containing the photocopied signatures . . .
In accordance with the terms of the AWC, FINRA imposed upon Matthew Garbarino a $5,000 fine and a a four-month suspension from association with any FINRA member in any capacity.
One frustrating aspect of FINRA's regulatory action against William Garbarino is the absence of any explanation as to how the regulatory was alerted to his allegedly false arbitration testimony. There is no referral to the self-regulator noted by the FINRA arbitrators in their FINRA Arbitration Decision. About the only clue we have to the source of FINRA's tip may be in the AWC's assertion that on April 20, 2017, Lincoln filed a Form U5 in which it alleged that Garbarino had "provided false testimony under oath." Of course, that disclosure only raises another question as to how Lincoln learned in April 2017 that William Garbarino has falsely testified during a 2014 hearing involving his 2009 filing of claims in a FINRA Arbitration.