Broker Wins Expungement of Deceased Customer's 13-Year-Old Complaint

April 3, 2017

FINRA says that an associated person can argue that a customer's complaint was "false" and use that claim as the basis for seeking an arbitration panel's recommendation of expungement. A state court says that you can argue that it's "unfair" to allow a customer's complaint to remain on your record as the basis for seeking the court's order of expungement. False is not fair-is-fair. Two different issues. Two different standards. Two different forums for adjudication.

In today's Blog, read what happened when allegations of falsehood became intertwined with allegations that it's unfair to allow a single, ancient complaint to tarnish an individual's otherwise unblemished industry record. You may think you know where author Bill Singer, Esq. comes down on the issue. Think again!

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2016, registered representative Addessi alleged that his former employer FINRA member firm H.D. Vest Investment Services, Inc. had inaccurately reported a customer dispute on his Central Registration Depository record ("CRD"). Claimant Addessi sought the expungement from CRD of the cited complaint and $1 in compensatory damages. In the Matter of the FINRA Arbitration Between Michael Vincent Addessi, Claimant, vs. H.D. Vest Investment Services, Inc., Respondent (FINRA Arbitration 16-03102, March 30, 2017).

The FINRA Arbitration Decision states that Respondent H.D. Vest:

deferred an assessment of the merits of Claimant's request for expungement to the Arbitrator and advised that it would not participate in this proceeding.

Deceased Customer

Pursuant to the sole FINRA Arbitrator's order, Claimant Addessi attempted to serve a copy of his FINRA Arbitration Statement of Claim on the customer who had previously filed the underlying complaint. The FINRA Arbitration Decision asserts that the "Customer had died several years ago."

Respondent H.D. Vest did not participate at and did not contest the March 2017 telephonic expungement hearing.  In reviewing the underlying issues, the sole FINRA arbitrator noted that there had not been any settlement of the deceased customer's complaint, which apparently had been denied by H.D. Vest and closed by the firm without further action.

Finding of Falsehood

In recommending expungement, the FINRA Arbitration Decision explains that:

Pursuant to Rule 13805 of the Code of Arbitration Procedure (the "Code"), the Arbitrator has made the following Rule 2080 affirmative finding of fact:

The claim, allegation, or information is false.

In reaching that conclusion, the FINRA Arbitrator offered this rationale:

Claimant testified that he had entered the financial industry in 1989. The Customer became Claimant's client in approximately the mid-1990s, while Claimant was with Respondent HD Vest. The Customer had an MBA degree, had been a CFO, and had been Claimant's boss when Claimant previously worked in an auditing position at Claimant's prior employer before the Customer retired.

The Customer remained Claimant's client for at least five years and perhaps up to ten years. Claimant recalls that the Customer had a wrap account where trades were made by a third party and the Customer paid fees based on a percentage of the account's value. Claimant testified that he met quarterly with the Customer for the five to ten years he had the account, and that the Customer never expressed any concerns or complaints.

In approximately 2002, the Customer approached Claimant about the possibility of having his daughter join the small firm that Claimant then owned, Addessi Financial Partners, and the daughter did then buy into a 25% partnership for $300,000.00. The relationship did not work out, however, and ended a year or so later with Claimant paying back the $300.000.00.

Within a few months, the Customer moved his account and on March 2, 2004, filed a complaint with Respondent alleging that his investments (all mutual funds) were unsuitable and that he had not understood them. Respondent interviewed Claimant and reviewed account documentation (including the reports Claimant dictated after every complaint-free quarterly meeting he had with the customer over the five to ten years), ultimately finding no grounds for the complaint and dismissing it as of September 12, 2005. The Customer never pursued it further. That was the only customer complaint Claimant has ever had, and the circumstances and timing of it cause one to believe that it must have been made emotionally as a result of the partnership split and was not based on any actual wrongdoing by Claimant.

Because the Customer died several years ago, Claimant's testimony was unrefuted and, despite the passage of time, it was generally credible and consistent.

Accordingly, Claimant is entitled to expungement from his CRD of the March 2, 2004 Complaint pursuant to FINRA Rule 2080(b)(1)(C) inasmuch as the claim, allegation or information is false.

Bill Singer's Comment

Online FINRA BrokerCheck records as of April 3, 2017, disclose that Addessi was first registered in 1989 with H.D. Vest, where he remained until 2004, at which time he joined his present firm. During his nearly three-decade Wall Street career, the only disclosure on Addessi's BrokerCheck record was a 2004 customer complaint (the complaint that is now recommended for expungement) purportedly involving money market funds and which was closed without settlement in 2005. Geez . . . what the hell could have been the big deal about a money market fund? No wonder Addessi was likely seething for years about that one thorn in his side.

