Some things are debatable. For example, when public customers complain about misconduct by their stockbroker, there may be some points raised in the Complaint or Answer that may, or may not, be true. That's where the adversarial system comes into play and we rely upon a panel of arbitrators to sift through the evidence. On the other hand, some things aren't debatable -- the facts speak for themselves and dispel any notion of uncertainty. In a recent FINRA arbitration, it seems that the stockbroker had done no wrong. Worse, he blew the whistle on the bad guy. Why then did that whistleblower need to bear the burden of filing for an expungement? Why didn't FINRA step in and do the right thing, at its own cost?
Case In Point
In a FINRA Arbitration Statement of Claim filed in July 2019, public customer Claimants asserted breach of fiduciary duty, violation of FINRA's reporting requirements under FINRA Rule 4530, and breach of FINRA's requirement for procedures to prevent fraud under FINRA Rule 3110. Claimants sought $500,000 in compensatory damages, interest, and fees. In the Matter of the Arbitration Between Janet Narduzzi, Cynthia Toliver, and Amy Toliver, Claimants, v. AXA Advisors, LLC and John Christian Arnold, Respondent (FINRA Arbitration Award 19-01888)
Respondent AXA Advisors generally denied the allegations and asserted various affirmative defenses.
In March 2021, apparently pursuant to a settlement, the Claimants voluntarily dismissed with prejudice their claims.
Respondent Arnold filed a Motion to Expunge, which Claimants did not oppose and they did not participate in the ensuing hearing. In recommending expungement, the FINRA Arbitration Panel made a Rule 2080 finding that the customer's claim, allegation, or information was factually impossible or clearly erroneous, and false. As alleged in part in the FINRA Award:
Respondent John Christian Arnold was a victim of the famous saying "no good deed goes unpunished." He discovered the embezzlement/conversion of Claimants' funds that was accomplished by another AXA Advisors financial advisor, Mr. Price, brought it to the attention of Claimants (as well as Mr. Price's prior loss of license to sell securities), and assisted Claimants and law enforcement in the criminal prosecution of Mr. Price - which resulted in Mr. Price being sentenced to prison. Respondent Arnold further persuasively testified to our panel that he was not involved in the hiring or the direct supervision of Mr. Price. Yet, finding Mr. Price to be increasingly irresponsible in attending meetings and attending to his duties, Respondent Arnold suggested to Mr. Price to resign or he would recommend Mr. Price's termination to the appropriate supervisor. Mr. Price chose to resign.
Bill Singer's Comment
Respondent Arnold blew the whistle on Price to the Claimant customers; and, thereafter, he assisted criminal prosecutors. Despite doing the right thing, Arnold came away from his efforts with a besmirched industry record. Shamefully, FINRA made Arnold spend his time and money in order to pursue an expungement via arbitration. As set forth in part in the FINRA Arbitration Award "The Panel has assessed $1,125.00 of the hearing session fees to Respondent Arnold." That charge is further denoted as pertaining to "One (1) hearing session on expungement request @ $1,125.00/session." On the set of facts asserted in the Award, FINRA charged Respondent Arnold $1,125 to clear his name? Seriously? Shame on you!
No . . . FINRA the "regulator" should not generally interfere with the ability of a public customer to file an arbitration Statement of Claim, even if such includes some falsehood or overblown hyperbole -- after all, that's often the stuff of most civil litigation. Part of the game, to that extent. On the other hand, FINRA the "regulator" is not FINRA the "arbitration forum," and when the former is on notice that a registered person has been falsely accused of misconduct, there should be a remedy by which that individual can restore his reputation without having to incur the costs of time and expense associated with filing an arbitration claim/motion for expungement. By and large, expungements involve regulatory issues and, as such, should be submitted for adjudication to a FINRA's regulatory panel and not a FINRA arbitration panel.
An odd thing about the FINRA Arbitration Award above is that it references the purported fraudster as "Mr. Price." Given that Mr. Price caused so much havoc, why didn't the Award reference him by his first and last name (and perhaps even adding a citation to any other matters)? As best I can tell, Mr. Price appears to be "Howard Milton Price III," and is referenced in:
After you read the above two items from 2018, explain to me why in 2021, FINRA did not research "Mr. Price" and come away with the conclusion that the self-regulatory-organization should approve an amended disclosure whereby the customer complaint would be expunged from Arnold's record. If FINRA takes the position that it lacks the "power" to right such a grievous wrong, then I ask, yet again, where the hell is the organization's Board of Governors? As I often lament, the FINRA member community and the investing public are saddled with an ineffective Board of Governors. It's a do-nothing bunch of folks who don't earn their honorarium but cash the checks nonetheless. Let's see if any one of the elected or appointed Governors takes the time to read this disgraceful expungement case and proposes some reasonable remedy. I ain't holding my breath.