Public customer Steven A. Jay filed a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim in April 2012 seeking $13,360 in compensatory damages as a result of respondent Merrill Lynch, Pierce, Fenner & Smith, Inc's alleged breach of fiduciary duty, misrepresentation, omission of fact, and unsuitability in connection with Jay's purchase of securities under the symbol of PYT (although not explained in the FINRA Arbitration Decision, "PYT" appears to be the symbol forMerrill Lynch Depositor Inc. PreferredPLUS Floating Rate Callable TRUCs Series GSC-2 for Goldman Sachs Capital). Claimant Jay appeared pro se. In the Matter of the FINRA Arbitration Between Steven A. Jay, Claimant, v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Respondent(FINRA Arbitration 12-01400, December 28, 2012).
Oops, Never Mind
On August 14, 2012, Claimant Jay withdrew all claims against the Respondent Merrill Lynch.
On September 28, 2012, Respondent Merrill Lynch submitted a Motion for Expungement of this matter from the Central Registration Depository records ("CRD") of unnamed parties Timothy Ryan, and John C. Ryan. Claimant jJay did not oppose the motion and did not participate at the expungement hearing.
The sole FINRA arbitrator recommended the expungement of both Ryans' CRD, and the Arbitrator offered the following rationale:
Claimant is a sophisticated investor with a great deal of investment experience. Claimant indicated that he wanted the investment to be high grade bonds with a short maturity. The recommendations included four bond products that produced a diversified investment approach. Claimant approved all the purchases. Upon receipt of the trade confirmation, he became aware of the fact that the underlying security for the product at issue had a 30 year term, but that it was tradable on the NYSE. He chose not to disengage from the investment. He did not have any issues with 3 of the 4 products recommended, but a year after the purchase, thought the 4th product, which had some principal value decline, was misrepresented and unsuitable. Claimant claimed that it was a Merrill Lynch product and thus a conflict of interest. This was false. And, the fact that the shares were purchased on the NYSE, and did not generate any broker bonus income, demonstrates no hidden motive for the recommendation. As a sophisticated investor. Claimant knew he could sell the shares at any time, yet held on to them to this date, some 8 years later. Claimant has experienced a 7% loss, based on his purchase price, but a 5% gain when income is added back in. The product has performed as it was described to perform and never missed a dividend payment.
In addition, when Respondent filed its Answer to Claimant's Statement of Claim, Claimant withdrew his complaint. He did not receive any settlement moneys. It can only be concluded that upon reading Respondent's Answer, he realized that his claims were unfounded.
A lousy $13,360 complaint - which winds up getting withdrawn, no less - and look at the mess it causes! On top of the waste of time and money, two industry individuals get their names dragged into the mud. The Ryans were never named in the caption as respondents but regulatory disclosure obligations obligated the listing of this matter on their industry records. If ever there was collateral damage in a FINRA Arbitration, the Ryans are it!
The complaining investor here is characterized by the FINRA Arbitrator as experienced and sophisticated - so this is clearly not a case of some novice being fleeced by evil Wall Street con artists. Moreover, the fund in dispute traded on the New York Stock Exchange, which meant that a sell order could have been placed but the customer chose to stay with the security - even after experiencing that first year's decline, the investor chose to hang on for seven more years. Although the customer incurred a loss based upon his PYT purchase price, in reality, the Claimant realized a net profit of 5% if the paid-out income he received during the holding period is factored into the equation.
Of course, what truly befuddles me and likely you, is why this Statement of Claim was filed in the first place - and I'm not placing all of that blame on the public customer. If, in fact, as the FINRA Arbitrator states that "upon reading Respondent's Answer, he [Claimant Jay] realized that his claims were unfounded," one must clearly wonder why such a revelation didn't occur to Jay prior to the filing of his claim. Was this simply a calculated ploy to force Merrill Lynch to the bargaining table or extract some settlement?
On the other hand, was this a situation where Respondent Merrill Lynch failed to make a meaningful effort to provide the supporting calculations to a sincerely confused investor; or, was this a situation where an obstinate public customer refused to accept the truth? Finally, was this is a situation where the intervention of a mediator might have achieved a more expedient resolution?
As with most litigation, such supposition likely remains dependent upon whom you talk to and what their respective positions (and peeves) were. Merrill Lynch might simply have viewed a $13,300 customer complaint as a nuisance not warranting too much time. The customer might have seen himself as a "good account" and was miffed at the brokerage firm's perceived cavalier brush-off.
Ultimately, what is clear is that the Ryans' became collateral damage through seemingly no fault of their own. The outcome of this case is their exoneration - but for the fact that they didn't need such a hollow victory because they should not have been dragged into such silliness in the first place.
Also READ these "Street Sweeper" columns on FINRA expungements: