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The Complaining Customer Is Dead, The File Is Lost, But A Stockbroker Battles On for Expungement
December 7, 2018
In today's featured FINRA expungement arbitration, we praise the impressive effort of a lone FINRA arbitrator, who patiently and intelligently explains what happened, what she considered, and why she recommends the expungement of a customer complaint from a stockbroker's industry record.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2018, and as amended thereafter, associated person Claimant Chebuske sought the expungement of a customer complaint, which is referenced in the FINRA Arbitration Decision as "Occurrence Number 1078387.." Claimant sought $1 in compensatory damages, which was withdrawn at the expungement hearing.. In the Matter of the FINRA Arbitration Between Gregory Jay Chebuske, Claimant, vs. New England Securities, Respondent (FINRA Arbitration 18-00170, December 3, 2018).
Respondent New England Securities did not file an Answer and did not appear at the hearing.
The customer involved in the underlying occurrence did not appear at the hearing and did not contest the requested relief.
Expungement
The sole FINRA Arbitrator recommended the expungement of the occurrence from Claimant Chebuske's Central Registration Depository records ("CRD") based upon a FINRA Rule 2080 finding that the customer's claim, allegation, or information is factually impossible or clearly erroneous, and false.
Bill Singer's Comment
Yeah, I hear ya: What the hell Bill, that's it?
FINRA Arbitrator Denise L. Presley
I frequently criticize FINRA Arbitration Decision for failing to provide sufficient content and context so as to render a given decision intelligible and meaningful. Among my most frequent complaints is that the underlying claims are frequently set forth in a terse, conclusory fashion and we rarely learn about the industry experience of a given associated person. When the BrokeAndBroker.com Blog shines its light on the conduct of the FINRA arbitrators, our commentary is often unflattering and critical of a lack of disclosed content and context. In Chebuske v. New England Securities, Inc., however, our commentary is laudatory, some might even say effusive, when it comes to the superb effort by sole FINRA Arbitrator Denise L. Presley.
The Settled Customer Complaint
So . . . just what the hell prompted Claimant Chebuske to file his demand for an expungement? In the section of the FINRA Arbitration Decision titled "Arbitrator's Report," sole FINRA Arbitrator Denise L. Presley presents a meticulous and comprehensive analysis of all the pertinent aspects of Claimant Chebuske's case. Under the subheadings "Summary of Claim" and "Factual Background," we are informed in pertinent part that:
The associated person, Gregory Jay Chebuske ("Claimant"), requests expungement of a U-4 disclosure concerning a November 11, 2002 customer complaint alleging that Claimant: (i) ". . . intentionally gave bad advice to receive commissions, (ii) ‘disregarded her instructions to buy some mutual funds and sell others in a timely manner in 1998 and 1999', (iii) ‘failed to execute sell instructions on certain tech stocks', and (iv) ‘would not surrender a life insurance policy as requested." According to the U4, the customer sought damages in the amount of $31,365.00 without making a demand for arbitration. The Claimant denied the allegations, and the Respondent settled the matter without a contribution from Claimant in the requested amount.. . .Claimant has been a licensed registered representative since March 23, 1995 pursuant to the Series 6, 7, 24, 63, 66, and SIE examinations; and had worked for Respondent for six years before resigning in 2001 to join, SII Investments, Inc. . .
He Thought She Was A Friend
The key takeaways above are that the underlying customer complaint dates back to 2002, some 16 years ago, and Chebuske had denied all of the allegations. As it turned out, Chebuske had left New England Securities in 2001 but his former employer settled the 2002 complaint without so much as a penny's contribution from him. Maybe there's more going on here than first meets the eye? Let's see what else Arbitrator Presley offers us:
According to Claimant, he met the customer in 1998 at a seminar on the use of life insurance in estate planning, and she became a client sometime thereafter. Subsequently, he met with her and her estate planning attorney several times in connection with the purchase of life insurance as an element of a trust naming her daughter-in-law as a beneficiary. The customer, who was in her mid-to late 60's at the time, also established a brokerage account that she actively managed. The Claimant left the Respondent's employ in 2001, but was later contacted by the customer for advice. She informed him that she had suffered some personal setbacks. The customer stated she no longer wanted the life insurance policy and desired a return of the premium to cover some investment losses she had incurred from the 2001 market downturn. Claimant credibly testified that he informed her that he no was no longer employed by Respondent and therefore had no ability to assist her. It is unclear what the surrender terms were for the policy, however, Claimant said he suggested some language the customer might use in a letter to possibly get the funds returned. Claimant stated he considered the customer a friend and had no idea she would use this information against him until he received a telephone call from Respondent indicating that the customer had made a complaint. Claimant stated he promptly consulted with a Compliance Officer of his then current employer (SII, Investments) who advised him to ignore the Respondent's call. In his naivete, the Claimant followed the Compliance Officer's advice without realizing that the complaint would adversely affect his career. However, when the customer called him again in 2003 or 2004 to ask about long term care insurance, he declined to assist her.
