Wells Fargo Found Guilty of Defaming Stockbroker for Storing Customer Property

June 3, 2019

Imagine that you're a stockbroker and a customer asks if you would watch her pet for a week while she's out of town. You agree to take the pet to work and leave it there overnight. The customer is happy with that arrangement and thanks you. So, you take the pet to work and leave it there overnight. Upon your return to the office the next morning, the dog is happy to see you but your manager, not so much. The manager tells you not to leave the customer's pet in the office overnight and to take the animal home when you leave work. Accordingly, for the balance of the week, you do as you're told and bring the dog to work but take it home after hours. The customer doesn't complain. Notwithstanding, your manager fires you at the end of the week. He tells you that it's against company policy to store any customer's property at your residence. But I never hid anything, you say; moreover,  you knew that I was bringing the pooch to work in the daytime and it was you who told me to take the dog home. The manager says rules is rules. He says you're still fired. Sound nuts? Well, maybe it's not as far fetched as you might think. Consider this recent FINRA arbitration.

Case In Point

In a FINRA Arbitration Statement of Claim filed in August 2018, associated person Claimant Robinson sought the expungement of a termination disclosure on his Form U5 as filed by Respondent Wells Fargo Clearing Services and as maintained by the Central Registration Depository ("CRD"). Claimant requested an "Explained Decision," to which Respondent did not object. In the Matter of the Arbitration Between Derrick Tyrone Robinson, Claimant, v. Wells Fargo Clearing Services, LLC, Respondent (FINRA Arbitration Decision 18-02907 
http://www.finra.org/sites/default/files/aao_documents/18-02907.pdf

Respondent Wells Fargo generally denied the allegations but raised no objection to the requested expungemetn. 

Award

Having found the cited Form U5 termination disclosure to be defamatory, the sole FINRA Arbitrator recommended in part that the "Termination Explanation" for Claimant Robinson's Form U5 be revised to state:

Violation of firm's policy for storing investor property, consisting of non-marketable U.S. savings bonds, and other non-investment property.

The Explained Decision

In response to Claimant Robinson's request, the sole FINRA Arbitrator provided the following:

EXPLAINED DECISION 

The Arbitrator considered the fact that the evidence presented is undisputed, and the fact that Respondent does not oppose the expungement in making her determination on this matter. 

The Arbitrator found that Claimant did not violate "an investment-related statute, regulations, rule, or industry standard of conduct" and that Respondent's statements on sections of Claimant's Form U5 were false. 

Rather, the Arbitrator found that Claimant violated Respondent's internal policy in two respects: Claimant stored personal property of an investor at his residence; and Claimant did not notify Respondent that the investor had "complained" when she inquired about the difference between a "cap" account and a regular checking account. The Arbitrator has made this finding because the property at issue were not "investments" within the meaning of FINRA's rules, and Claimant's conduct had nothing to do with "investments" but, instead, merely with the storage of that property. The property in question included non-marketable U.S. Savings Bonds, expired letters of administration, coins, investment account statements, and other paperwork, which the investor authorized him to take -- in anticipation of a subsequent meeting to discuss the disposition of that property. Thus, Claimant's actions presented no risk to the investor. Claimant carried that property into the office each day, but stored it in his home at night. The investor did not object to Claimant's action, or file any compliant [sic]. Respondent initially stated it did not want the property stored at its location, and returned the property to Claimant, instructing him to take it home and store it there. 

The Arbitrator noted that the same false language was reported in three places on Claimant's Form U5: Section 3 (Reason for Termination), Section 7 (Internal Review Disclosure) and Section 7 (Termination Review Disclosure). The Arbitrator further noted that, while FINRA Rule 8312(d) specifically states that FINRA shall not release on the BrokerCheck Report: (3) "Internal Review Disclosure" information reported on Section 7 of the Form U5; and (4) "Reason for Termination" information reported on Section 3 of the Form U5, it appeared on Claimant's BrokerCheck Report because the same language was reported on the Termination Review Disclosure. 

Finally, the Arbitrator found that the false statements in Claimant's Form U5 and BrokerCheck Report are defamatory as they adversely affect the public opinion of Claimant's character, and he has suffered severe economic impact and damages resulting from those statements. He has "faced significant struggles" in finding employment, a number of firms to which he applied refused to hire him specifically because of these statements on the Form U5, and he has lost several long-term clients because he can no longer service their accounts. Further, because of these false statements released to the public on Claimant's BrokerCheck Report, he has "suffered severe economic impact and damages". 

