Alas, all good things come to an end and, sadly, E*TRADE (or is that E*Trade or is that Etrade or how the hell are you supposed to write that anyway?) has dumped its baby spokesperson. Speaking of brokerage firms and dirty diapers, today's BrokeAndBroker.com Blog has a somewhat messy story about an unhappy E*Trade customer and that firm's handling of his sell order for Apple shares.
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2013, public customer Claimant de Groot alleged that he had sustained losses when attempting to sell shares of Apple stock "through Respondent's interactive voice response system." In addition to seeking costs and attorneys' fee, Claimant de Groot asked for the following relief:
Rewinding of the executed sale transaction to leave Claimant with 114 shares of Apple;
Payment of $3,400.72 to Claimant, which represents 5 shares at $680.143 per share;
Restoration of the $121.24 in additional funds Claimant paid out of his account to repurchase the Apple stock at market value;
The provision of an IRS Form 1099 statement to Claimant and to the IRS that will correctly indicate the sale of five (5) shares of Apple stock on September 7, 2012 and not the allegedly erroneous sale of 119
At the close of the hearing, Claimant requested the amount of $10,972.98 as total compensation in lieu of the above requested relief. In the Matter of the FINRA Arbitration Between David de Groot, Claimant, vs. E*Trade Securities LLC, Respondent(FINRA Arbitration 13-00119, March 27, 2014).
Respondent E*Trade generally denied the allegations.
Award
The sole FINRA arbitrator hearing this matter found Respondent E*Trade liable and ordered it to pay to Claimant de Groot the amount of $10,972.98 in compensatory damages plus 10% interest accruing 30 days after service until the award is fully paid; and $50.00 towards the filing fee.
Bill Singer's Comment
I'm sorry but this is a particularly frustrating FINRA Arbitration Decision for me to read then report about. The facts are truly intriguing but it's virtually impossible to get a handle on any of the underlying dispute, much less what the ruling means or how the award was derived.
For starters, we have a public customer complaining about difficulties communicating with E*Trade through that firm's voice system. You think that someone at FINRA involved in the drafting, review, approval, and publication of this Decision could have offered us some example, some brief explanation of what the disputed telephone call involved?
Did the client allege an inability to access the system?
Did the client allege that the system had malfunctioned?
Did E*Trade investigate the integrity of its system and reach any conclusion -- be that a one-time glitch had occurred or, to the contrary, the system was up and running?
Given the nature of E*Trade's online business, I suspect that there was either an archived online sell order and/or a recorded telephone message indicating Claimant's requested execution.
What did such evidence demonstrate?
Was such evidence produced during the arbitration or did it turn out that such evidence had been compromised?
So many questions and so few answers. All of which leaves us asking just what the hell went wrong here?
My best guess is that Claimant de Groot believes that he had only authorized the sale of 5 shares of a 119 share Apple position but that E*Trade sold 119 shares; and that apparently prompted Claimant to repurchase the 119 and then seek then contemporaneous fair market value for the price of the 5 shares that he originally intended to sell plus compensation for his costs on the errant execution and covering transactions. Of course, Claimant also had a tax event for any profit or loss sustained on the disputed sale of the 119 shares, which is likely why he seeks a corrected 1099.
Or maybe not.
Or maybe yes.
Or maybe only partially so.
Isn't it just wonderful that after reading a published FINRA arbitration decision that we still have little understanding of the dispute, the explanations and defenses, and the rationale for the award?
Since E*Trade was ordered to pay every penny in damages demanded by Claimant de Groot, I am going to assume that the sole FINRA Arbitrator hearing this case found in favor of the public customer. Now there's a duh. Although the disputed transaction does not speak well of E*Trade's quality control, this Decision doesn't speak well of FINRA's quality control either.
No wonder the baby quit his gig at E*TRADE.
UPDATE
Following publication of this FINRA arbitration commentary, Claimant de Groot's lawyer, Ross E. Mitchell, Esq., contacted me and provided me with several PDF files of various pleadings and filings in this matter. As Mitchell observed, this case was truly one about a FINRA member firm's failure to utilize audio/digital records of an order -- which strikes me as puzzling given that E*Trade promotes itself as an online brokerage firm that handles online orders and offers a voice response system. Apparently, E*Trade does not archive such orders because the firm does not retain oral/digital records of the voice activations.
As alleged in Claimant de Groot's Statement of Claim:
[O]n September 7, 2012, Mr. De Groot called E*TRADE's
Interactive Voice Response (IVR) system, and instructed the system to sell five
(5) shares of his Apple stock. Instead of executing his requested order,
E*TRADE's IVR system incorrectly recorded his instruction as an order to sell all
of his shares, and subsequently an order was entered to liquidate his 119
shares of Apple stock instead of the five (5) he had ordered be sold.
The actual words he spoke in response to the system's prompt
for the number of shares to sell was "sell five shares."
. . .
Mr. De Groot believed that if E*TRADE would simply listen to
the recording of his call to the IVR system, they would hear that he had instructed
the system that he wished to "sell five shares." However, in its letter of
September 25, E*TRADE informed him that "[r]ecorded telephone calls are
proprietary records, and per Firm policy, audio copies and transcripts of
recorded telephone conversations cannot be provided to customers." . . .
As noted in E*Trade Answer:
[U]pon entry of an order, the IVR system repeats the order
back to the customer. The customer then must confirm the order by saying "yes"
or pressing the "1" key on the telephone. Claimant confirmed the order that he
placed.
Second, the Statement of Claim suggest that E*TRADE has
somehow engaged in the spoiliation of evidence. ON page 5, Claimant asserts that
"E*TRADE affirmatively chose not to maintain the voice recording that would
settle the matter. In fact, E*TRADE does not record calls in the IVR system.
The IVR system receives between 5,000 and 25,000 calls per day1. Recording each
and every call would be cost prohibitive, particularly given that the system
confirms each order before the order is places . . .
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