January 5, 2018
There's a lot of anti-consumer misconduct on Wall Street that's tolerated and even promoted as a way to get around rules and to make a quicker buck. All of which prompts losses in customers' accounts, which then creates angry customers, who file complaints. No . . . I ain't gonna pretend that many, if not most, customer complaints aren't justified. On the other hand, there are many instances when a stockbroker is victimized by unwarranted customer complaints. Unfortunately, Wall Street has constructed an unfair system by which men and women who seek to clear their names are forced to pony up a sizable bankroll just to get the process going and then have to invest further time and money to see it to fruition.
In today's BrokeAndBroker.com Blog we focus on a stockbroker who did nothing wrong, should have his industry record expunged of what is independently determined to be a false customer complaint, but is daunted by the price-tag and the delays inherent in that endeavor. Equally troubling, we consider how the Financial Industry Regulatory Authority seems to have developed a lucrative business predicated upon the misfortunes of its associated persons.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 2017, Raymond James Financial Services, Inc. Claimant Adams asserted inaccurate reporting on his Central Registration Depository record ("CRD") in connection with a customer complaint concerning an annuity purchase. In the Matter of the FINRA Arbitration Between David Wayne Adams, Claimant, vs. Raymond James Financial Services, Inc., Respondent (FINRA Arbitration 17-01391, December 26, 2017).
Respondent Raymond James did not oppose Claimant's request for expungement and did not participate further in the case. The FINRA Arbitration Decision asserts that the customer had been provided with a copy of Claimant's Statement of Claim seeking expungement and notice of the hearing date but that the customer did not participate in the hearing or contest the sought relief.
The FINRA Arbitration Panel noted that the customer never filed a formal Statement of Claim in pursuit of his complaint, which was denied by Raymond James, and that no settlement of any claims occurred.
The FINRA Arbitration Panel made a Rule 2080 finding that the customer's claim was false based upon the following:
Bill Singer's Comment
The record reflects that the customer filed the same complaint against the associated person Claimant on three separate occasions. The first complaint was filed in 2008 during the height of the financial crisis, with Respondent and another broker dealer. The allegations were (1) that the variable-rate annuity in which the customer had invested (on the advice of Claimant) was unsuitable, and (2) that Claimant had misinformed the customer about the nature of the rider to the annuity the customer purchased. This complaint was investigated by both Respondent and the other broker dealer and was found to be without merit and denied.
The same complaint was again filed in 2012 with Respondent. The complaint was investigated and was again found to be without merit. The customer then filed the same complaint with the Tennessee Department of Commerce in October 2012, who investigated the complaint and found it to be without merit. To date, the customer has taken no further action on this matter.
The evidence indicates that the customer decided on his own and without consulting with Claimant to make an unwise withdrawal from the annuity that adversely affected the growth guarantee on his funds.
The Panel notes that the customer never filed a civil action or arbitration complaint on these claims. The Panel finds that the totality of the evidence supports the conclusion that these claims were false, unsupported and without merit and that the CRD of Claimant should be expunged.
A nicely drafted FINRA Arbitration Decision that presents a compelling rationale for the expungement recommendation. That being said, let me share with you a somewhat distressing aspect of this case, which in no way is meant to reflect negatively on the FINRA arbitrators who merely discharged their duty as required by FINRA's rules.The facts in this expungement case involve a registered person seeking to have his industry record cleared of what three independent arbitrators found to be claims that were "false, unsupported and without merit." Those claims were filed three separate times by the customer. The first filing in 2008 was investigated by Claimant Adams' current and also former employing broker-dealers and both denied the customer's claims as meritless. Undaunted, some four years later, the customer filed the same claims only with Raymond James, which again found them to be meritless. The persistent customer then filed the same complaint with the Tennessee Department of Commerce, which also found the claims to be meritless. Having struck out three times with the same complaint, the customer opted to lick his wounds and declined to file any formal lawsuit.
My intent and my desire here is NOT to belittle or make light of the public customer's sincere beliefs about the variable annuity that he purchased. At times, the BrokeAndBroker.com Blog has written disapprovingly about variable annuities' abuses and pubic customers are directed to FINRA's "Variable Annuity" webpage for an excellent library of resources on this product.
Even giving the public customer the best of any doubt, it is incontrovertible that the three arbitrators concluded the "the customer decided on his own and without consulting with Claimant to make an unwise withdrawal from the annuity that adversely affected the growth guarantee on his funds." In simpler terms, the customer was the cause of his own unhappiness and not Claimant Adams. As such, Claimant Adams comes off as a victim rather than a perpetrator.
How then does this stockbroker victim fare when merely seeking justice to clear his name? Yes, to some extent today's featured FINRA Arbitration Decision is an exoneration but at what cost? In addition to any attorneys' fee paid by Adams, let's take note that it cost $1,575 to file the initial claim. Then ther is the $1,900 Member Surcharge and the $3,750 Member Process Fee apparently assessed against FINRA member firm Raymond James. You add those three numbers together and FINRA makes a tidy sum of $7,225 merely to open the doors of its arbitration forum to a victimized registered rep seeking justice. And we're not done ringin' up the old self-regulatory cash register. FINRA also charged $1,125 for each hearing session conducted to consider Adams' request for an expungement recommendation -- and keep in mind that the arbitrators cannot issue a self-executing expungement but only a recommendation that may likely require further costs in order to present the recommendation to a state court, which will then issue an Order. After conducting two hearing sessions, the FINRA arbitrators imposed the full $2,250 in hearing session costs upon Claimant Adams. Bringing us to the grand total of $9,725 to win a dubious "recommendation" to clear your name when you are not at fault.
For those of you unfamiliar with the two-phase expungement process, please consider this language from the FINRA Arbitration Decision:
1. The Panel recommends the expungement of all references to Occurrence Number
1438633 from registration records maintained by the CRD for Claimant Adams
(CRD# 4767570), with the understanding that, pursuant to Notice to Members 04-16, Claimant Adams must obtain confirmation from a court of competent jurisdiction
before the CRD will execute the expungement directive.
Unless specifically waived in writing by FINRA, parties seeking judicial confirmation
of an arbitration award containing expungement relief must name FINRA as an
additional party and serve FINRA with all appropriate documents.
I don't know about you but I find it disgraceful that it costs nearly $10,000 for a victimized stockbroker to purchase a mere recommendation of exoneration from a FINRA Arbitration Panel. It's all the more outrageous when you consider that victims such as Adams will have to spend even more bucks in order to present that arbitration recommendation to a court and, thereafter, to procure an Order. I don't care how much of the cost for obtaining an expungement comes out of the pockets of a FINRA member firm versus a victimized stockbroker. The issue isn't who best to charge for justice . . . or perhaps I should say "injustice." Why is FINRA even setting up a toll-booth on this road? If an associated person seeks an expungement and loses, fine, go ahead, charge him or her $10,000. The larger question is why is the existence of an injustice an opportunity for FINRA to make money?
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