In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2010, Claimant Alexandra Germano asserted breach of contract, suitability, negligence, and breach of fiduciary duty. Claimant sought compensatory and punitive damages, interest, attorneys' fees, and costs. In the Matter of the Arbitration Between Alexandra Germano, Claimant vs. Merrill Lynch, Pierce, Fenner and Smith Incorporated, Respondent vs. Jennifer Germano, Third-Party Respondent (FINRA Arbitration 10-01204, May 10, 2011)
Respondent generally denied the allegations, asserted various affirmative defenses, and filed a Third-Party Claim seeking indemnification from Respondent Jennifer Germano. Also, Respondent sought an expungement of the Central Registration Depository ("CRD") records of unnamed party Vice President Danielle Burness.
Third-Party Respondent J. Germano did not file a Submission Agreement but is required to submit to arbitration and is bound by the determination of the Panel on all issues submitted.
On or about November 4, 2010, the parties notified FINRA that Claimant's Claim and Respondent's Third-Party Claim were both being withdrawn with prejudice. Thereafter, on February 16, 2011, the FINRA Arbitration Panel conducted a recorded in-person hearing to permit the parties to present oral argument on Burness's request for an expungement of the arbitration from her CRD.
The Panel provides us some context by explaining that Claimant Alexandra Germano instituted her arbitration with respect to her securities accounts that were maintained at Respondent Merrill Lynch - retirement and taxable accounts were opened in March 2007 by Claimant's daughter, Respondent Jennifer Germano. Jennifer Germano was Claimant's court-appointed guardian, named as a Third-Party Respondent in this matter by Respondent.
By the end of 2007, the assets in Claimant's accounts were valued at about $3,000,000; however, when the accounts were closed in 2009 (after the termination of the guardianship by the daughter) the accounts' value had fallen to $1,600,000. During the period in question, a small amount of funds in certain retirement accounts was transferred to other investments, and certain equities were liquidated to pay the Claimant's living and other expenses.
Claimant alleged in her Statement of Claim that the assets originally transferred to the Respondent Merrill Lynch by her daughter were concentrated in a limited number of securities, and that Respondent breached its duties to Claimant by not insisting that the assets be diversified and put in suitable investments.
Danielle Burness was the broker of record and she testified that she made many and repeated recommendations with respect to investments in a basket of equities and fixed income investments to address diversification and suitability. Except for some funds in retirement accounts, Jennifer Gennano did not act on the recommendations. All of the accounts were non-discretionary accounts.
SIDE BAR: In addition to her oral testimony, Burness produced corroborative exhibits consisting of e-mails, telephone logs, portfolio reviews and analyses. This is a worthwhile lesson for those of you who may one day be sued by a client. Your word is, at best, your word - some judges, jurors, or hearing panelists may or may not believe your recollection. However, when your word is corroborated by contemporaneous emails and phone logs, that may well tip the balance of the scales in your favor. Similarly, if you have memorialized your conduct and actions - in this case Burness saved portfolio reviews and analyses - that may well make all the difference between victory and defeat.
The FINRA Arbitration Panel recommended in accordance with the terms of FINRA Notice to Members 04-16: Expungement that Burness's CRD record be expunged of all reference to this arbitration. In reaching that decision, the Panel noted that
- Claimant had executed a General Release without a hearing on the merits of her claims;
- No payment of funds was made by Respondent; and
- Claimant consented to Bumess' request for expungement and did not appear at the Expungement Hearing.