Usually, a FINRA Arbitration involves a public customer's allegation about a stockbroker's failure to do something -- as in failing to enter my order, or failing to recommend a suitable investment, or failing to get my authorization to buy or sell. In today's BrokeAndBroker.com Blog, we have a customer alleging that her stockbroker forced her to enter a Stop Loss order, which is typically utilized to protect against loss. As such, the lawsuit is not about a failure to do something but about something that got done. Now, don't get me wrong, there could be circumstances where a stockbroker over-reaches and effectively takes control of a customer's account. It happens. In such circumstances, you might argue that a stockbroker "forced" a transaction onto a defenseless customer. There's precedent for that. On the other hand, if a customer hasn't surrendered control of her account and she is aware that a Stop Loss order is active, then that customer can (should) cancel the order before the stop is activated and a sale occurs. What you can't do, however, is have it both ways. You can't keep the downside protection in place and then complain about it if your shares are sold. You know what . . . let me rephrase that, you can always complain about anything, and all the more so if you want to hire and lawyer and pay that advocate by the hour. Consider today's public customer arbitration.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2017 and amended thereafter, public customer Claimant Radzinowicz asserted, in part, breach of fiduciary duty; unsuitability; negligence; unauthorized trades; and misrepresentations. Claimant Radzinowicz alleged that Respondent Crane had "pressured her into placing a stop loss order on her Johnson & Johnson stock, which resulted in a forced sale when the value of the stock decreased." Claimant sought rescission, interest, attorneys' fees and costs; or in the alternative, a monetary award representing the difference between the price of 6,788 shares of Johnson & Johnson stock at the time the award is entered and the price of the 6,788 shares of Johnson & Johnson stock that were sold in August of 2015, plus indemnification for any ensuing tax liability. In the Matter of the FINRA Arbitration Between Susan M. Radzinowicz, Claimant, vs. Morgan Stanley Smith Barney LLC and Stephen F. Crane, Respondents (FINRA Arbitration 17-02556, October 3, 2018).
Respondent Morgan Stanley Smith Barney and Respondent Crane generally denied that allegations, asserted affirmative defense, and sought the expungement of the matter from Crane's Central Registration Depository record ("CRD").
Claimant participated in the expungement hearing and contested Crane's request for expungement.
Respondents moved for the disqualification of Claimant Radzinowicz's counsel, but the FINRA Arbitration Panel denied the Motion to Disqualify.
Claimant filed a Motion for an Order to Allow Testimony Regarding a Previous Settlement
of an Arbitration Between Claimant and [non-parties], which Respondents contested but the Panel granted.
The FINRA Arbitration Panel denied Claimant's claims.
In recommending expungement of Crane's CRD, the Panel made a FINRA Rule 2080 finding that the customer's claim, allegation, or information is factually impossible or clearly erroneous.The Panel offered the following rationale:
The Panel does not find credible Claimant's assertion that Crane promised to monitor the stock market and predict whether Claimant should rescind her stop-loss order. The Panel does not find credible Claimant's assertion that Crane initiated the original stop-loss order or any subsequent adjustments.
Respondent Morgan Stanley: $2,475 Member Surcharge; $5,075 Member Process Fee; $100 Discovery Motion Fee; and $3,475 Hearing Session Fees
Bill Singer's Comment
Online FINRA BrokerCheck records as of October 10, 2018, disclose that Respondent Crane was first registered in 1982 and the above-referenced "Customer Dispute" is the only disclosure on his industry record.
Interesting case if you think it about -- a customer complained that her stockbroker forced her to protect herself against further downside losses by twisting her arm into entering a Stop-Loss order. I did some research and came up with the following data for monthly closing prices in 2015:
September 1:$ 93.35
August 1:$ 93.98
June 1:$ 97.46
Assuming that the Stop Loss kicked in sometime in August 2015, it seems that the stock traded somewhere between $93.98 and $93.35 -- and by the end of September, the shares closed at $101.03. Frankly, I'm somewhat at a loss to explain why the FINRA Arbitration Decision omitted some -- any -- parameters as to the price at which the Stop Loss kicked in for the 6,788 shares at issue; and at what price (if any) Claimant may have repurchased the position in an attempt to mitigate damages. As of October 2018, the shares are trading around $139. Just doing some rough math, let's say that Claimant was seeking 6,788 shares times about $45 ($139 (price about the time of the entry of the Award) - $94 (price about September 1, 2015) or $305,460. Not sure why the Decision didn't present us with some dimension of the dollars at stake in this dispute.
Another quibble that I have with the FINRA Arbitration Decision it is that I don't appreciate being informed that a motion was made to disqualify counsel but absolutely no explanation is provided as to the basis for that motion.
Finally, FINRA has certainly found the sweet spot in terms of creating a profit center with its arbitration business. If you add up the arbitration charges and fees, FINRA collected $16,425. Nice chunk of change. And for what? To adjudicate a case in which a stockbroker was wrongly accused of forcing a Stop Loss order onto a customer. Oh, and don't forget that there are also attorneys' fees that were paid by the parties. Oh, also don't forget that Respondent Crane still has to incur the additional costs of getting the FINRA Arbitration Panel's mere "recommendation" confirmed by a court. Maybe someone should come up with a Stop Loss order to protect against lawsuits?