Truly, I can't ask for a more substantive rendition of an underlying fact pattern!
Disappearing Act
An interesting challenge presented to the Arbitrator arose from the fact that Respondent New England Securities ceased being a FINRA member firm in 2015. For purposes of Chebuske's arbitration claims, Respondent's corporate parent, Metropolitan Life Insurance Company, served as a successor in interest; but, as noted in FINRA Arbitration Decision:
Claimant's counsel requested all relevant information including the customer's complaint and the Settlement Agreement from Metlife. However, on or about August 21, 2018, Metlife informed Claimant's counsel that they were unable to locate any responsive documentation from its document storage vendor (Iron Mountain). Metlife never filed an Answer to the Claim, and ceased its participation in this matter without further notice to Claimant or FINRA.
The Dead Tell No Tales
MetLife's professed inability to locate documentation about a now-deceased customer's complaint and the ensuing settlement raises compliance and regulatory issues. Notwithstanding, the missing records may be explained (and I am pointedly qualifying this by "may be") by noting that archiving of records beyond six years is often not required and many industry firms have record destruction protocols in place to destroy such dated records. Given that the Claimant Chebuske left Respondent's employ in 2001, the customer complained in 2002, the last referenced contact from the customer was 2003/2004, and the customer is now deceased, it may well be that the pertinent records were appropriately destroyed years ago. Document retention policies and rules aside, Arbitrator Presley clearly explained her quandary:
[I]n light of the fact that we lack the Respondent's records to contradict Claimant's credible testimony; and the fact that the customer is deceased and unable to corroborate or refute the CRD disclosure . . . the undersigned relies on the testimony, papers, and documented market influences around the time of the customer's alleged complaint.Ordinarily, a customer's Statement of Claim would provide some explanation of what acts, omissions or violations of securities laws the Financial Advisor is alleged to have committed. There was no Statement of Claim, no complaint letter, or a Settlement Agreement between the customer and Respondent. But more remarkably, there is no written evidence showing how Claimant was made aware of the alleged acts or omissions he allegedly committed, and nothing documenting that he had a fair opportunity to defend himself against the claim(s). All we know, from the CRD disclosure, is Claimant did not contribute to the alleged settlement amount.However, the undersigned is baffled by Respondent's alleged inability to retrieve basicinformation regarding the complaint and settlement, especially given the effect theyknew, or should have known, it would have on an associated person's CRD. Indeed, the primary purpose of retaining a data and records storage company is to easily retrieve important records. Metlife's cavalier response vis-a-vis its failure to locate and produce even the most basic information related to the customer's alleged complaint is troubling. Therefore, following the general rule of law, and lacking evidence to the contrary, the undersigned finds that an adverse inference can be drawn against Respondent for failing to produce documents supporting the customer allegations they reported.
Impossible!
Arbitrator Presley goes that last mile and wraps her findings up in a nice, tight package:
Nevertheless, Claimant's pleadings are supported by his credible testimony. Given that Claimant met the customer at a seminar on the value of making life insurance an element in estate planning; he met several times with her estate planning attorney; the customer applied, and was approved for a life insurance policy. In addition, there is no evidence whatsoever that he made an unsuitable recommendation. Accordingly, the undersigned can reasonably conclude that the customer's allegation that Claimant made an unsuitable investment recommendation was false. Moreover, the fact that Claimant was no longer employed by Respondent at the time the customer alleged that he refused to surrender her life insurance policy renders the claim erroneous on its face. There is no basis for a finding that Claimant violated the Rules by failing to perform a customer request he could not possibly undertake. In other words, the element of the customer's complaint that Claimant failed to surrender the life insurance policy is factually impossible.
Finally, compliments to Claimant Chebuske legal team for clearly going into Hell for a heavenly cause: Dochtor Kennedy, Esq., and Harris Freedman, Esq., of AdvisorLaw, LLC https://www.advisorlawllc.com/team.html
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