Stockbroker Wins Expungement Over Annuities

September 4, 2015

Yesterday, we discussed the case of a registered representative who was sanctioned by the Financial Industry Regulatory Authority ("FINRA") as a result of some alleged improper conduct in connection with variable annuities ("VAs") switches. "The Ol' Variable Annuity Switcheroo" ( Blog, September 3, 2015). In today's article, we consider the ordeal of a registered representative who was accused of engaging in improper sales of annuities and wound up being sued by a customer in a FINRA Arbitration.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in July 2014, and as thereafter amended, public customer Claimant Hebert represented herself (pro se) and asserted causes of action for "unsuitability, breach of fiduciary duty and promise; financial negligence; inappropriate advice; lack of proper counseling; and indifference to a special needs client." In the original Statement of Claim, there were apparently two Claimants, but by the time of the Amended Statement of Claim, only Hebert remained. The claims arose in connection with Claimant's allegations that Respondents had sold her multiple annuities, which were inappropriate.  Claimant further asserted that she had been treated by Respondents with "impatience, hostility, and neglect." Claimant ultimately sought $385,195.39 in compensatory damages, $3,712 in attorneys' fees, and $1,425 in filing fees. In the Matter of the FINRA Arbitration Between Jeanne H. Hebert, Claimant, vs. Wells Fargo Advisors, LLC and Lindsey Dare Barlow, Respondents (FINRA Arbitration 14-02240, August 25, 2015).

Respondents generally denied the allegations, asserted various affirmative defenses, and sought the expungement of this matter from Respondent Barlow's Central Registration Depository records ("CRD").


In July 2015, the parties settled the matter and, thereafter, the motion for Barlow's expungement proceeded without a response from Claimant, who did not participate at the hearing or contest the motion.

Vague Accusations

In deliberating over the requested expungement, the FINRA Arbitration Panel considered that Respondent Barlow did not contribute to the monetary sum paid to Claimant by Respondent Wells Fargo. In deciding to recommend expungement, the Panel offered this rationale:

The Statement of Claim contains vague accusations that are not substantiated by facts. Barlow had an eleven year relationship with Claimant and maintained copious notes of each conversation, especially when significant changes were made to Claimant's account.

Claimant was placed in a managed income-producing account, which consisted of appropriate stocks that generated dividends to support Claimant's need for income. The annuity switch which Claimant complained about involved an exhaustive explanation by the broker on the "Annuity Exchange and Replacement Questionnaire" and included the math supporting a switch. Claimant's CPA was in attendance in a meeting that covered the  switch and he supported the switch. Barlow also arranged a refinance through Wells Fargo that included outstanding debt and lines of credit in an effort to help Claimant control expenses. Finally, Claimant had unrealistic expectations of the broker for assistance on social security issues. Barlow did not have expertise in this area and referred her to the social security office.

Bill Singer's Comment

According to online FINRA BrokerCheck records as of September 4, 2015, Wells Fargo settled the matter on June 29, 2015 for $8,500.

Among the topics that often come up in my discussions with clients of my law practice is the issue of giving tax advice. My answer is consistent: Don't do it! That doesn't always sit well with registered representatives who want to go the extra mile in terms of customer service, and, in many cases, those brokers believe that they understand the tax ramifications as well as (and often better) than a CPA or tax attorney.

In Barlow, we have a registered person who pretty much handled things perfectly (in terms of documenting her customer communications) but despite that, still got sued and required to disclose the allegations. In the end, Barlow was exonerated by the Arbitrators but it took time and dollars to get there -- and the expungement was never a slam dunk of a proposition.

What are the takeaways in Barlow's victory?

One, she apparently documented her rationale for the now-disputed annuity switch. Those worksheets likely helped persuade the arbitrators of her sincerity and the accuracy of her recollection. Note that the Panel characterized Barlow's explanation to Hebert as "exhaustive."

Two, the customer's CPA attended the meeting. That's a wonderful idea. It strongly suggests that the customer had the ability to seek independent advice from her accountant in contradistinction to solely relying upon the stockbroker's recommendations.

Three, when it came to opining about social security ramifications, Barlow declined. What a novel concept? I don't know. If more stockbrokers would utter those magical words to more customers there would likely be fewer lawsuits. On top of acknowledging the limits of her social security expertise, Barlow even referred the customer to a local social security office.

Having set forth the positive things that Barlow did to aid her defense, let me make a few points in favor of customers in general.

If you watch enough television commercials about the brokerage industry, you sort of come away with the impression that stockbrokers know it all. They know where you should start with your retirement planning. They can literally paint a line on the sidewalk and walk you through the many years of saving and investing. They will show up at your son's soccer games. They will offer the toast at your wedding. They have resources at their fingertips capable of answering each and every question, be the query about taxes, investing in Kazakhstan, how you can afford a vacation home, and what Fibonacci says about your proposed re-entry price. In defense of many customers, it's hard to reconcile the public image of the all-knowing, all-powerful stockbroker with the more realistic image of the all-too-human stockbroker who pushes house product on you and told you to heavily invest in Greek banks in 2010.