Umm . . . someone . . . anyone . . . puhlease . . . I'm not askin' for much . . . not a whole lot . . . but, you know, like tell me just what the hell this FINRA public customer arbitration is about? I'm not blaming the parties but I'm sorta wonderin' if FINRA couldn't have, you know, read through a draft of the proposed FINRA Arbitration Decision and, well, okay, like maybe asked for a tad more content and context as in, well, like, how should I put it, like, just what the hell is it that the Claimants alleged had happened at Morgan Stanley Smith Barney concerning, lemme see, oh yeah, concerning their "purchase of call options in Apple, Inc. stock." Maybe it's all that expensive law school training that I paid for or maybe it's that I'm a demanding pain in the ass who's never satisfied but, whatever, is it asking all that much to simply get the facts? Who purchased the Apple calls and why did the customers complain about the purchase and how did that purchase result in something shy of $3 million in losses? How's that Johnny Nash song go?
I can't see clearly now, the rain is here,
I can't see all the obstacles in my way
Here are the dark clouds that have me blind
It's gonna be a dark (dark), dark (dark)
FINRA Arbitration day.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2016, public customers Claimants Jones and Ratliff asserted the following causes of action as set forth in the FINRA Arbitration Decision:
failure to supervise; breach of fiduciary duty and respondeat superior; unsuitability; breach of implied contract or related duty; violations of Alabama Securities Act; violations of securities regulatory rules; and common law claims for Morgan Stanley's alleged negligent hiring, training, supervision and monitoring of Searcy. The causes of action relate to Claimants' purchase of call options in Apple, Inc. stock.
In the Matter of the FINRA Arbitration Between William Jones and Elizabeth W. Ratliff, Claimants, vs. Morgan Stanley Smith Barney LLC and David Ross Searcy, Respondents (FINRA Arbitration 16-03580, January 8, 2017).
Initially, as set forth in the FINRA Arbitration Decision, Claimants sought:
1. All losses in the investments at issue;
2. Lost earnings that the funds would have earned if Claimants' money had been properly invested;
3. Punitive damages;
4. Pre-judgment interest;
5. All costs of these proceedings, including forum fees, hearing session fees and costs in bringing this action; and
6. Reasonable attorneys' fees under Alabama statutory law and common law as well as under the NASD Rules of Fair Practice.
At the close of the hearing, the Claimants specified that they were seeking $929,188 in compensatory damages. An interesting aside from the FINRA Arbitrators is this comment in the FINRA Arbitration Decision:
However, the Panel noted that in the Statement of Claim, Claimants alleged Jones lost approximately $2.7 million and Ratliff lost an additional $200,000.00.
Respondents Morgan Stanley Smith Barney and Searcy generally denied the allegations, asserted various additional defenses, and requested the expungement of the matter from Searcy's Central Registration Depository record.
In May 2017, the arbitrators apparently granted Claimants' unopposed Motion to Dismiss and Withdraw With Prejudice Claimant Ratliff's Claims. As such, the arbitration proceeded solely with Claimant Jones' claims.
Motion to Dismiss
At the conclusion of Jones' case-in-chief, Respondents orally moved to dismiss Jones' claims, to which he agreed but only as to breach of contract and negligent hiring. The FINRA Arbitration Panel granted the unopposed motion but denied the dismissal of the opposed claims based upon a finding that Claimant Jones had made out a prima facie case for those.
The FINRA Arbitration Panel denied the request for the expungement of Respondent Searcy's CRD. The Panel found Respondents jointly and severally liable for and ordered them to pay to Claimant Jones:
SIDE BAR: Alabama Code § 6-11-20:
(a) Punitive damages may not be awarded in any civil action, except civil actions for wrongful death pursuant to Sections 6-5-391 and 6-5-410, other than in a tort action where it is proven by clear and convincing evidence that the defendant consciously or deliberately engaged in oppression, fraud, wantonness, or malice with regard to the plaintiff. Nothing contained in this article is to be construed as creating any claim for punitive damages which is not now present under the law of the State of Alabama.
(b)As used in this article, the following definitions shall apply:
(1) Fraud. An intentional misrepresentation, deceit, or concealment of a material fact the concealing party had a duty to disclose, which was gross, oppressive, or malicious and committed with the intention on the part of the defendant of thereby depriving a person or entity of property or legal rights or otherwise causing injury.
(2) Malice. The intentional doing of a wrongful act without just cause or excuse, either:
a. With an intent to injure the person or property of another person or entity, or
b. Under such circumstances that the law will imply an evil intent.
(3) Wantonness. Conduct which is carried on with a reckless or conscious disregard of the rights or safety of others.
(4) Clear and convincing evidence. Evidence that, when weighed against evidence in opposition, will produce in the mind of the trier of fact a firm conviction as to each essential element of the claim and a high probability as to the correctness of the conclusion. Proof by clear and convincing evidence requires a level of proof greater than a preponderance of the evidence or the substantial weight of the evidence, but less than beyond a reasonable doubt.
(5) Oppression. Subjecting a person to cruel and unjust hardship in conscious disregard of that person's rights.
