July 25, 2018
Today, we got a FINRA arbitration panel awarding public customers nearly $8.5 million in damages, costs, and fees. Including punitive damages. Including discovery abuse sanctions. And the Respondent is Wells Fargo Advisors. BrokeAndBroker.com Blog publisher Bill Singer wonders if the industry self-regulatory-organization, the Financial Industry Regulatory Authority, will take any regulatory action against its large member firm. Then again, Bill is a fellow with such an active imagination.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in April 2016, public customers Claimants asserted in connection with their purchases of Puerto Rico municipal bonds breaches of contract, the implied covenant of good faith and fair dealing, fiduciary duty of loyalty, and of fiduciary duty of care; recommendation of unsuitable securities and investment strategies; professional negligence; unauthorized trading and per se unsuitability; negligent misrepresentations and omissions; manipulative and deceptive practices; constructive fraud; negligent supervision; rescission of investment advisory contracts; and restitution. Claimants sought at least $7.5 million compensatory damages; lost income calculated pursuant to the "well-managed portfolio" standard; at least $525,000 in restitution of fees, commissions, and other compensation; disgorgement; interest, exemplary and punitive damages, attorneys' fees, and the referral of the FINRA Arbitration Panel's findings to FINRA's Department of Enforcement. In the Matter of the FINRA Arbitration Between Sammy Kaye Duncan, Sylvia Duncan, and The Sammy and Sylvia Duncan Revocable Trust, Claimants, vs. RBC Capital Markets LLC, Marc Francis Rogers, and Wells Fargo Advisors, LLC, Respondents (FINRA Arbitration 16-01066, July 19, 2018)
Respondents generally denied the allegations and asserted various affirmative defenses.
Motion to Dismiss
On September 7, 2016, Respondent RBC Capital Markets LLC filed a Motion to Dismiss, which Claimants opposed. On October 26, 2016, RBC filed a Notice of Withdrawal of its Motion to Dismiss.
Motion for Discovery Sanctions
On July 21, 2017, Claimants filed a Motion for Discovery Sanctions against Respondents Wells Fargo Adviosrs LLC and Marc Rogers, which was opposed. By order dated August 9, 2017 the Panel advised the parties that the motion had been taken under advisement and would be ruled on, following the close of the evidentiary hearing.
On May 3, 2018, Claimants notified FINRA that they had dismissed Respondent RBC as a party pursuant to a settlement with the firm.
On May 8, 2018, during the evidentiary hearing, the Panel granted Claimants' request for monetary sanctions, and following the presentation of costs and expenses, by order dated June 9, 2018, the Panel ordered Respondents Wells Fargo Advisors and Rogers to pay Claimants $101,670.21 in sanctions.
On May 13, 2018, the Panel issued a preliminary decision and ordered in pertinent part as follows:
After deliberations, the [P]anel ruled for the Claimants. Accordingly, Claimants shall file their support for the expenses and attorney fees requested in their motion for sanctions for Respondents failure to comply with the [P]anel's order to produce in a timely manner. They shall also file their authority for their request for costs and attorney fees in their claim, as well as their support for the costs and attorney fees claimed. The attorney fees failing to comply with the production order shall not be in [sic] included in their prevailing party attorney fees. Their cost bill shall be a standard cost bill. And their attorney fee affidavit shall be similar to their normal billings to clients. It shall show the day, the legal activity performed, the attorney and/or para-legal, the rate, the number of hours, and the charge.
The FINRA Arbitration Panel found Respondents Wells Fargo Advisors and Roger jointly and severally liable and ordered them to pay to Claimants:
- $4,179,116.00 in compensatory damages;
- $831,583.48 in pre-judgment interest;
- $2,693,025.41 in attorneys' fees;
- $500,000.00 in punitive damages;
- $165,718.50 in the remission of Advisory Fees
- 9% per annum interest on the above sums from the date of the Award until paid in full;
- $101,670.21 in monetary sanctions as set forth in the Order;
- $500.00 filing fee reimbursement; and
- $250.00 filing fee.reimbursement.
The Panel denied Respondent Rogers' request for expungement of his CRD records.
The Panel assessed Wells Fargo Advisors a $3,600.00 is Member Surcharge and a $6,800 Member Process Fee.
The Panel assessed RBC a $3,600.00 is Member Surcharge and a $6,800 Member Process Fee.
The Panel assessed jointly and severally to Wells Fargo Advisors and Rogers:
- $800.00 of the discovery-related motion fees; and
- $250.00 of the contested motion for issuance of subpoenas fees
The Panel assessed the following hearing session fees:
- $1,500.00 jointly and severally to Claimants;
- $30,000.00 jointly and severally to WFA and Rogers; and
- $7,500.00 to RBC.
Bill Singer's Comment
That's one helluva payday for Claimants and their lawyers! FINRA also raked in some nice coin in terms of its various arbitration charges and fees. Sometimes you just got to wonder why a given case didn't settle -- and given that Claimants raked in about $8.5 million in various damages, costs, and fees, I would love to know why this dispute didn't get quietly settled. At times the answer is that Claimants offered no settlement premium. At times the answer is that a Respondent truly felt that they would prevail at the hearings or significantly reduce the damages sought. Regardless of the behind-the-scenes negotiations (if any), this is a fairly dramatic win for any public customer.
Finally, let's see . . . hmmmm . . . three independent FINRA arbitrators awarded a whopping $500,000 in punitive damages. Those same independent arbitrators awarded over $100,000 in sanctions for discovery abuse. Now if we were dealing with a pennystock firm or even one of FINRA's smaller member firms, I suspect that the self-regulatory-organization might have a look-see at the underlying conduct at issue and, who knows, maybe initiate a regulatory case. On the other hand, Wells Fargo Advisors ain't no pennystock boiler-room and maybe it gets a free pass from the industry's self-regulator. Not sayin' it does. Just sayin'. After all, it's not as if Wells Fargo has had any recent regulatory problems or is still dealing with allegations about unfair consumer practices. Course not. Wells Fargo is a paragon of virtue on Wall Street. On the other hand, consumer advocates and smaller industry competitors might just want to contact FINRA and inquire as to how that zealous advocate for high standards of commercial honor and just and equitable principles of trade views the underlying facts and its large member firm's conduct during the customer arbitration.