In today's featured FINRA arbitration, we got a widow. We got her deceased husband's two stockbroker brothers. We got about five brokerage accounts that have to be dealt with after the husband's death. We seem to have some bad feelings between at least one brother-in-law and the widow. All of which sets the stage for a delay in transferring some accounts. One question is whether said delay caused losses. The other question is whether the delay was more than an inconvenience and, perhaps, crossed over the line into a regulatory violation or worse.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2018, public customer Claimant Marsha M. Neuenschwander representing herself pro se asserted negligence; unprofessional conduct, and misrepresentations in connection with her allegations that respondents had concealed accounts and had delayed the transfer of said accounts to her after her husband's death. Ultimately, Claimant sought $643,000 in compensatory damages consisting of $58,500 for the delayed transfers and $585,000 for the alleged hidden, missing estate assets. In the Matter of the FINRA Arbitration Between Marsha M. Neuenschwander, Claimant, vs. Elsa Cazares, James Allen Neuenschwander, and Michael Allen Neuenschwander, Respondents (FINRA Arbitration 18-00376, October 16, 2018)
Respondents generally denied the allegations and asserted various affirmative defenses.
Not a Bromance
In today's featured dispute we have a pro se Claimant widow suing her brothers-in-law stockbrokers. At best, we start off with an uncomfortable Act I; at worst, we're headed for a very nasty and heated FINRA arbitration. Whenever families fall upon each other, things have a tendency to get nasty.
Moving along. the FINRA Arbitration Decision informs us as follows:
[T]he evidence adduced of record is that Respondents maintained several accounts including a joint account between Claimant and her husband, two IRA accounts for Claimant's husband of which she was beneficiary, and two individual accounts for Claimant's husband The first three accounts transferred to accounts in Claimant's name sometime after a death certificate was produced; the latter two were transferred to an estate account some two months after Claimant produced her appointment as administrator of the estate. There is no question that this delay was intentional on the part of James, who withheld the transfer until Claimant removed some adverse comments she had written on an account-opening document. Claimant alleged that this delay caused her certain financial difficulties as she had to advance some estate expenses from her own pocket. She sought $58,500.00 compensation for this delay, as well as $585,000.00 in monies she alleged is missing from estate assets and which she believes is hidden by Respondents. The delay damages figure was derived as 10% of the latter amount.
The Panel considered the documents admitted of record and the sworn testimony of Claimant, her two adult daughters and James. With the exception of the intentional delay in transferring funds to the estate account addressed above, we did not find evidence of violations of securities industry rules and regulation sufficient to support Claimant's claims. If there are estate assets missing, that is a matter to be pursued in estate administration and is not within our purview; the record offered nothing to show that Respondents are somehow involved and should be held accountable for missing funds. And while we accept that Claimant was financially stressed by the delay in opening the estate account, there is insufficient evidence of how and in what amount she may have been damaged as a result.
Based upon the findings noted above, the FINRA Panel of Arbitrators denied Claimant's claims and further denied her request for a waiver of FINRA fees.
The following fees and charges were assessed:
Claimant: $1,687.50 in hearing session fees
Non-Party G.F. Investment Services, LLC (employer of Respondent James Nuenschwander): $1,900 Member Surcharge and $3,750 Member Process Fee
Respondents: $1,687.50 hearing session fees (joint and several)
Bill Singer's Comment
I'm really, really having trouble with this portion of the FINRA Arbitration Decision:
[W]ith the exception of the intentional delay in transferring funds to the estate account addressed above, we did not find evidence of violations of securities industry rules and regulation sufficient to support Claimant's claims. . . And while we accept that Claimant was financially stressed by the delay in opening the estate account, there is insufficient evidence of how and in what amount she may have been damaged as a result.
Let's back up a bit and review some of the salient facts. The widow Marsha M. Neuenschwander had a joint account with her husband, and her husband had two IRA accounts naming her as beneficiary, and he also had two individual accounts -- that's five, count 'em, five accounts. The FINRA Arbitration Decision asserts that the two individual accounts were transferred to an estate account some two months after Claimant had produced her appointment as administrator of the estate. In and of itself, that two-month-delay might or might not be a big deal. As the Decision characterizes this issue:
There is no question that this delay was intentional on the part of James, who withheld the transfer until Claimant removed some adverse comments she had written on an account-opening document.
Did Respondent James Neuenschwander's intentional delay cause compensable damages? The Decision offers this observation:
And while we accept that Claimant was financially stressed by the delay in opening the estate account, there is insufficient evidence of how and in what amount she may have been damaged as a result.
Ummm . . . what? The arbitrators apparently found that the intentional delay "financially stressed" Claimant. Notwithstanding that impact, the arbitrators were unable to determine the amount of such damage? Okay, sure. It could be that Claimant was not proficient in her pro se capacity and failed to advance her burden of proof. On the other hand, is there no financial consequence whatsoever for the intentional delay?
Respondent James Neuenschwander apparently held the transfer of his deceased brother's account hostage until Marsha removed adverse comments on a document. We're not told what those comments were or on what type of document they appeared. Marsha alleged that James' foot-dragging cost her $58,500 in damages, which was apparently computed as 10% of $585,000 in allegedly missing estate assets. How or what that all entails is lost upon me; and that computation may have been lost upon the arbitrators. Could be the byproduct of amateur-hour lawyering by Marsha. Could be that there were no credible damages. Could be lots of possibilities.
One thing that keeps poppin' into my head is FINRA's go-to rule -- which seems to get tacked on to each and every regulatory complaint and settlement. FINRA Rule 2010: Standards of Commercial Honor and Principles of Trade admonishes that:
A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.
Yeah, yeah, I know, Claimant litigated her claims on a pro se basis. Maybe a lawyer might have made more of a deal about Rule 2010; on the other hand, maybe the FINRA Arbitration Panel considered all the evidence and just didn't think that the cited conduct rose to the level of a violation of "high standards of commercial honor and just and equitable principles of trades." I accept that the latter alternative may be valid. That being said, the FINRA Arbitration Decision should have explained how intentionally delaying the transfer of a deceased husband's two individual accounts in a manner that caused financial distress to his widow did not constitute a violation of Rule 2010 and did not yield any compensatory damages. That much was owed to the widow. That much was owed to the exonerated respondents.
In fairness, I was not at the arbitration, I did not review the evidence, and I did not hear any testimony -- accordingly, I defer to the three arbitrators but with the reservations noted. Consider my comments are musings and not conclusions based upon evidence. Ultimately, as I said, there are too many unanswered questions in this FINRA Arbitration Decision. On top of everything, there isn't any disclosure on FINRA's online BrokerCheck database about the underlying customer complaint or the arbitration.