Bill Singer's Comment
Like I said, you tell me who did what and what was wrong about it and how come the remaining Claimant not only was awarded about $31,000 in compensatory damages but also another $48,000 in punitive damages. Once you've figured that out, howsabout you explain to me why the arbitrators awarded only $31,000 of the $929,000 in requested compensatory damages? No . . . I'm not suggesting that the arbitrators got it wrong. Yes . . . I'm stating that no one has explained any of the substantive issues that constitute the facts of this case or the rationale for its Award. Other than that, what's to complain about?
Consider that the arbitrators rendered an award of $48,401.00 in punitive damages pursuant to Alabama Code § 6-11-20. Consider that the cited section of the Code provides for an award of punitive damages pursuant to "clear and convincing evidence that defendant consciously or deliberately engaged in oppression, fraud, wantonness, or malice with regard to the plaintiff." So . . . okay . . . I'll bite: Just what the hell was the "clear and convincing evidence" that prompted the arbitrators to find that Morgan Stanley Smith Barney and/or Searcy had engaged in oppression, fraud, wantonness, or malice with regard to the plaintiff?
As set forth in FINRA's online BrokerCheck records under the heading "Customer Dispute - Pending" as of January 10, 2018, some "Broker" which is indicated only by the very cute and I would opine wholly inappropriate initials of "MS" alleged that:
Claimants allege, inter alia, that beginning in 2013 the FA engaged in an unbalanced and high risk portfolio which was unsuitable for the clients' investment needs.
That disclosure references FINRA Arbitration 16-03580, which is In the Matter of the FINRA Arbitration Between William Jones and Elizabeth W. Ratliff, Claimants, vs. Morgan Stanley Smith Barney LLC and David Ross Searcy, Respondents (FINRA Arbitration 16-03580, January 8, 2017). Not that I have a tendency to be snarky but, gee, how the hell does FINRA accept a formal disclosure filed merely under the identifying broker-dealer name of "MS"?
Settled Customer Disputes
By way of filling in some blanks and adding a dab of color to the otherwise drab FINRA Arbitration Decision, Searcy's BrokerCheck record discloses under the heading "Customer Dispute - Settled," two items:
The first item references a complaint received in 2012 that was settled by Searcy's former employer Merrill Lynch for $600,000 in 2014. Merrill Lynch characterized the customer allegations as:
THE CUSTOMER ALLEGES MISREPRESENTATION, OMISSIONS OF MATERIAL FACTS AND SELLING AWAY FROM THE FIRM.
In submitting its statement about the settlement, Merrill Lynch stated that:
THE MATTER WAS SETTLED AS A BUSINESS DECISION IN ORDER TO AVOID THE COSTS AND UNCERTAINTIES ASSOCIATED WITH ARBITRATION. MR. SEARCY DENIES ANY WRONGDOING WHATSOEVER, AND HE WAS NOT ASKED TO CONTRIBUTE TO THE SETTLEMENT.
The second item references a complaint seeking $14,000 in damages and received in 1996 that was settled by Searcy's former employer AMSOUTH Investment Services, Inc. for $14,731.72. AMSOUTH characterized the customer allegations as:
CUSTOMER INVESTED A SUBSTANTIAL AMOUNT IN THE PILGRIM U.S. ADJUSTABLE GOVERNMENT TRUST ON NOVEMBER 19, 1992. THE FUND HAS SINCE EXPERIENCED A SIGNIFICANT DECLINE IN NAVE AND THE CUSTOMER DOES NOT BELIEVE SHE WAS KEPT ADEQUATELY INFORMED OF THE FUNDS PERFORMANCE. THE FUND WAS LIQUIDATED ON APRIL 25, 1996.
The BrokerCheck disclosure states that Searcy did not contribute to the settlement, which included a $211.72 reimbursement to the customer of the contingent deferred sales charge.
Denied Customer Dispute
Under the BrokerCheck heading "Customer Dispute - Closed-No Action /Withdrawn / Dismissed / Denied" is one disclosure from Merrill Lynch concerning a 2001 customer complaint denied by the brokerage firm as without merit. The firm characterized the allegations as:
CLIENT ALLEGES THAT SHE DID NOT UNDERSTAND THE ANNUITY AND WISHES TO SURRENDER WITHOUT PENALTY. NO SPECIFIC DAMAGES ALLEGED.
Finally, Searcy's BrokerCheck disclosures indicate under the heading "Employment Separation After Alllegations" that on February 1, 2013, he voluntarily resigned from Merrill Lynch. The disclosure for his resignation contains allegations that:
INTERNAL REVIEW TO INVESTIGATE ALLEGATIONS THAT THE FINANCIAL ADVISOR WAS SOLICITING A CLIENT TO PURCHASE CERTAIN CDOS AND TO PARTICIPATE IN A REAL ESTATE INVESTMENT OUTSIDE THE FIRM.
For the curious among you, BrokerCheck discloses that "MS" (better known as Morgan Stanley) hired Searcy on February 1, 2013.