December 29, 2017
A sole FINRA Arbitrator tackles a thorny arbitration in which a registered person seeks the expungement of not one but three customer complaints. The resulting FINRA Arbitration Decision ends the year on a high note as it is well written, concise, and persuasive.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in November 2017, Claimant Sabota sought an expungement from his Central Registration Depository record ("CRD") of three customer complaints involving the:
- transfer of an account between brokerage firms,
- selection of sub-accounts in a variable annuity, and
- selling away involving an employee under Claimant's management.
Claimant Sabota argued that the disclosures on in his industry record served no regulatory purpose In the Matter of the FINRA Arbitration Between Michael A. Sabota, Claimant, vs. UBS Financial Services Inc., Respondent (FINRA Arbitration 17-02976, December 26, 2017).
Respondent UBS consented to Claimant's request for expungement, did not contest the request, and did not participate in the expungement hearing.
Of the three complaining customers, Claimant notified two of the expungement hearing and submitted to the sole FINRA Arbitrator the obituary of the third. One of the two surviving customers submitted an email statement in support of the expungement; the other surviving customer did not contest the requested relief and did not appear at the hearing. As to the three customer complaints, the FINRA Arbitrator determined that only one had prompted a settlement, and that Claimant had not financially contributed.
In recommending expungement of the three complaints from Claimant Sabota's CRD, the FINRA Arbitrator found the claims to have been factually impossible or clearly erroneous, and he offered, in part, the following rationale for each:
Bill Singer's Comment
This occurrence was reported because of a back room snafu at either Respondent or Merrill Lynch, Pierce, Fenner and Smith Inc. ("MLPFS") when the customer decided to switch his account from MLPFS to Respondent. He wanted to sell all investments at MLPFS before shifting the account to Respondent. The forms to accomplish this were prepared properly and submitted to the Respondent's back office, who submitted them to MLPFS' back office. MLPFS transferred the account to Respondent without selling anything. The market declined during the transfer period, so the error caused the customer to incur a loss. Respondent immediately reimbursed the customer the full amount of the loss to make him whole. The customer is still a customer of Respondent and Claimant and, in fact, wrote a letter to Claimant's attorney in support of expunging this occurrence from Claimant's record. Claimant was not asked to contribute any of the reimbursement to the customer.
. . .
This occurrence happened ten years after the customers began investing in annuities with UBS and Claimant. The customers, on their own, begin taking on more risk in their annuity investments, because the market was running hot. They bypassed Claimant in doing so and lost money. They complained to Respondent, about a year after they left the firm, that their investments were "unsuitable" and they wanted Respondent to pay them for their losses. Respondent investigated the charges and denied the customers' complaint. The customers did not pursue the complaint further, which they could have done via arbitration.
. . .
The customer filed an arbitration claim in July 2001, against UBS and Claimant, charging failure to supervise a financial advisor ("FA"). The FA was required to disclose any outside businesses he was involved with, and failed to do so, after a number of years with Respondent. He encouraged the customer to invest in a business that the FA and his brother owned, which the customer did. This was in clear violation of NASD, FINRA and Respondent's rules on several levels. As soon as Claimant became aware of this breech, he immediately terminated the FA. Claimant could not be expected to know about the FA's outside business, since the FA had never disclosed it, at any of the appropriate times to do so. The related arbitration case settled for approximately 21% of the amount claimed. Claimant was not asked to contribute to this settlement.
Compliments to this FINRA Arbitrator for an excellent Decision replete with sufficient content and context. In the first instance, the Arbitrator concluded that the cause of the customer's complaint was not any misconduct by Claimant Sabota but "a back room snafu." UBS fully reimbursed the customer, Claimant Sabota did not contribute to the settlement, the customer remains with both the brokerage firm and Claimant, and the customer actively supported the requested expungement. All of which goes to show you that a brokerage firm's acknowledgment of an error coupled with prompt restitution can do wonders to retain customers.
As to the second customer complaint, the FINRA Arbitrator attributed the customers' unhappiness to their own decision to take on risk during a "hot" market, which the apparently did without substantive input from Sabota. The third complaint, which resulted in a financial settlement, referenced Sabota's purported failure to supervise another financial advisor in connection with an alleged outside business investment. The Arbitrator noted that:
As soon as Claimant became aware of this breech, he immediately terminated the FA. Claimant could not be expected to know about the FA's outside business, since the FA had never disclosed it, at any of the appropriate times to do so.
FINRA Rule 2080: Obtaining Customer Dispute Expungement
FINRA Rule 2081: Prohibited Conditions Relating to Expungement of Customer Dispute
FINRA Rules 12805 and 13805: Expunging Customer-Dispute Information Under Rule 2080
READ the BrokeAndBroker.com Blog Expungement Archive