For stockbrokers representing themselves in a pro se capacity during industry-related lawsuits, often they are stepping into the street for a gunfight but armed only with a knife. Such lopsided encounters don't tend to end well for the guy with the knife (and without the lawyer); however, every so often, truth and justice prevail without an attorney's billable hour. In a recent FINRA expungement arbitration, a lone, pro se stockbroker survives High Noon.
Case In Point
In a FINRA Arbitration Statement of Claim filed in July 2018, associated person Claimant Burch, Jr., representing himself pro se, sought the expungement from his Central Registration Depository records ("CRD") of a settled customer complaint alleging unauthorized trading filed by Respondent Dornik. Further, Claimant sought $1 in compensatory damages from Respondent Merrill Lynch. In the Matter of the Arbitration Between Steven Carlon Burch, Jr.. Claimant, v. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Frank J. Dornik, Jr., Respondents (FINRA Arbitration Decision 18-02605, March 1, 2019 ) http://www.finra.org/sites/default/files/aao_documents/18-02605.pdf
Respondent Merrill Lynch did not take a position on Claimant Burch's expungement request but objected to and raised various affirmative defenses against his requested $1 monetary award. Respondent Merrill Lynch stated that it had investigated customer Dornik's complaint and had settled the matter as a business decision.
Respondent Dornkik, Jr. is not an associated person of FINRA, did not voluntarily submit to arbitration, and did not enter an appearance. Accordingly, the sole FINRA Arbitrator made no determination as to him.
The FINRA Arbitration Decisions asserts in part that:
The Arbitrator also reviewed the settlement documents between Merrill Lynch and Dornik, considered the amount of payments made to any party, and considered other relevant terms and conditions of the settlement. The Arbitrator noted that the settlement was not conditioned on Dornik not opposing Claimant's request for expungement. The Arbitrator also noted that Claimant did not contribute to the settlement amount of $24,691.48. The Arbitrator further noted that Dornik had requested damages in the sum of $30,000.00 in the Underlying Complaint, however, found Merrill Lynch's earlier representation that the settlement was based on a business decision was a sufficient explanation.
In recommending the requested expungement, the sole FINRA Arbitrator made a FINRA Rule 2080 finding that Dornik's claim, allegation, or information is false. The Arbitrator offers a compelling rationale:
Dornik alleged that Claimant and Mr. C invested funds transferred from Dornik's former broker without his authorization. The funds were invested in a Model Portfolio after much discussion with Dornik. Claimant testified that Dornik was anxious to invest his funds as quickly as possible because the market was going up and he did not want to miss out on the appreciation.
Dornik's funds were invested in the Model Portfolio on September 2, 2011. Thereafter the market declined. Dornik did not raise the question of authorization until October 20, 2011. Indeed, in Dornik's Email, almost a month after the investment was made, he wrote Claimant that "I'm so impressed with how dedicated you three are to improving our financial futures." Dornik's failure to timely complain about the investment, and his favorable comments about his brokers, leads the Arbitrator to conclude that Dornik simply wanted a "do over" and his claim that the funds were invested without his approval were pretextual and false.
The claim against Mr. C was expunged pursuant to the prior arbitration case which Claimant mistakenly thought would exonerate him as well.
Bill Singer's Comment
According to online FINRA BrokerCheck records as of March 6, 2019, Burch was first registered in 2004, and was registered with Merrill Lynch from July 2009 to June 2012. The only online disclosure on Burch's BrokerCheck record is the Dornik complaint, which should be removed following confirmation from a court ordering CRD to execute the expungement.
As I often note in BrokeAndbBroker.com, the costs and fees involved in seeking a FINRA expungement may present an unaffordable price-tag for many industry associated persons. Among the factors impacting your litigation costs are whether you are able to obtain an adjudication solely on "the papers" from one arbitrator versus appearing at plenary evidentiary hearing(s) before three arbitrators; whether you need to call expert and/or fact witnesses; and whether you need to cross-examine your adversary's witnesses.Should you prevail during a FINRA arbitration hearing, you are then faced with further costs and fees attendant to securing a court confirmation of the FINRA Arbitration Panel's "recommendation" of expungement -- and if you obtain the court order, you then need to serve it on CRD to complete the process. That confirmation process involves additional costs and fees -- and the range of such total charges could easily run no less than $10,000 and often into the mid- and high- five figures.
For many associated persons, the ultimate cost for clearing their name could be bankruptcy or a crippling financial hit to their savings. Faced with such prospects, many associated persons suffer the consequences of defamation or unfair disclosures; others will simply give it a shot and handle their own case -- which is an uphill battle of epic proportions. To Claimant Burch's credit, he appeared pro se and secured a victory at FINRA's arbitration forum. As to how he will fare in court and beyond remains to be seen. Perhaps he will retain a lawyer to seek the court confirmation; or, emboldened by his layperson success, maybe Burch will continue to battle on.