Bill Singer's Comment

Compliments to the Arbitrator for flagging an often-missed portion of FINRA Rule 8312: FINRA BrokerCheck Disclosure:

(d) FINRA shall not release:
(1) information reported as a Social Security number, residential history, or physical description, information that FINRA is otherwise prohibited from releasing under Federal law, or information that is provided solely for use by regulators. FINRA reserves the right to exclude, on a case-by-case basis, information that contains confidential customer information, offensive or potentially defamatory language or information that raises significant identity theft, personal safety or privacy concerns that are not outweighed by investor protection concerns;
(2) information reported on Registration Forms relating to regulatory investigations or proceedings if the reported regulatory investigation or proceeding was vacated or withdrawn by the instituting authority;
(3) "Internal Review Disclosure" information reported on Section 7 of the Form U5;
(4) "Reason for Termination" information reported on Section 3 of the Form U5;
(5) events reported on Section 7 of the Form U5 (other than an "Internal Review Disclosure" event) for three business days after FINRA's processing of the filing. However, if an event is reported on Form U5 and the same event is thereafter reported on Form U4 prior to the expiration of the three-business-day period, FINRA will release the Forms U4 and U5 information simultaneously upon processing. Under such circumstances, the three-business-day period may be curtailed;
(6) the most recent information reported on a Registration Form, if:
(A) FINRA has determined that the information was reported in error by a BrokerCheck Firm, regulator or other appropriate authority;
(B) the information has been determined by regulators, through amendments to the uniform Registration Forms, to be no longer relevant to securities registration or licensure, regardless of the disposition of the event or the date the event occurred;
(7) information provided on Schedule E of Form BD.

31-Year-Old Disclosures

As set forth in FINRA's online BrokerCheck database as of June 3, 2019, under the heading "Criminal -- Final Disposition" is the disclosure that Robinson pled guilty in Municipal Court of New Jersey in 1988 to "Shoplifting," for which he was fined $345. According to Robinson online response, he explained, in part, under the heading "Broker Statement":

[I] WAS CHARGED WITH WRONGFUL TAKING OF PROPERTY FROM MY EMPLOYER (SEARS) IN OCTOBER 1988. I PLEADED GUILTY AND WAS ISSUED A FIND OF $345 OF WHICH I PAID.

Additionally, under the BrokerCheck heading "Employment Separation After Allegations," it is disclosed as one of two items that Robinson was "Discharged" by Sears Roebuck and Co. for "wrongful taking of property from my employer (sears) in October 1988." 

SIDE BAR: As is customary for me, I often investigate a given associated person's BrokerCheck record to better understand the content and context of a regulatory settlement/decision or an arbitration decision. In disclosing 1988 events listed on Robinson's BrokerCheck, I want to express my discomfort with noting his 31-year-old shoplifting and discharge because that doubly victimizes him as a result of Wells Fargo's defamation. Ultimately, since the expungement arbitration dealt with an issue of the "storage of property" and Robinson had pled guilty to and been fired for shoplifting (the "wrongful taking of property"), I felt that there was enough relevancy to that background that it may have prompted some concern by Wells Fargo. A takeaway from Robinson's case is that before you file for an expungement, ALWAYS consider the potential collateral effects that may arise from the resulting public, published FINRA Arbitration Decision. It may very well be that Robinson was so angered by Wells Fargo's defamation that he happily incurred the risk of dredging up the 1988 shoplifting incident and attendant discharge. On the other hand, other associated persons may have concluded that they had three disclosures on BrokerCheck and that the expungement of one was not worth the risk of calling attention to the other two embarrassing incidents.

A Matter of Investments

In her Explained Decision, the FINRA Arbitrator found that Wells Fargo's defamatory termination comment did NOT involve any violation by the former employee of "an investment-related statute, regulations, rule, or industry standard of conduct." In reaching that conclusion the Arbitrator characterized in part Claimant's cited conduct as consisting of his having:

stored personal property of an investor at his residence . . . The Arbitrator has made this finding because the property at issue were not "investments" within the meaning of FINRA's rules, and Claimant's conduct had nothing to do with "investments" but, instead, merely with the storage of that property. The property in question included non-marketable U.S. Savings Bonds, expired letters of administration, coins, investment account statements, and other paperwork, which the investor authorized him to take -- in anticipation of a subsequent meeting to discuss the disposition of that property. Thus, Claimant's actions presented no risk to the investor. Claimant carried that property into the office each day, but stored it in his home at night. The investor did not object to Claimant's action, or file any compliant [sic]. Respondent initially stated it did not want the property stored at its location, and returned the property to Claimant, instructing him to take it home and store it there. 

