In today's blog we consider two nearly identical FINRA public-customer arbitrations. In both cases, the FINRA member firms were left holding the bag when the customers left debits in their accounts. The brokerage firms appeared at the arbitration hearings. The customers didn't. You'd expect the same result in each case. Ahhh . . . life is filled with surprises! Sometimes you have a wide-open slam dunk and you jam it through; other times, you choke and the ball clangs off the rim.
No-Show Customer #1 Instructs Bank
In a FINRA Arbitration Statement of Claim filed in January 2019, FINRA member firm Claimant TradeStaion asserted breach of contract, fraud, and civil theft. Ultimately, Claimant TradeStation sought $19,731.31 in compensatory damages trebled to a $50,000 maximum plus $1,049.90 in prejudgment interest, $3,855.80 in costs, and $7,415 in attorneys' fees. In the Matter of the Arbitration Between TradeStation Securities, Inc. Claimant, v. Ksenia Pasochnik, Respondent (FINRA Arbitration Decision 19-00212) http://www.finra.org/sites/default/files/aao_documents/19-00212.pdf
As set forth in part in the FINRA Arbitration Decision:
The causes of action relate to Claimant's allegations that Respondent instructed her bank to recall two automated clearing house ("ACH") transactions after having incurred self-directed losses on call options in TESLA Motors, Inc. stock. Claimant seeks to recover the unsecured debit balance resulting from Respondent's recall of the two ACH transactions.
Respondent Pasochnik did not file a Submission Agreement or an Answer, and did not appear. The sole FINRA Arbitrator determined that Respondent had been served with a Claim Notification Letter and Overdue Notice.
The sole FINRA Arbitrator found Respondent Pasochnik liable and ordered her to pay to Claimant TradeStation:
$19,731.31 in actual damages on the claims for breach of contract and fraud.
$1,049.90 in pre-judgment interest.
$7,415.00 in attorneys' fees
$305.80 in process server fees, and
$1,450.00 filing fee reimbursement
Bill Singer's Comment: The FINRA Arbitrators appear to have concluded that Respondent Pasochnik's Tesla options losses resulted from "self-directed" activity, which largely eliminates many causes of actions such as suitability, fraud, etc. Given that Pasochnik did not file an Answer or appear at the hearing, we have no idea as to what her defenses may have been. Accordingly, this case set up as a slam-dunk for TradeStation, which was awarded virtually every penny that it sought with the notable exception of the treble damages. TradeStation scored a 50-point dunk!
No-Show Customer #2 Instructs Bank
In a FINRA Arbitration Statement of Claim filed in April 2019, FINRA member firm Claimant Ustocktrade asserted breach of a customer agreement and fraud, and the firm sought $1,301.69 in compensatory damages. Public customer Respondent Woods did not file a Submission Agreement and did not appear. In the Matter of the Arbitration Between Ustocktrade Securities, Inc. Claimant, v. Jamal Woods, Respondent (FINRA Arbitration Decision 19-00988)
http://www.finra.org/sites/default/files/aao_documents/19-00988.pdf As set forth in part in the FINRA Arbitration Decision:
[T]he causes of action relate to Claimant's allegation that Respondent requested that Claimant initiate certain deposits from Respondent's bank account into Respondent's brokerage account for the purchase of securities; however, after the securities were purchased, Respondent instructed his bank to reverse the deposits, causing a loss to Claimant.
Seems like a fairly open-and-shut case, and all the more so with a non-appearing customer Respondent. Unfortunately for the Claimant, the sole FINRA Arbitrator dismissed the claims without prejudice. As noted in part in the FINRA Arbitration Decision:
The Arbitrator determined that Respondent was not properly served with the Statement of Claim and did not receive due notice of the proceedings.
Bill Singer's Comment: Respondent Woods engaged in a bit of legerdemain when he showed the deposited funds to Ustocktrade and then, presto-chango-hocus-pocus, he had his bank reverse the deposits. Given that Woods did not file a Submission Agreement (and presumably did not file an Answer) or appear at the hearing, we have no idea as to what his defenses may have been. Accordingly, this case set up as a slam-dunk for Ustocktrade. The thing about slam-dunks is that they sometimes clang off the rim. As was the case with this whiff by Ustocktrade.