Auction Rate Securities Arbitration Leads To Stockbroker Expungement

SIDE BAR: Umm, sorry, but I'm a tad lost here. On the one hand, the FINRA Arbitration Decision asserts that E*Trade denied the charges and raised defenses, but, on the other hand, it appears that the firm stood mute on Claimant's claims. Not sure what's what.

Claimant left Respondent before the 2008 Auction Rate Securities ("ARS") market freeze and had no knowledge of that event prior thereto. Up until that point, based upon approximately twenty years of performance, Claimant properly believed and told clients that ARS were a more conservative, AAA-rated alternative to Certificates of Deposit, offering higher interest returns. I further find, based upon this record, that these statements to clients were not misrepresentations or investment-related sales practice violations. Further, given the nature of Respondent's operation and the fact that many of these eight clients were first solicited by a Relationship Manager, and spoke with Call Center Financial Advisors other than Claimant while trading with Respondent, there is no clear evidence that Claimant was the registered representative involved in many of the transactions upon which the CRD complaints were based.

With respect to the Horowitz Case # 09-00708, the documentary and testimonial evidence in this case supported the conclusion to award expungement in this matter. Claimant testified that Mr. Horowitz was referred to him by a Relationship Manager whose name he could not recall. Mr. Horowitz was an experienced investor, worked as a financial planner (2007 FP of the Year) and Series 7 registered representative, and had experience with ARS transactions; in fact, Mr. Horowitz had purchased ARS through UBS before he came to E*Trade and spoke with Claimant (see Arb. Exhibit 1, Exhibit 25 to Claimant's Statement of Claim, page 2). Mr. Horowitz's case went to hearing and the panel granted rescission of his ARS purchase. Claimant testified that Respondent ultimately bought back Mr. Horowitz's ARS.

Claimant swore under oath that he did not misrepresent anything to Mr. Horowitz regarding his purchase. He told Mr. Horowitz that the purchase was an ARP preferred. Claimant testified that Mr. Horowitz regularly received account statements from Respondent that detailed the nature of his ARS investments. Mr. Horowitz was someone who came in through Respondent's 800 number and placed trades through many FAs in the firm. And though he recalled placing the rescinded trade with Mr. Horowitz, Claimant left Respondent's firm 7 months thereafter, so it was factually impossible for him to misrepresent and conceal anything from Mr. Horowitz for two years.

During Case #09-00708, Mr. Horowitz testified that he listened to every voicemail and "if i heard the word 'auction' I would have known I had the wrong security." During the expungement hearing. Claimant played the recording of a voicemail message (which was not permitted into evidence in the Horowitz arbitration because it was produced late by counsel) he left for Mr. Horowitz, mentioning the word "auction" twice and stating "we will be in Monday's auction with 7 day paper." Although Claimant lost the Horowitz arbitration and was required to pay counsel fees (where this recording, and 4-5 other like it were not admitted), in a subsequent arbitration with Respondent where the recordings were admitted, the panel did not hold him responsible for fees.

Finally, an award of expungement is justified in this case because the recording of Claimant's voicemail to Horowitz, which was excluded from evidence in Case # 09-00708 below and would have challenged the credibility of Mr. Horowitz's testimony, was admitted and subject to additional corroborating testimony in this record. . .

• ARS
• FINRA
• Auction Rate Securities
• Arbitration
• Expungement
• Bill Singer
• BrokeAndBroker