In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2011, Claimants asserted causes of action including failure to supervise, negligence, breaches of contract and fiduciary duty, and fraud in connection with their purchases of various annuities, Real Estate Investment Trusts, and mutual funds. Claimants further alleged damages as a result of Respondents' purported failure to liquidate their accounts. Ultimately, Claimants requested
In the Matter of the FINRA Arbitration Between William M. Erickson and Christine T. Erickson, Claimants, vs. Ameriprise Financial Services, Inc. and Lance Norman Becatti, Respondents (FINRA Arbitration 11-03693, April 9, 2013).
Respondents generally denied the allegations and asserted various affirmative defenses. Also, Respondents sought the expungement of the matter from the Central Central Registration Depository record (the "CRD") of Respondent Becatti.
Arbitrators Takes A Swipe
The FINRA Arbitration Panel dismissed Claimants' claims and recommended the expungement of the matter from Respondent Becatti's CRD. In fairly stark and pointed language, the arbitrators offered the following rationale for their decision:
Claimants were customers of Respondent Becatti from 1996 through September 2010. Their grievances against Respondent Becatti began as of October 31, 2007, when they allege they orally instructed him to move as much of their portfolio as possible to cash or cash equivalents ("Cash/Equivalents"), and he instead put them into other unsuitable investments, in which they suffered losses between November 2007 and March 2009.
The evidence showed that Claimants signed all the documents for those investments and that, despite receiving monthly statements and various other reports. Claimants made no attempt to get out of the supposedly unwanted investments for sixteen months.
The only evidence to support Claimants' allegation is their own testimony and. based on their demeanor and the substance of their testimony, the Panel found it not credible. Beyond the standards of normal stress and nervousness, there were self-serving lapses of memory, as well as long pauses on significant issues. Regardless of the straightforward questions that were asked. Claimants evasively strained to give only such information as would help their case. Moreover, their testimony was contradicted by Respondents' much more reasonable and persuasive testimony and far more reliable documentary evidence.
The Panel therefore concluded that Claimants did not instruct Respondent Becatti to take them to Cash/Equivalents on October 31, 2007. . .
Bill Singer's Comment
Not that most serious investors need reminding but shortly after October 2007 the Great Recession reared its very ugly head and slammed the markets until the March 2009 bottom was hit. Consequently, much of what is in dispute in this arbitration takes place during that historic free-fall.
According to the Panel's synopsis, the Claimants relationship with their stockbroker seems to have developed without much of a hitch from 1996 until October 31, 2007. At that point, the customers alleged that they had orally instructed their stockbroker "to move as much of their portfolio as possible to cash or cash equivalents ." At that point, the recriminations begin because Claimants charged that Becatti failed to follow their instructions and apparently put them into unsatisfactory investments contrary to their instructions.
Frankly, it's as much of a classic pissing contest as one could imagine. The customers said they wanted X. The stockbroker says that they wanted Y. You're asked to judge; and about all that you can do is listen to the testimony, weigh the evidence, and make your call - sometimes you get it right, sometimes you don't.
If there is a key inflection point in this dispute, it would likely fall around October 31, 2007 - just before an historic bull market became an historic bear market. Assuming that the customers had conveyed their firm conviction to move into cash at that time, how do we reconcile those purported instructions with the fact that for some 16 months thereafter, the customers seemingly authorized investments to the contrary and received confirmations of same? The mere number "16″ doesn't really do justice to the span of months that we're talking about. That period of purported non-compliance included the entire year of 2008 and was preceded by the last two months of 2007 (as the Bull Market flamed out) and followed by the first three months of 2009 (at which time the Bear Market slammed into its bottom) - when put that way, you get a better sense of the period at issue.
The challenge for the FINRA Arbitration Panel was to figure out whether these customers were duped by their stockbroker, or whether the customers were essentially trying to game the stock market and hold Respondents liable for their losses. In trying to resolve that conflict, the arbitrators inform us that their decision was in large part based upon the credibility of the Claimants' testimony. Sadly for the customers, it appears that they could not have comported themselves in a worse manner in the hearing room.
In summing up the Panel's impression of the Claimants' testimony, the Arbitration Decision resorts to such damning phrases as:
When all is said and done, the Panel rejected the allegation that the Claimants had conveyed to their Respondent stockbroker any clear instruction to move them into cash on or about October 31, 2007. With that finding, the case evaporated into wisps of smoke.
Without question, many customers were defrauded by their stockbrokers and brokerage firms during the Great Recession. I have reported those arbitration victories in the same spirit as I now report this loss. It is not an exercise without purpose. The lesson is that many - if not most - lawsuits rise and fall on considerations of credibility.
To similarly situated customers, the warning is to memorialize in a writing to your stockbroker your account instructions. Moreover, at the first sign of non-compliance with your instructions, memorialize in writing your distress and notify your stockbroker and brokerage firm. Customers must understand that the trade confirmations and monthly statements are both swords and shields to demonstrate what you knew and failed to act on, or what was hidden from you and lulled you into a false sense of security.
To industry participants, take note of what won the day in this arbitration. Also, keep in mind that constant communication with customers and written confirmation of the substance of client meetings and conversations may well avoid future misunderstandings - or could be the scrap of proof that will sway those hearing your case.