June 10, 2019
If a tree falls in the woods but no one hears it, does it make a sound? If a customer sends an order to buy mutual funds via email but the stockbroker doesn't get the message, was there a bona fide order? Welcome to the fun world of regulation, compliance, and arbitration on Wall Street.
Case in Point
In a FINRA Arbitration Statement of Claim filed in September 2018, associated person Claimant Nelson sought the expungement from his Central Registration Depository record ("CRD") of a settled customer complaint to which he did not contribute financially. In the Matter of the Arbitration Between Kenneth Vincent Nelson, Claimant v. Morgan Keegan & Company, LLC, Respondent (FINRA Arbitration 18-03423 / June 7, 2019). http://www.finra.org/sites/default/files/aao_documents/18-03423.pdf
Respondent Morgan Keegan did not oppose the requested expungement and did not participate at the expungement hearing.
Email Access Ended
In recommending expungement, the sole FINRA Arbitrator made a FINRA Rule 2080 finding that Claimant Nelson was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. As set forth in part in the FINRA Arbitration Decision:
Claimant testified under oath that he resigned from Respondent, at approximately "lunchtime" on September 1, 2004, at which time his access to company email was ended. Claimant also testified that a purchase request from the Customer, one of Claimant's former clients, arrived in "the late evening" of September 1, 2004. Claimant could not have been involved in the incident because he had no access to his company email and was no longer an employee of Respondent, when the order was placed.
Bill Singer's Comment
Online FINRA BrokerCheck records as of June 10, 2019, disclose that Claimant Nelson was first registered in 1987, and by October 2001, he was registered with Morgan Keegan & Company, where he remained until October 2004. Further, BrokerCheck discloses that during his 32-year career on Wall Street, Nelson had only one disclosure event, which is under the heading "Customer Dispute -- Settled," and appears to be the underlying matter that will likely be expunged in the future.
Morgan Keegan's Version
As to the details of the one disclosure on Nelson's BrokerCheck, Morgan Keegan reported its September 27, 2004, receipt of notice from the customer, and, thereafter, the firm settled the complaint for $20,911.64 on December 29, 2005 without financial contribution from Nelson. As presently disclosed on BrokerCheck:
CLAIM ALLEGES FAILURE TO FOLLOW INSTRUCTIONS REGARDING THE DELAY IN PURCHASING OF MUTUAL FUNDS AS INSTRUCTED RESULTING IN LOSS TO CUSTOMER. ALLEGED DAMAGES ARE UNSPECIFIED, BUT ARE BELIEVED TO BE BE IN EXCESS OF $5,000
As reported by Morgan Keegan, the dispute involved the customer's allegation there was a failure to follow a purchase order for mutual funds -- notably, the firm's statement does not assert that the customer claimed to have spoken with Nelson or even that the stockbroker was at fault. Although Morgan Keegan's comment references "THE DELAY IN PURCHASING," the firm offered no explanation as to whether the order should have been entered for execution when initially transmitted from the customer.
In a response attributed to Nelson by BrokerCheck, he states that:
CLIENT SENT ORDER VIA EMAIL FOR MUTUAL FUND PURCHASE BUT DID NOT SEND THE FUNDS TO EXECUTE THE PURCHASE. CLIENT DID NOT MENTION ORDER WHEN SPOKEN WITH IN PERSON AND OVER THE PHONE. EMAIL WAS NOT RECEIVED BY BROKER (SCREENED) UNTIL AFTER HE LEFT THE FIRM. DISPUTE WITH MORGAN KEEGAN. CLAIM ALLEGED DAMAGES ARE UNSPECIFIED, BUT ARE BELIEVED TO BE IN EXCESS OF $5000.
In his Brokercheck statement, Nelson concedes that the customer sent an "ORDER VIA EMAIL," but qualifies that admission by noting that the customer "DID NOT SEND THE FUNDS TO EXECUTE THE PURCHASE." Frankly, given the nature of the underlying customer complaint and how it apparently festered for some 13 years before Nelson sued, I don't think that Nelson's BrokerCheck comment was as concise as it should have been.
The first line of Nelson's BrokerCheck comment clearly states that "CLIENT SENT ORDER VIA EMAIL FOR MUTUAL FUND PURCHASE . . . ;" however, the stockbroker then references some telephone conversation with the customer. The interplay between the email and the telephone conversation is unclear. Having noted that the customer had sent an email, Nelson then asserts in his BrokerCheck comment that "EMAIL WAS NOT RECEIVED BY BROKER (SCREENED) UNTIL AFTER HE LEFT THE FIRM." In one breath, Nelson says that the customer sent an email, then he says that the email was not received by him, but then he seems to imply that the email was, in fact, received by him but only after it had been screened and only after he had left the firm. Making matter even less comprehensible, the whole sent-but-not-received-but-received-later email was Nelson's statement that the subject email was SCREENED." Screened? What does that mean? Screened how? Screened by whom? Screened before or after Nelson left? If screened, then how and when did Nelson receive the email after he left the firm?
Less is More?
It may have been preferable for Nelson to have had a lawyer draft his BrokerCheck comment (which, for all we know, may have actually occurred). In my opinion, Nelson's position should have been submitted to BrokerCheck in a more forceful and direct manner. For example, Nelson may have posted that he never received the customer's email while registered with Morgan Keegan -- and left it at that. That would certainly have been correct and may have presented the stockbroker's point in a less nebulous manner. As any veteran litigator would concur, you don't have to make your adversary's argument. In the alternative, Nelson may have noted that although an email was allegedly sent to him by his former customer, by the time the communication reached the intended address, Morgan Keegan had locked the mailbox and prevented Nelson from gaining access to any incoming email -- which seems to have been the version of events presented during the expungement arbitration and adopted by the sole FINRA Arbitrator.
Email Date and Time Stamp
In my law practice, I often urge associated persons to transmit their resignation via email so as to memorialize the date and time of said notice. In cases where a letter or other form of notice is required by agreement or contract, I still recommend that in addition to the required form of notice, that some contemporaneous confirmation also be sent via email so as to secure a date and time stamp on the event. In many employment disputes, an employee will argue that she had quit hours or days before the date/time now claimed by the former employer as the moment when the firm previously fired her. A letter sent by United States Postal Service often contains only the date when the post office stamped the envelope, which may be days after it was dropped in a mailbox. As demonstrated in Nelson v. Morgan Keegan, a critical fact in a stockbroker's dispute with an employer or customer may not always come down to a difference involving days but hours -- lunchtime versus evening hours.