An irreverent Wall Street Blog
Trade Error Haunts Stockbroker
November 8, 2016
Even with the benefit and wisdom of 20/20
hindsight, there are some situations that just seem to suck a victim into an
unseen morass from which they are then dragged
into oblivion. It's not that such victims are blameless; fact is,
they often should have seen where they were heading and taken more steps to
avoid the looming disaster. Notwithstanding, right or wrong, victim or
victimizer, it's rarely an enjoyable event when you see a career unravel. As with
so many of these tales, it's often a careless error or silly mistake that marks
the first steps off the beaten path. As a recent FINRA saga shows, something as innocuous
as a trade error can start the process that ends with our undoing.
2011
Arbitration
Respondent Hutton did not enter
an appearance.
The sole FINRA Arbitrator found
Respondent Hutton liable and ordered her to pay to Claimant Cambridge
$88,036.74 consisting of so-called "trade retention expenses,"
principal on the note; 18% post-judgment interest, fees, and costs.
2012
FINRA Suspension
According to online FINRA
records as of November 8, 2016, "Individuals Suspended for Failure to Comply with an Arbitration Award
or Settlement Agreement Pursuant to FINRA Rule 9554" (FINRA Disciplinary and Other Actions; Page 47/
June
2012):
Candice Joy Hutton (CRD #2733374)Arvada, Colorado(April 25, 2012)FINRA Arbitration Case #11-02800
2016 FINRA
Arbitration
In a Financial Industry
Regulatory Authority ("FINRA") Arbitration Statement of Claim filed
in January 2016, Claimant Hutton, representing herself pro se, asserted failure
to supervise, failure to disclose, and omission of facts in connection with her
contention that Respondent Cambridge Investment Research had "lost an
electronic trade ticket which resulted in Claimant's clients shares sitting in
a block trading account for two months while depreciating in value." Claimant
sought:
1. Damages in the amount of $5,055 000.00.2. Treble damages in the amount of $10,110,000.00;3. Punitive damages;4. Interest in the amount of 18% starting on the day Claimant is awarded her claims;5. Respondent's prior claim and award be expunged from Claimant's Central Registration Depository ("CRD") records;6. Claimant's FINRA suspension be lifted;7. All filings on Claimant's Form U4 be removed; and8. Claimants licenses reinstated.
In the Matter of the
FINRA Arbitration Between Candice J. Hutton, Claimant /
Counter-Respondent, vs Cambridge Investment Research, Inc.,
Respondent / Counter-Claimant (FINRA Arbitration
16-00120, November 3, 2016).
SIDE BAR: No . . . it's not a typo. The "treble" damages of $10,110,000 are not three times the $5,055,00 in compensatory damages. Hey, I just report it as they print it. Don't blame me for the math. As you will see, if nothing else, today's BrokeAndBroker.com Blog is about mistakes.
Respondent Cambridge generally
denied the allegations; asserted various affirmative defenses; and
counterclaimed seeking damages, fees, costs, interest and asked that
the FINRA Arbitration Panel reaffirm the prior arbitration award
in FINRA Arbitration Case No. 11-02800.
On July 21, 2016, Respondent
Cambridge filed a Motion to Dismiss, which Claimant opposed.
On October 11, 2016, the Panel granted Respondent's Motion to
Dismiss pursuant to Code of Arbitration Procedure Rule 13206: Time
Limits. As set forth in admirable detail in the FINRA Arbitration
Decision the Panel offered this explanation and
rationale:
Specifically the Panel found that in March 2009, a trade anomaly occurred in Claimants clients' accounts. Claimant was made aware of the problem in May 2009 by Respondent (on or about May 11, 2009 per Claimants response to the Motion to Dismiss). In the Statement of Claim, Claimant affirmed that she emailed Respondent asking Respondent to contact her affected clients after being told on June 25, 2009 by Respondent not to contact them herself (Statement of Claim; Exhibit 2). Claimant further said in the Statement of Claim that she was told not to contact her clients and that if she did so she would be liable for the E&O insurance deductible.Further, the Panel found that a letter was received by Claimant dated June 25, 2009 from a client who was upset over the situation and instructed Claimant to make arrangements to (prepare to) move their account to Fidelity (Statement of Claim; Exhibit 1). On August 14, 2009, Claimant sent an email to Respondent with an example of what Claimant wished to send to her clients to communicate with them on the matter (Statement of Claim; Exhibit 6), but does not appear to have received a response.In addition, in July 2011, Respondent filed an arbitration claim against Claimant for breach of contract of a registered representative agreement and breach of contract of a Promissory Note (Statement of Claim Count 1 and 2 of Arbitration Case No. 11-02800; Exhibit G of Respondent's Answer to this current claim). The basis