FINRA Arbitrator Orders Expungement of Defamatory U5

July 21, 2010

On its face, this appeared to be a relatively simple arbitration in which FINRA Associated Person E. Brent Lundgren asserted causes of action against FINRA Associated Persons William Brown Park and Mary L. Redell for owed commissions and expungement of his Form U5. Claimaint Lundgren also sought $7,069.56 in compensatory damages, $2,500 in punitive damages, and costs of $325. As to who Respondents Redell or Park were to Claimant Lundgren, don't ask me because I don't know and the Arbitration decision doesn't spell it out. In the Matter of the Arbitration Between E. Brent Lundgren, Claimant, vs. Will Brown Park and Mary L. Redell, Respondents (FINRA Arbitration 09-06571, July 13, 2010).

While at first blush this looked like a straightforward case, as they say, appearances can be deceiving;  and this arbitration proceded in a manner that was anything but simple.

The Roundabout Way

For starters (and I should have seen this coming), all the parties in this FINRA arbitration appeared without legal counsel (pro se). That virtually guaranteed that the sole FINRA Arbitrator James A. Lundberg would have his work cut out for him. We get a hint that this was going to be a bit like pulling teeth without an anesthetic when Arbitrator Lundberg noted that Claimant Lundgren "has asked in a roundabout way to have the Termination explanation under Reason for Termination in his form U5 expunged."

Okay . . . you know, if you're the Claimant in a FINRA Arbitration, it's probably not the best thing in the world if your claims are characterized by the trier-of-fact as roundabout -- but, as the saying goes: all's well that ends well.

By letter dated February 9, 2010. Claimant withdrew his claims against Respondent Redell. Subsequently, Arbitrator Lundberg denied an award of punitive damages but ordered Respondent Park to pay to Claimant Lundgren compensatory damages of $7,069.56 and $162.50 of Claimant's costs.

Possibly Engaging in Civil Misconduct

Further, based upon a finding that the Termination Comment on Claimant's Form U5 (Section 3) dated October 2, 2009, (as filed by United Equity Securities, LLC) was defamatory and lacking a factual basis,  the Arbitrator recommended the expungement the offending language,  which read:

VIOLATION OF COMPANY POLICIES AND PROCEDURES AND POSSIBLY ENGAGING IN CIVIL MISCONDUCT: PRELIMINARY INVESTIGATION SUGGESTS THAT REPRESENTATIVE VIOLATED HIS EMPLOYMENT AGREEMENT BY (1) DISTRIBUTING CONFIDENTIAL COMPANY INFORMATION TO THIRD PARTIES, (2) RECRUITING OR ATTEMPTING TO RECRUIT REPRESENTATIVES AWAY FROM FIRM. (3) REFUSING TO PROVIDE INFORMATION RELATED TO AN INTERNAL INVESTIGATION. AND (4) DISSEMINATING DEFAMING AND/OR SLANDEROUS INFORMATION ABOUT A PRINCIPLE OF THE FIRM"

The Arbitrator recommended that the Termination Comment be changed to

MR. LUNDGREN WAS DISCHARGED AS A CONSEQUENCE OF A MUTUAL LOSS OF RESPECT BETWEEN WILLIAM PARK AND E. BRENT LUNDGREN.

The Arbitrator left unchanged the reason for temnination: "Discharged". In accordance with FINRA rules, Claimant must comply with the process for obtaining the expungement, which includes the forwarding of a copy of the Award to  FlNRA's Registration and Disclosure Department.

Bill Singer's Comment:  Just goes to show that when you represent yourself in a FINRA arbitration, sometimes, you can win (Claimant Lundgren) and sometimes lose (Respondent Park).  While most pro se cases become little more than a disastrous amateur hour, there are times when the outcomes are credible. 

The initial U5 was certainly wishy-washy -- I mean, come on, if the best that you can allege in a U5 is that a registered person was "possibly engaging in civil misconduct . . ." then I"m not sure that you should be marking up someone's record with such an allegation.  At some point you need to determine whether the "possibly engaging" has been determined to have been proven (and amend the U5 and contact a regulator) or has been determined as inconclusive (in which case you should probably amend the U5 to note that the internal investigation was concluded without any finding). While there may be reasons to memorialize the type of allegations noted on Claimant's initial U5, it's clear that the Arbitrator believed that this was not such a situation.  It seems that the Arbitrator found more pettiness than justification here -- keep in mind that he suggested that the reason for termination was a "mutual loss of respect." Not exactly criminal, regulatory, or civil misconduct. In less exacting legal terms, Arbitrator Lundberg essentially bemoaned the facts and said: Gimme a break! 

Member firms and their employees should not view the U5 as an opportunity to land a last blow, particularly if such a shot will be seen as an illegal kidney punch.  Not only did the Arbitrator award damages and order an expungement in this case, but he could just as easily awarded punitive damages and made a regulatory referral.  Sometimes it's best to bite your tongue, wave good riddance to a former employee, and get on with your business.

Oh, and would someone at FINRA consider not assigning an Arbitrator named Lundberg to a case involving a Claimant named Lundgren because it drove me crazy when I drafted this blog and I had to keep going back and changing the -berg for the -gren, and vice versa.