You got yer oops. You got your oops, I did it again. In a recent FINRA public customer arbitration, however, we have at least three oops, which, the way I see it, is at least an oops, I did it again, again. Sort of like deja vu all over again, again. On the receiving ends of all this oopsiness are two registered representatives, who, in response to what they must have viewed as a garbage case against them, sought to have their good names expunged. In the end, it looks like it all works out but not without some cost and aggravation.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2018, Claimant Edwin B. and Ellen L. Smith Irrevocable Trust asserted suitability, breach of fiduciary duty, and negligence in connection with allegations that Respondents had recommended intermediate-term municipal bonds, which were not in Claimant's best interest, in order to generate additional fees. In the Matter of the FINRA Arbitration Between Edwin B. and Ellen L. Smith Irrevocable Trust, Claimant, vs. Fidelity Brokerage Services LLC, Krishna Rani Jeffries, and James Eugene Wheaton, Respondents (FINRA Arbitration 18-00522/ August 30, 2018).
Respondent generally denied the allegations made in the Statement of Claim, asserted various affirmative defenses, and requested the expungement of the matter from Respondent Jeffries and Respondent Wheaton's Central Registration Depository records ("CRD"). After the sole FINRA Arbitrator submitted his ruling on the merits, the Claimant Trust participated at the subsequent expungement hearing and contested the sought relief.
The sole FINRA Arbitrator denied the Claimant Trust's claims.
The Arbitrator recommended the expungement of references to the customer arbitration from Jeffries' and Wheaton's CRDs after making FINRA Rule 2080 findings that the claim, allegation, or information is factually impossible or clearly erroneous; and that neither Jeffries nor Wheaton was involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. In recommending the twin expungements, the Arbitrator offered the following rationale:
Claimant had a self-directed account with Fidelity. The account was mostly CDs,
and the trustee for Claimant (the "Trustee") was not satisfied with the return on
the CDs. He met with Jeffries to discuss options to improve the return on the
investments. An Investor Profile was created to help find an appropriate
investment for Claimant. The Trustee was given a hard copy of the Investor
Over several meetings various options were discussed. Finally, the Breckenridge
Strategy was recommended and a proposal prepared in June 2016, was given to
the Trustee. The proposal showed the investments to be an intermediate term
investment portfolio. Jeffries and the Trustee discussed fees and liquidity. Three
months later, in September 2016, the Trustee completed the application for the
Breckenridge Strategy and approved opening a second fund account.
Claimant's recollection of the circumstances is clearly erroneous. Jeffries request
for expungement is granted.
The recommendation at issue in the Statement of Claim was made in June 2016,
and the purchase was made in September 2016. Claimant called Fidelity in
November 2016, with questions regarding the trust account. The call was
referred to Wheaton in the Dallas office. This was his first contact with Claimant.
During his cross examination at the hearing, the Trustee realized that Wheaton
was not who he thought, and requested that Wheaton be removed as a named
party in this claim.
He was not involved in the alleged investment related sales practice violation.
Wheaton's request for expungement is granted.
Bill Singer's Comment
Compliments to the sole FINRA Arbitrator for a short and very sweet rendition of the underlying facts and a to-the-point rationale. Nicely done!
In a nutshell, why did the Arbitrator grant the dual expungements? As he succinctly stated in Jefrries' case, Claimant's recollection of the circumstances is clearly erroneous." In Wheaton's case, he "was not involved in the alleged investment related sales practice violation" -- and for an added fillip, it turned out that the trustee "realized that Wheaton was not who he though, and request that Wheaton be removed as a named party . . ."
Frankly, that's too much "Oops" for my taste. A Claimant's erroneous memory of key events, a stockbroker who wasn't even involved in the acts at issue, and, oh my, you're not who I thought you were. Sure, it's a bit funny when you put it like that . . . except, you know, it wasn't a laughing matter for Jeffries or Wheaton, who had otherwise clean industry records after a decade or so in the biz. If you or I were named in such a case, we would likely be muttering "why the hell was I named?" If we were told it would cost us $5,000 or $10,000 or more in costs and legal fees to clear our names when, in fact, they should never have been besmirched, we would be going berserk. If we were told that we would go through an ordeal of six months or more just to set the record straight, we would be raging against the unfairness of Wall Street and FINRA's expungement process.
Let's consider some of the costs involved when someone files a case based upon a memory lapse and mistaken identity.
FINRA charged Claimant a $425 filing fee.
FINRA charged Fidelity a $450 Member Surcharge
The Arbitrator assessed hearing fees as follows:
Jeffries and Wheaton: $450 (expungement fees)
Of the $1,625 in various fees and charges collected and assessed for this arbitration, $1,200 of that amount came out of the pockets of Fidelity, Jeffries, and Wheaton. I'm sort of wondering why. I mean, given that the Claimant's case was dismissed and given the damning findings by the arbitrator, why wasn't the $1,200 shifted onto Claimant's shoulders? And before you're too quick to answer, keep in mind that whatever legal fees were incurred by the three respondents in defending against the customer's charges and whatever legal fees and costs will yet be incurred in obtaining a court confirmation of the arbitration "recommendation" of expungement, those too are coming solely from the pockets of parties who seem to have been exonerated, even if only in part.