As only a skilled and veteran lawyer such as myself could do, I am now going to thrill and amaze you by talking out of both sides of my mouth at the same time and spouting what should strike you as contradictory and irreconcilable brilliance (or, as you may find in the alternative: nonsense).

First, compliments to the sole FINRA Arbitrator who tackled this oddity of a fact pattern with professionalism. It's not every day that an arbitrator has to adjudicate a deceased customer's 13-year-old complaint, which was denied by the brokerage firm. Whether you agree or disagree with her conclusion, the arbitrator provided us with sufficient content and context so as to explain the underlying issues and show us the path she traveled to reach her decision to recommend expungement. Great job!

And now for that bit of double-talk. That infamous "yes but "by which we say one thing but may mean something else.

Upfront I want to be very clear: I did not hear a shred of testimony and did not read a single word of evidence. Consequently, I am in no position to question the arbitrator's assessment of Addessi's credibility and I pointedly decline to do so.  For purposes of this comment, I concede that based upon everything the sole FINRA Arbitrator heard and saw, she got everything right. The concern for me is not the manner in which the Rule 2080 expungement issues were adjudicated but whether Addessi presented a case that should have been accepted by FINRA for an intra-industry expungement hearing pertaining to an underlying customer complaint.  

Some 13 years ago, a customer complained about some aspect of Addessi's conduct. Addessi's employer firm denied the allegations. The Firm did not enter into a settlement. Addessi did not enter into a settlement. Not a penny of compensation was paid to the customer by anyone. At some point in time, the complaining customer died. In 2016, more than a decade after the initial complaint was filed and denied, and after the customer died, for whatever reasons, Addessi awakes and wants to clear his name. Given his unblemished industry career, who could blame him for want the clean slate that he appears to deserve?

What compelled the sole FINRA Arbitrator to recommend expungement? This is what the Decision offers by way of summary:

Because the Customer died several years ago, Claimant's testimony was unrefuted and, despite the passage of time, it was generally credible and consistent.

Ummm . . . okay . . . but .  .  . you know . . . ummmm . . . anytime any customer dies, it's going to be pretty much impossible for that dead customer to refute anything asserted during an expungement arbitration.

All of which cynically suggests that every aggrieved associated person need merely hope for a complaining customer's death and then seek an expungement of any complaints. Now I acknowledge that's not what the sole FINRA Arbitrator espoused. To the contrary, she found Addessi's testimony to be credible and consistent "despite" the 13 years that had passed. Separately, the arbitrator appropriately underscores the obvious so that no one is laboring under any misimpression: "Because the Customer died several years ago, Claimant's testimony was unrefuted . . ." The arbitrator knows that proposition is a "Duh." We know that proposition is a "Duh." At least we're not pretending or uneasily avoiding the topic.

I'm not sure that it's fair for FINRA to expect any arbitrator or arbitration panel to adjudicate an expungement fact pattern presenting an aged complaint filed by a deceased customer. Barring truly extraordinary circumstances as to why the aggrieved associated persons didn't timely file an arbitration expungement case, this type of case would seem more properly directed to a state court for an order of expungement.

Appellate District, A134179 / August 23, 2012) (the "Lickiss CtApp Opinion"), associated person Lickiss sought expungement not under the specific terms of Rule 2080 but based upon his arguments that:

(1) the material requested to be expunged occurred anciently, i.e., 20 or more years ago, (2) Petitioner‘s regulatory record has long since been and remained clean, and (3) the material sought to be expunged was overwhelming[ly] caused by the failure of a single investment security which Petitioner brokered for nothing more than ordinary commissions and over which Petitioner had no control or influence" . . .

Pages 5 - 6 of the Lickiss CtApp Opinion

As was the case in Lickiss, an associated person aggrieved by CRD-disclosed customer-complaint information has the option of seeking a Rule 2080-based adjudication before a FINRA Arbitration Panel or, in the alternative, seeking an adjudication based upon equity before a state court.  As noted in Lickiss, one need not argue to a court that the information was necessarily "false" as would be required under one prong of FINRA Rule 2080.  In Lickiss, the petitioner appears to have largely argued that the underlying complaints were old, that he had an otherwise clean record, and that even if the customers' allegations were correct, their complaints all involved one security, which declined for reasons unrelated to anything petitioner did or said. Those arguments have nothing to do with the claims being false but have everything to do with a court's inherent mandate to see that equity is done.

In closing, kudos to the sole FINRA Arbitrator and to Addessi's legal team, which is listed in the FINRA Arbitration Decision as "Dochtor Kennedy, MBA, J.D. and Owen Harnett, Esq., AdvisorLaw. LLC, Broomfield, Colorado."


Analysis by Bill Singer, Esq. Blog

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