by Bill Singer
Customer Settles Annuity Claim But Stockbroker Wins Expungement
December 29, 2011
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2011 and thereafter amended, among the claims asserted by the Claimant Weiss were breach of contract, unsuitability, and fraud arising in connection with his investments in several annuities. Claimant ultimately sought at least $75,000 in compensatory damages, rescissionary damages, disgorgement of Respondents' compensation, interest from the date of loss until payment of final judgment, punitive and/or exemplary damages, costs, expert and witness fees and administrative expenses. In the Matter of the FINRA Arbitration Between Michael Weiss, Claimant, vs. Nationwide Planning Associates Inc. and Keith Joseph Steidle, Respondents (FINRA Arbitration 11-01164, December 23, 2011).
Respondents Nationwide and Steidle generally denied the allegations and asserted various affirmative defenses. Respondent Steidle asserted a Counterclaim alleging that Claimant Weiss's claims were false, fraudulent and made with malicious intent to harm Steidle's business, professionalism, and integrity. Counter-Claimant Steidle sought $1 Million in compensatory damages, costs, expenses, attorneys' fee, and the expungement of this matter from his Central Registration and Depository records ("CRD").
Settlement
According to online FINRA regulatory records (as of December 29, 2011), on October 7, 2011, Claimant Weiss settled this arbitration for $33,000. Around November 3, 2011, the parties notified FINRA that they had settled the case and that Steidle requested an expungement hearing, which the Panel conducted. Although notified of the expungement hearing, the Claimant did not appear.
Expungement
The majority of the Panel (2:1) recommended the expungement of all reference to this arbitration from Respondent Steidle's CRD. The Panel noted that they had:
[R]eviewed and considered Respondents' Exhibit R - 2 and Claimant's statement in an email dated November 3, 2011 in which Claimant stated that the diminution in value of his annuity sub-accounts was the result of the global economic crisis and not because of any wrongdoing on the part of Steidle. The panel also reviewed the Respondents' Exhibit R - 1 and the parties' Settlement Agreement and Mutual General Release of Claims, considered the amounts paid to any party, and considered the other relevant terms and conditions of the settlement.
The Panel, by a majority vote, finds that Mr. Steidle, through counsel, demonstrated the allegations against him in the Statement of Claim were false. Specifically, Mr. Steidle submitted as evidence Claimant's email to FINRA stating that, in reviewing all of the information, he retrospectively understood that his losses were due to market conditions and were not caused by the conduct of Mr. Steidle. Claimant had alleged that Respondent Steidle breached his duty to manage Claimant's account as the cause for the loss in value in his sub-accounts. Claimant's Statement of Claim also stated that he relied on advice from other financial advisors that an annuity was unsuitable for him, however. Claimant already owned an annuity which he surrendered to purchase the annuity in question from Mr. Steidle.
Furthermore, Mr. Steidle testified that Claimant was appropriately diversified in his overall portfolio and that this investment represented a small portion of his total investments, and that the decisions to invest in the various sub-accounts were ultimately made by the Claimant. The motion to expunge was unopposed. . .
Dissent
In dissenting from the Majority, the Chair stated that:
[M]r. Steidle, through counsel, represented to the Panel that the condition for settlement with Claimant was based on Claimant's agreement to support expungement. No sworn testimony by Claimant was presented although several options including in-person testimony, telephonic appearance, certification or affidavit were available. The Panel did not have the opportunity to question Claimant or assess credibility regarding expungement given the conditions for the settlement. Additionally, no evidence regarding the annuity itself was presented in support of losses due to market conditions.
Bill Singer's Comment
First and foremost, a tip of the hat to these three arbitrators for not only taking the time to explain their decision, and accomplishing that admirably, but also a special bow to the Chair for her thoughtful Dissent. As this case demonstrates,expungement is not just a concern for stockbrokers at big firms such as Merrill, Morgan Stanley, UBS, Wells Fargo, or JP Morgan - to the contrary, in the aftermath of the market crash of 2008/2009, many cases are just now filtering through FINRA's arbitration forum, and that tsunami is carrying all sizes of firms in its path. Moreover, the disputes are not just about failed investments in failed companies but also about products such as annuities or limited partnerships.
Having expressed my sincere appreciation for this FINRA Arbitration Panel's Decision, let me part ways with the Chair concerning her reason for dissenting.
In these contested customer-industry arbitrations, respondents are still entitled to the presumption of innocence, notwithstanding that unlike the burden of proof in a criminal proceeding, which is beyond any reasonable doubt, the lesser burden here is merely a preponderance of the evidence. Consequently, while liability is not presumed, it must still be demonstrated as more likely than not. The mere occurrence of a settlement does not automatically deem a respondent as guilty of the charged misconduct.
The Majority in this case noted that:
in an email dated November 3, 2011 in which Claimant stated that the diminution in value of his annuity sub-accounts was the result of the global economic crisis and not because of any wrongdoing on the part of Steidle . . .
In addition to that persuasive bit of evidence, the Majoritynoted additional factors that, when added together, provide what I deem a sound basis upon which to grant the expungement.
The Dissent notes, among other points, that:
No sworn testimony by Claimant was presented although several options including in-person testimony, telephonic appearance, certification or affidavit were available.
Boiled down to its essence, the Dissent suggests that the Majorityis simply taking Respondent Steidle's "word." To some extent, she is correct. However, not only did the majority consider various materials that were submitted with the claims and responses, but also noted the existence of Claimant's prior investing history with another annuity. For the Majority, Respondent had presented compelling defense to charges of his personal misconduct; however, for the Dissent, the issue seems largely to be the silence from the Claimant in rebuttal.
What seems missing in the Dissent‘s commentary is the consideration that Claimant brought the case, Claimant chose to settle, and Claimant was provided an opportunity to challenge the requested expungement but chose not to appear. Under such circumstances, it strikes me as a bit unfair to deny a requested expungement in the face of the facts and circumstances cited by the Majority and to largely base that denial on the refusal of the Claimant to participate in the expungement hearing. The opportunity was provided but not accepted. That should not be held against a respondent.
Under different circumstances, it may well be that a respondent in Steidle's position will lack a persuasive email or inconsistencies between the allegations and facts. In such a case, even the Majoritymight not grant an expungement. On the other hand, here, where Respondent Steidle presented compelling evidence in favor of an expungement, I don't believe that a Panel's failure (which is more accurately an "inability") to obtain testimony from a settling Claimant should be dispositive. Consequently, I think the Majority got this one right.