Undisclosed Customer Complaints Cited In FINRA Arbitration

June 24, 2015

It has been said that lawyers' fees are like a gas, which expands to fill any size container. Sometimes you get what you pay for and your lawyer thinks outside the box and goes to the mat for you. Sometimes it feels like you're being over-charged for cookie-cutter legal work. In a recent FINRA customer arbitration, the Claimants sure as hell got their moneys-worth in terms of a clever legal theory -- if only the Award equaled the brilliant legal effort.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2012, public customer Claimants alleged causes of action including breaches of contract and fiduciary duty, negligence, unsuitability, fraud, improper supervision, and failure to disclose misconduct by employees. Claimants sought $585,940 in damages plus punitive damages, interest, attorneys' fee, and costs. In the Matter of the FINRA Arbitration Between Eugene John Doskocz and Fiona Doskocz, Claimants, vs. A.G. Edwards & Sons, Inc. and Sigma Financial Corporation, Respondent (FINRA Arbitration 12-00512, June 19, 2015).

Respondents generally denied the allegations and asserted various affirmative defenses.

Why Didn't You Tell Us?

Claimants' allegations are, indeed, somewhat unique and raise provocative questions. As set forth in the FINRA Arbitration Decision: 

[C]laimants alleged that they should have been informed when their former broker was terminated by A.G. Edwards for unrelated customer complaints. Claimants further alleged that they were not notified about unrelated customer complaints against their former broker at both A.G. Edwards and Sigma, or the resulting settlements. Claimants finally alleged that the funds from their accounts at Sigma were used to satisfy their former broker's settlement of the unrelated customer complaint. . .


The FINRA Arbitration Panel found:

  • Respondent A.G. Edwards liable to and ordered it to pay to Claimants $40,000.00 in compensatory damages;
  • Respondent Sigma liable to and ordered it to pay to Claimants $40,000.00 in compensatory damages.
The customers sought $586,000 but were only awarded $80,000. Why did the FINRA Arbitration Panel only award about 14% of what was sought? I dunno. They didn't explain. We're all left puzzled as to whether this was a victory or defeat or something in the middle.

Bill Singer's Comment

Public customers Eugene and Fiona Doskocz sued A. G. Edwards and Sigma for about $586,000 in damages. Among the theories of their case was that neither of the FINRA member firms had notified them of customer complaints against their former stockbroker -- and that A. G. Edwards terminated the stockbroker because of unrelated customer complaints. That's a clever and interesting argument, and one that may well have persuaded the FINRA arbitrators.

Industry practitioners would note that customer complaints are merely allegations and that there is some inherent unfairness in requiring such disclosure. 

Public customer advocates would note that industry rules and regulations already require the disclosure of consumer-initiated sales practices complaints, so the firms were in violation of those obligations. 

Sadly, the arbitrators left us hanging. How come the complaints in dispute were not posted on FINRA's BrokerCheck for all to see . . . or were they?  What about the termination -- was that also online?

Similarly, I wish the FINRA Arbitration Decision had offered us just a bit more content and context: 

  • Were the other customer complaints about "sales practices?" 
  • Were the other complaints timely disclosed by the stockbroker and the brokerage firms to FINRA and other regulators? 
  • Were the customer complaints and termination disclosed on BrokerCheck
  • Did the Arbitration Panel refer the non-disclosure issue to FINRA for a regulatory investigation?

Alas, just as the Claimants raised some intriguing legal theories, the FINRA Arbitration Decision raises some rather intriguing, unanswered questions.