Stockbroker Wins Expungement Of Suitability Complaints

May 7, 2013

A stockbroker was named as a respondent in a customer's 2009 arbitration, but, thereafter, the registered person turned around and named the customer as a respondent in a 2013 arbitration.  The stockbroker's goal in going after the customer was to obtain an expungement from his industry record of the 2009 claims. The arbitrator's decision provides us with insight into how triers-of-fact weigh different considerations.

Turnaround Is Fairplay

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in July 2012, registered person Claimant Fetterman sought the expungement from his Central Registration Depository record ("CRD") of an arbitration previously filed by public customer Respondent Fowler: Karin Fowler, Claimant, vs. Sean Mark Fetterman, et al., Respondents (FINRA Arbitration 09-01077) (the "2009 Fowler Arbitration"). In the Matter of the FINRA Arbitration Between Sean Mark Fetterman, Claimant, vs. Karin Fowler, Respondent (FINRA Arbitration 12-02649, May 2, 2013). 

Respondent Fowler did not enter an appearance or oppose the expungement request.


The sole FINRA arbitrator hearing the matter recommended the expungement of the 2009 Fowler Arbitration from Claimant Fetterman's CRD.  The Arbitrator found that:

[T]he claims of unsuitability are not supported by the evidence since the investments were consistent with the investor's stated goal of growth and income, and not preservation of capital as evidenced by the investments that were transferred into the account at issue from the prior brokerage firm. Additionally, the investor made substantial withdrawals from the accounts.

The accounts generated income and increased in value despite substantial withdrawals while the account was managed by Claimant.

The transfer of the account to a subsequent brokerage firm for a brief period was the result of clerical error, and the account suffered no loss during this time. Further, the investor registered no complaints regarding her investments during the time that they were managed on a non-discretionary basis by Claimant, nor at the time they were transferred back to Wachovia.

The investor was a sophisticated investor and confirmed all account activity. The investor was seeking higher returns, not preservation of capital, when the accounts were transferred to Claimant as her investment advisor. Additionally, the accounts performed positively when Claimant was her financial advisor. . .

Bill Singer's Comment

Sometimes it just pays to persevere and hang in there, as Fetterman learned. A number of issues noted in the arbitrator's rationale are worth reiterating:

Suitability: In this case, the arbitrator found that the investments at issue were consistent with the customer's growth/income stated goals. Apparently, the customer argued that she had desired (perhaps orally requested?) "preservation of capital"; however, the arbitrator found that the "stated" and more speculative goals of growth and income were more consistent with the evidence. In reaching that decision, the arbitrator also gave weight to the fact that certain transferred-in positions comported with the stated goals. 

Account History: Customer Fowler was found to have made substantial withdrawals from her accounts, but notwithstanding, her accounts generated income and increased in value. 

Complaint History: At some point during Fowler's history at Wachovia, it seems that an account(s) was inadvertently transferred out but suffered no loss. Whatever the issue with that transfer, the arbitrator made a point of noting that Fowler had not filed any complaints during the periods when the accounts were at Wachovia, transferred out, or returned.  Almost set forth as strike one, strike two, and strike three -- yer out! Credibility is often judged based upon contemporaneous evidence of a customer's satisfaction or dissatisfaction. If the first an objection is raised is after losses are incurred, it may well be received as nothing more than sour grapes.  The lesson here for public customers is to contemporaneously register your complaints with both the broker and brokerage firm and, preferably, in writing. 

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