for the claim was, in part, the subject matter the Panel is now being asked to consider. In Arbitration Case No. 11-02800 Respondents General Allegations section including item 4, and count 1 section items 10 and 11 state "between March 2009 and April 2009 Hutton's actions as an associated person of Cambridge resulted in trade errors that caused numerous clients of Hutton to sustain losses . . ." Claimant neither responded to this filing, nor filed a Counterclaim, nor presented any documents. A default judgment was awarded to Respondent on January 27, 2012 that was perfected in a Denver court in December 2013. When asked why the claim's subject matter of this current case was not addressed, Claimant was aware of the previous case filing and the issues, but rather stated the reason she did not appear was she did not have the wherewithal to hire counsel to represent her at that time in that case.In conclusion, there has been no additional information presented to contradict a finding that the event causing, and associated losses claimed, occurred over six years before January 2016 (date of the filing of this claim) or that the Claimant was aware of both as early as the second half of 2009 and failed to timely file for relief although having ample time to do so.Respondent's Motion to Dismiss pursuant to Rule 13206 of the Code is granted by the Panel without prejudice to any right the Claimant has to file in court; Claimant is not prohibited from pursuing her claims in a court pursuant to Rule 13206(b) of the Code.On or about September 30, 2016, Claimant Candice J. Hutton filed for bankruptcy under the United States Bankruptcy Code. In accordance with these filings, all claims against Claimant Candice J. Hutton are indefinitely stayed. Therefore, the Panel made no determination with respect to the claims against Claimant Candice J. Hutton.On October 20, 2016, Respondent withdrew its Counterclaim with prejudice.The Panel has agreed that the Award in this matter may be executed in counterpart copies or that a handwritten, signed Award may be entered.In accordance with the above findings, the FINRA Arbitration Panel dismissed Claimant's claims and declined to rule on the requested Expungement and pointedly makes no determination as to that request's merits.
Bill Singer's
Comment
Compliments to the 2016 FINRA
Arbitration Panel for a thoughtful and substantive presentation of the
arbitrators' rationale. Although there
are many points and observations that I could make, I don't want to come off as
piling on, and, frankly, the 2016 FINRA Arbitration Decision
offers sufficient content and context so as to permit you to draw
your own inferences and conclusions. By
way of additional background, I note the
following:
Colorado
Revocation Proceedings
Online FINRA
BrokerCheck records as of November 8, 2016, disclose that Hutton was
first registered in 1996. Additionally, those online records disclose that the
Colorado Division of Securities initiated revocation proceedings that are still
pending against Hutton on October 19, 2016, based upon allegations
of:
Custody violations, misleading filings and unlawful representations, charging fees not in accordance with contract terms, failure to produce documents requested by the Colorado Division of Securities.
Settled
Customer
Disputes
Under the
BrokerCheck heading of "Customer Dispute -
Settled" are three disclosures reported by
Cambridge.
1. On June 25, 2009, a customer SOUGHT $844,138 in damages and alleged:CLIENT BELIEVES SYSTEM ERRORS CREATED INACCURATE NUMBERS IN PORTFOLIO. CLIENT STATES, BECAUSE THEY HAVE NOT RECEIVED ANY COMMUNICATION PRIOR TO THIS FROM FIRM, CLEARING FIRM, ETC. THAT THE POOR COMMUNICATION REPRESENTS INCOMPETENT MANAGEMENT OR FRAUD.According to the "Firm Statement":THIS TRADE ERROR AFFECTED MULTIPLE CLIENTS. THE RR AND THE FIRM RESOLVED THE ERROR WITH A SETTLEMENTOn January 13, 2010, Cambridge reported settling the dispute for $383,232.272. On July 29, 2009, a customer alleged:CLIENT QUESTIONS THE LEGITIMACY OF THE TRADES CONDUCTED AND THE ACCURACY OF THE ACCOUNTING THEY RECEIVED.The "Firm Statement" was the same noted aboveOn January 12, 2010, Cambridge reported settling the dispute for $13,884.86.3. On January 5, 2010, a customer alleged:CLIENT ALLEGES THE RR INAPPROPRIATELY PLACED HER IN A LEVERAGED ETF CAUSING LOSSES IN HER ACCOUNT.The "Firm Statement" was the same noted above.On April 26, 2010, Cambridge reported settling the dispute for $75,000.
2008 Bankruptcy
Filing
BrokerCheck
records disclose that Hutton sought a Chapter 7 bankruptcy in 2008.
According to the "Broker Statement" appended to this disclosure, Hutton
explained:
I HAD USED MY PERSONAL GUAARANTEE [sic] ON BUSINESS TRANSACTIONS WITH MY HUSBAND. WHEN HIS BUSINESS FAILED, THE CREDITORS CAME TO ME FOR HUGE SUMS OF MONEY. WE ARE NO LONGER MARRIED, AND SO I WASN'T GOIGN [sic] TO GET ANY FUNDS FROM HIM. THIS WAS THE ONLY WAY I COULD PROTECT MY PERSONAL ASSETS