The Arbitrator found that the cited property had nothing to do with investments. Except . . . the property included U.S. Savings Bonds, which the arbitrator says were "non-marketable." As best I understand U.S. Savings Bonds, they often referenced as "non-marketable securities," which means that they are government-issued debt required to be held to maturity (non-tradeable). In contrast, US Treasury Bills and Treasury Bonds would be deemed "marketable securities." I'm not quite sure that I would view the distinction of a marketable versus a non-marketable security as one that renders the latter security as having "noting to do with investments." Similarly, I'm not quite following how "investment account statements" have nothing whatsoever to do with investments. Admittedly, my concerns may strike you as picayune. Nonetheless, given where I think the FINRA Arbitrator wanted to go with her rationale, I'm onboard her train but I would have preferred that it ran on the local track and took a bit more time to flesh out her logic.

Property Storage

Then we have to wrap our brains around just what the hell was involved with Claimant Robinson's so-called "storage" of the customer's property. As noted in part in the Explained Decision:

Rather, the Arbitrator found that Claimant violated Respondent's internal policy in two respects: Claimant stored personal property of an investor at his residence; . . . Claimant carried that property into the office each day, but stored it in his home at night. . . . Respondent initially stated it did not want the property stored at its location, and returned the property to Claimant, instructing him to take it home and store it there. . . .

Wells Fargo has an "internal policy" prohibiting the storage of an investor's personal property? Oh how I would love to see a copy of that tortured rule! After all, according to the Explained Decision, Wells Fargo "instructed" Claimant to take the customer's property home and store it at his residence. Similarly, Claimant seems to have brought the customer's property to the office during working hours but, thereafter, "stored it in his home at night." As such, it would seem a logical inference that Wells Fargo's policy didn't want Claimant to bring the customer's property to the office but was okay with Claimant storing the property at home. 

Puppies at Work

As I noted in the opening to this article, imagine that the customer asked the stockbroker to dog-sit her pet for a week while out of town; and that once she got home, she would call the stockbroker to make arrangements to pick up her pet. At first, the stockbroker brings the dog with him to work but his employer says that he can't leave the dog overnight at work and should take it home and keep it there. So, the employee does as he's told. What the hell in that scenario justifies firing the employee? To reiterate, the Arbitrator set forth in part those issues in her Explained Decision:

Claimant carried that property into the office each day, but stored it in his home at night. . . . Respondent initially stated it did not want the property stored at its location, and returned the property to Claimant, instructing him to take it home and store it there. . . .


Significant Struggles

Finally, the Arbitrator found that Wells Fargo's defamation about Claimant's storage of non-investments at his home had caused the former employee to suffer:

severe economic impact and damages resulting from those statements. He has "faced significant struggles" in finding employment, a number of firms to which he applied refused to hire him specifically because of these statements on the Form U5, and he has lost several long-term clients because he can no longer service their accounts. Further, because of these false statements released to the public on Claimant's BrokerCheck Report, he has "suffered severe economic impact and damages". 
 
Given the idiocy that often runs rampant on Wall Street, I cannot dismiss the Arbitrator's finding that Claimant lost job offers and customers because he stored a client's non-investment property at his home after Wells Fargo declined to allow him to store same on its premises and told him to take it home. All of which is as Kafkaesque a bit of nonsense as I have ever heard. So, you know, in the end, good for Robinson and his expungement!



Wells Fargo Found Guilty of Defaming Stockbroker for Storing Customer Property
(BrokeAndBroker.com Blog)

SEC Denies Modification of Bars Imposed Via Settlement. In the Matter of Gregory Osborn (SEC Order)

South Florida Resident Sentenced to More than Eighteen Years in Prison for Impersonating a Member of the Saudi Royal Family in Order to Swindle Millions from Investors / The Impersonation Scheme Involved Wire Fraud, Fake Diplomatic License Plates, Expensive Jewelry, Artwork, Luxury Automobiles, Yachts, Private Jets, and International Trips (DOJ Release)

Florida Man Pleads Guilty In Telemarketing Scam (DOJ Release)

Stockbroker Barred for Undisclosed Loans from Customers and Conversion. In the Matter of David John Strnad, Respondent (FINRA AWC)

SEC Obtains Final Judgment Against Radio Host Charged in Ticket Resale Investment Scheme (SEC Release)