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Angry E*TRADE Customer Can't Find 750 Shares of Tesla
March 11, 2022
An angry E*TRADE customer filed a FINRA Arbitration alleging that he was entitled to 750 post-split shares of Tesla because the brokerage firm somehow misplaced 150 pre-split shares. In response, E*TRADE's "margin director testified that its trading system will not allow negative sells . . . " Okay, that's nice, but just because a system is programmed to not allow something to happen doesn't mean that an occasional glitch doesn't thwart the best of intentions. How did the case turn out? We get a decision but not enough explanation as to why -- see what you think
Case in Point
In a FINRA Arbitration Statement of Claim filed in April 2021, public customer Claimant Shibeshi, representing himself pro se, asserted mistake and manipulation in connection with his alleged purchases and sales of Tesla, Inc.
In the Matter of the Arbitration Between Mesfin Solomon Shibeshi, Claimant, v. E*Trade Securities, LLC, Respondent (FINRA Arbitration 21-00975)
https://www.finra.org/sites/default/files/aao_documents/21-00975.pdf
Respondent E*Trade generally denied the allegations and asserted affirmative defenses.
Adding Up (or not)
Rather than try to parse through the damages alleged by Claimant Shibeshi, I'm going to quote directly from the FINRA Arbitration Award:
In the Statement of Claim, Claimant requested: 750 shares (150 shares lost prior to 5-1 stock split) of Tesla stock, worth $496,312.00, based on the current Tesla stock price at the time of filing; filing fees; other charges applied to Claimant's account; and any costs associated with this case.. . .At the hearing, Claimant requested: 750 shares of Tesla stock, worth $872.44 per share on the date of the evidentiary hearing.
When Shibeshi first filed his claim on April 13, 2021, the share price of Tesla closed around $762, but by the date of the evidentiary hearing on March 1, 2022, the share price had hit an intra-day high near $890. Using Shibeshi's $872.44 per share valuation sought at the hearing, valued the disputed 750 shares of Tesla at $654,330.
Award
In denying Claimant Shibeshi's claims, the FINRA Arbitration offered this rationale:
Bill Singer's Comment2. Claimant, an active trader, testified that Respondent's records show he is owed shares of Tesla stock at a price of $872.44 per share as of the hearing date. Claimant entered into evidence Respondent's transaction history for his Tesla stock activity for 2020 and early 2021. He asserted this activity shows "negative" sells in his margin account, causing him to lose 150 shares prior to a 5-1 stock split. He also entered into evidence Respondent's compiled record of that trading for tax reporting purposes, alleging discrepancies, with the transaction history showing a reduction in his account positions. Claimant requests that 750 additional shares of Tesla stock be added to his account.Respondent argued that its records accurately reflect Claimant's trading history and Tesla stock positions. Respondent's margin director testified that its trading system will not allow negative sells, and that its trading history report is correct. Further, any apparent differences in its tax report and trading history records merely reflect the different purposes of the two documents.After carefully considering the testimony and documentary evidence entered, the Panel finds that Claimant is mistaken in his analysis of the documents and allegations of a shortage of Tesla stock in his account.
I applaud the FINRA arbitrators for their expansive rationale. That's a refreshing effort and should be encouraged. My compliments for the rationale aside, not defined in the FINRA Arbitration Award is the apparently critical term for "negative sells," which could mean any number of things. Sadly, never explained in the Award is exactly what Claimant Shibeshi alleged had happened in support of his demand for the pre-split 150 share/post-split 750 shares.
In response to Shibeshi's allegations that he was entitled to 750 post-split shares, the FINRA Arbitration Award states that E*TRADE's "margin director testified that its trading system will not allow negative sells . . . " Okay, that's nice, but just because a system is programmed to not allow something to happen doesn't mean that an occasional glitch doesn't thwart the best of intentions. According to the Award, Shibeshi asserted that on a pre-split basis, E*TRADE had wrongfully reflected his Tesla position as having 150 shares fewer shares than should have been the case. I would have appreciated at least a couple of sentences of explanation in the Award as to E*TRADE's explanation as to what Shibeshi miscalculated and why. The Panel found that "Claimant is mistaken in his analysis of the documents and allegations of a shortage of Tesla stock in his account." Okay, pray tell -- how so? What was mistaken in the analysis?
SIDE BAR: Point at a day trader, any day trader, and I'll bet that on at least one occasion that individual entered a SELL order for 1,000 shares of XYZ as against 1,000 shares of XYZ that he owned. Although that sell order is usually confirmed within a second or two on the trading screen, go figure, nothing popped up. Not wanting to remain at risk and incurring further losses, the day trader figures that the order got lost in transmission and enters a second 1,000 share SELL as against the same 1,000 share XYZ position, which, just checking his online account is still showing as being long.The next day, the day trader gets a nastygram from his brokerage firm claiming that he created a synthetic short position of 1,000 shares because he had entered two SELL orders each for 1,000 shares as against only 1,000 shares long in his account. The day trader explains to his brokerage firm what had happened. They blame him. They say that their system does not allow negative sells and he created what looks like a short sale but for the fact that he never entered SHORT SELL but only SELL and, go figure, he now has a negative position of 1,000 shares of XYZ. Not my fault, the day trader says, I never got a contemporaneous confirm for the first 1,000 shares sale. Your fault, the brokerage firm says, we have proof you entered two SELL orders for 1,000 shares each.
Is that scenario the type of "negative sells" that E*TRADE claims is not allowed? If it's not that scenario, then the Panel really dropped the ball here by not explaining just what kind of a negative sell Claimant Shibeshi allegedly became involved with and what, if any, contemporaneous communication was sent to him by E*TRADE. Which is not to say that E*TRADE did anything wrong or that Shibeshi did anything right BUT it is to say that I don't understand what was involved with the referenced negative sell.
Sadly, all we have is the conclusory finding in the Award that 150 pre-split shares of Tesla were not involved in a negative sale. The puzzling aspect of the arbitrators' dismissal of Shibeshi's claims is underscored by this quote from the Award:
The arbitrators concede that Shibeshi introduced evidence that E*TRADE had a tax report apparently showing 150 more shares than the firm's transactional report. When confronted with the discrepancy, E*TRADE's margin director asserted that the firm's trading history report was correct. As to the "proof" that the margin director offered in support of his assertion, the Award says that he testified that E*TRADE's "trading system will not allow negative sells, and that its trading history report is correct." If, in fact, Shibeshi attempted to enter so-called negative sells and they were rejected by E*TRADE's system, then one would have expected the margin director to introduce such a trade report in support of his testimony. Did he? Oddly, the Award fails to indicate just what proof E*TRADE presented in support of its margin director's contention that its trading system routinely rejects negative sells.He also entered into evidence Respondent's compiled record of that trading for tax reporting purposes, alleging discrepancies, with the transaction history showing a reduction in his account positions. Claimant requests that 750 additional shares of Tesla stock be added to his account.Respondent argued that its records accurately reflect Claimant's trading history and Tesla stock positions. Respondent's margin director testified that its trading system will not allow negative sells, and that its trading history report is correct. Further, any apparent differences in its tax report and trading history records merely reflect the different purposes of the two documents.
Finally, the arbitrators noted that E*TRADE argued that "any apparent differences in its tax report and trading history records merely reflect the different purposes of the two documents." Ummm . . . what??? So there was an E*TRADE report that corroborated Shibeshi's allegations? After some 40 years on Wall Street in various legal capacities and after some five decades trading stocks and options, I'm not quite sure why a tax report and a trading history would not reconcile -- and if there is an explanation, I sure as hell don't understand why a FINRA Arbitration Award would not include that explanation.