In a FINRA Arbitration Statement of Claim filed in January 2010, Claimant Jesup & Lamont Securities Corp. sought $35,000 in compensatory damages and $10,500 in various fees from Respondent Foley arising from the alleged non-payment of a promissory note.  Respondent generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim seeking $1,000,000.00 in compensatory damages and an expungement of alleged defamatory statements on his From U4. In the Matter of the Arbitration Between Jesup & Lamont Securities Corp.,Claimant, versus Aaron Foley, Respondent. (FINRA Arbitration 10-00038 September 7, 2010)

Claimant Starts It But Fails To Finish

Although Claimant Jesup & Lamont initiated the FINRA arbitration, the firm did not appear at the hearing. In June of 2010, FINRA instructed the member firm to cease doing a securities business because of alleged net capital deficiencies. Thereafter, the 133-year-old firm announced massive layoffs.  Respondent Foley did appear.

When Correspondence Is Not A Complaint

Claimant Jesup & Lamont apparently claimed that Jane Fisher, a customer of Respondent Foley, had complained about the broker engaging in an unauthorized transaction and the unauthorized dissemination of confidential account information, all of which purportedly resulted in the customer sustaining a loss of $5,000.00. That information was noted on Respondent's Form U5 and would have required disclosure on his Form U4 and other regulatory filings.  

Respondent Foley testified that customer Jane Fisher's account was supervised by another broker, who suddenly departed from the Claimant's firm and that the account was then transfened to Respondent. In order to protect the assets of Fisher (and with her consent), Respondent sold certain posttions in her account and deposited the proceeds in either a money market account or other conservative investments.

Subsequently, Fisher wrote a letter requesting that the Claimant determine if her account was being property maintained according to her financial goals. As to whether that letter was a mere inquiry or a complaint appears to have been the source of contention between Claimant and Respondent.  Moreover, the substance of the customer's communication also appears to have been disputed. The FINRA Panel determined that Fisher had never expressed any concern or dissatisfaction with the actions of Respondent, and that the letter was not a letter of "complaint" but just a request for information.

Part of a Pattern

Respondent Foley further testified that Claimant  Jesup & Lamont had a reputation of putting false or inaccurate comments on a broker's U4 as a means to prevent the broker from leaving their employment.

Former Jesup & Lamont Branch Manager James Devers testified that he had never received a letter of complaint from Jane Fisher or any other client of Respondent Foley's. Devers also corroborated that Claimant engaged in the tactic of putting erroneous or false statements on a broker's U4 to prevent the broker from leaving. As Respondent Foley's immediate supervisor, Devers only found out about the comments on Foley's U4 with the commencement of this FINRA arbitration. Devers testified that the allegations on Respondent's U4 were false and, in fact, never occurred.

The Panel Rules

The FINRA Arbitration Panel denied Claimant's claims in their entirety.

The Panel unanimously concluded that the alleged customer complaint against Respondent Foley about an unauthorized transaction and the unauthorized dissemination of confidential account information resulting in an alleged loss of $5,000.00 was false and defamatory. Therefore, the Panel recommended full expungement of Respondent's U4 and his Central Registration Depository (CRD) records of all reference to the Fisher customer complaint. 

The Panel further found Claimant liable to and ordered it to pay to Respondent

• $127,500 in compensatory damages plus interest at the rate of 12% per annum from September 1,2010 until payment of the Award; and
  
• $375.00 to reimburse Respondent for the non-refundable portion of the filing fee previously paid to FINRA.

Pursuant to Notice to Members 04-16, Respondent must obtain confirmation from a court of competent jurisdiction before the CRD will execute the expungement directive. Unless specifically waived in writing by FINRA, parties seeking judicial confirmation of an arbitration award containing expungement relief must name FINRA as an additional party and serve FINRA with all appropriate documents.

Bill Singer's Comment:  Broker often contact me about cases similar to the one cited above. Typically, such disputes are "pissing contests" or of the "he-said-she-said" variety. As such, the arbitration hearing takes on the characteristic of one party calling the other a liar, and vice versa.  The ultimate decision tends to depend heavily upon the credibilty of the parties rather than corroborative evidence or testimony.

In Jesup & Lamont v. Foley, we have the odd set of circumstances where the former Branch Manager gave testimony that supported and corroborated the allegations of the registered person. Similarly, the customer letter at issue seems to have spoken for itself by not pointing a finger of "complaint" at Respondent Foley.  What makes this all even more bizarre is that the member firm started the arbitration and then disappeared.  If ever there was truth to the warning about "be careful what you start," this case is it.

In coming months and years it is likely that we will see more cases of this ilk resolved in favor of the registered person.  Why?  Well, among the more obvious reasons is that the Great Recession prompted the termination of many managers -- folks who typically closed ranks with their employer and gave testimony hostile to the former registered person.  These days,  former managers who were down-sized and laid off are not necessarily prepared to toe the good old company line.  Similarly, these disgruntled folks may pry open the locked doors of many a closet, and once-hidden skeletons may come falling out into view.

Consequently, Jesup & Lamont v. Foley should serve as a warning to many FINRA member firms that the times are a changin'.  What goes round, comes round.