In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2008, Claimant Spilkevitz asserted causes of action of libel and improper filing of non-reportable information to the Central Registration Depository ("CRD"). Claimant sought the expungement from her CRD /Form U5 of references to former customers' (all but one was named as a Respondent) complaints to Respondent Chase and Chase's settlements.  Claimant also sought reimbursement of all filing fees and costs.

In the Matter of the Arbitration Between Alaina Spilkevitz, Claimant, v. Marie Gange, Egidio DiPietro, Luanne DiPietro, Margaret Lindner, Irene Rosen, and Chase Investment Services Corp., Respondents (FINRA Arbitration 08-04039, June 10, 2011)

Respondents Gange and Chase generally denied the allegations and asserted various affirmative defenses.

In February 2009, Claimant withdrew the claims against the customer Respondents and substituted Chase as the sole Respondent.

Decision

The FINRA Arbitration Panel recommended in accordance with Notice to Members 04-16: Expungement, the expungement of all reference to former Respondents Gange, Egidio DiPietro, Luanne DiPietro, Lindner, and Rosen, and unnamed party James Zaffarese's customer complaints to Chase and Chase's settlement with them in Claimant Spilkevitz's registration records maintained by the CRD.  Note: the DiPietros were a joint account and deemed one customer for this matter.

The Panel found "overwhelming and uncontroverted oral and documentary evidence" in support of Claimant's allegations. In reaching its decision, the FINRA Panel noted four areas of consideration.

I. Uncontroverted oral testimony of Claimant Spilkevitz that:

(a) she inherited from a predecessor at the Chase branch where she was employed each of the five customers, who eventually lodged complaints. Further, the Panel was satisfied that it was Claimant's predecessor who placed the complaining customers in the investment product in dispute; 

(b) over the course of several conversations and/or meetings,  Claimant advised each of the customers of the tax consequences for switching and/or redeeming account assets when the customers expressed an interest in making switches or redemptions; and that the customers knowingly chose to make such switches or redemptions after they were so advised;

(c) that Claimant was told by her supervisors and counsel for Chase that the complaints related to the accounts of four of the aforesaid customers were being settled for business considerations and that she would not be required to contribute towards the settlements or indemnify Chase for any part of the settlements;

(d) that Claimant vigorously objected to such settlements because she believed that the claims were baseless; and

(e) that a settlement of the complaint of James Zaffarese, the fifth customer, took place without her knowledge or input after she left the employ of Chase; and that Chase did not demand contribution or indemnification with respect to settlement of the Zaffarese complaint.

II. Uncontroverted documentary evidence consisting of contemporaneous written notes that were made by the Claimant during each meeting and/or discussion with the customers that occurred before the customers executed their respective switches or redemptions, which notes included references to discussions of tax consequences and suggestions for customers to review their decisions with their accountants;

III. Uncontroverted documentary evidence, consisting of Switch or Redemption application forms, executed by the aforesaid customers, that included numerous conspicuous notices to the customers that the changes they requested would result in tax consequences; and the customers' reasons for their election to make their
respective investment changes; and

IV. The July 28, 2010 Amended Form U4 for Claimant, which substantiated the her non-contribution to the customer settlements.

Bill Singer's Comment:  Many, perhaps too many, registered persons find themselves in situations similar to that of Claimant Spilkevitz  where they have been named in customer complaints for conduct of another stockbroker - or are being held accountable for nondisclosure of information that they swear that they disclosed.  The disheartening costs of retaining your own lawyer to defend your besmirched reputation aside, the FINRA expungement process itself can be quite daunting. 

To Claimant Spilkevitz's credit she hung in there and fought the good fight to preserve her reputation.  A big plus in favor of her efforts was that she had inherited these accounts and could not properly be charged with making the sales of the products in dispute. 

We can infer from the Arbitration Decision that the unhappy customers argued that they switched/redeemed assets without being informed of the negative tax consequences. However, the Arbitration Panel credited the oral and written evidence presented by Spilkevitz that she had advised the customers of the tax consequences and their decisions were made following such advice - which was further buttressed by prominent warnings on the attendant switch/redemption forms.

Finally, we have the classic pissed-off registered person who appears to have been dragged kicking and screaming by Respondent Chase through the initial customer complaint process and resulting settlements.  There seems little doubt that Claimant Spilkevitz thought the customers were full of crap and that she would not contribute one cent to any bogus settlement.  If nothing else, when her expungement request came before the FINRA arbitrators, everything about Spilevitz's position underscored the sincerity of position.

Notwithstanding all of the above, Respondent Chase should not be criticized for making business decisions to settle a number of likely nettlesome cases. It is likely that the five customers were sincere in their allegations and since Respondent Chase paid out the bucks, one must fairly infer that there may have been some issues that prompted the settlement. 

Nonetheless, Spilkevitz inherited these accounts after the initial transactions occurred and had no liability whatsoever for those recommendations.  Further, Spilkevitz appears to have proven to the Arbitrators satisfaction that she had warned the customers about the tax consequences of their contemplated transactions. Clearly, this was a case where the individual broker's perseverance paid off.