FINRA Arbitrator Tosses Stale Wells Fargo Customer Case

May 4, 2017

Time after time I wonder if anybody really knows what time it is. A FINRA arbitrator seems to have wondered the same thing when deliberating over a case that seemed a tad long in the tooth. In the end, the Claimant had not only filed an untimely complaint but, alas, had also run out of time.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2016, Claimant asserted breaches of contract and fiduciary duty, negligence, fraud, unsuitability, and failure to supervise. Claimant sought at least $20,000 in compensatory damages, interest, attorneys' fees, and costs. In the Matter of the FINRA Arbitration Between Joseph Seneca as Executor for The Estate of T. Florida Seneca, Claimant, vs. Wells Fargo Advisors, LLC, Respondent (FINRA Arbitration 16-02988, April 20, 2017).

Respondent Wells Fargo generally denied the allegations, asserted various affirmative defenses, and sought the expungement of the matter from the Central Registration Depository records ("CRD") of unnamed party James P. Reilly.

Six Years And Counting

Pursuant to FINRA Rule 12206, on March 18, 2018, the sole FINRA Arbitrator granted Respondent's Motion to Dismiss without prejudice to any resort to the courts that Claimant may have. On April 13, 2017, Respondent notified FINRA that it would not be seeking the expungement of Reilly's CRD.


(a) Time Limitation on Submission of Claims. No claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim. The panel will resolve any questions regarding the eligibility of a claim under this rule.

(b) Dismissal under Rule. Dismissal of a claim under this rule does not prohibit a party from pursuing the claim in court. By filing a motion to dismiss a claim under this rule, the moving party agrees that if the panel dismisses a claim under this rule, the non-moving party may withdraw any remaining related claims without prejudice and may pursue all of the claims in court.
(1) Motions under this rule must be made in writing, and must be filed separately from the answer, and only after the answer is filed.
(2) Unless the parties agree or the panel determines otherwise, parties must serve motions under this rule at least 90 days before a scheduled hearing, and parties have 30 days to respond to the motion. Moving parties may reply to responses to motions. Any such reply must be made within 5 days of receipt of a response.
(3) Motions under this rule will be decided by the full panel.
(4) The panel may not grant a motion under this rule unless an in-person or telephonic prehearing conference on the motion is held or waived by the parties. Prehearing conferences to consider motions under this rule will be recorded as set forth in Rule 12606.
(5) If the panel grants a motion under this rule (in whole or part), the decision must be unanimous, and must be accompanied by a written explanation.
(6) If the panel denies a motion under this rule, a party may not re-file the denied motion, unless specifically permitted by panel order.
(7) If the party moves to dismiss on multiple grounds including eligibility, the panel must decide eligibility first.  If the panel grants the motion to dismiss the case on eligibility grounds on all claims, it shall not rule on any other grounds for the motion to dismiss.  If the panel grants the motion to dismiss on eligibility grounds on some, but not all claims, and the party against whom the motion was granted elects to move the case to court, the panel shall not rule on any other ground for dismissal for 15 days from the date of service of the panel's decision to grant the motion to dismiss on eligibility grounds.  If a panel dismisses any claim on eligibility grounds, the panel must record the dismissal on eligibility grounds on the face of its order and any subsequent award the panel may issue.  If the panel denies the motion to dismiss on eligibility grounds, it shall rule on the other bases for the motion to dismiss the remaining claims in accordance with the procedures set forth in Rule 12504(a).
(8) If the panel denies a motion under this rule, the panel must assess forum fees associated with hearings on the motion against the moving party.
(9) If the panel deems frivolous a motion filed under this rule, the panel must also award reasonable costs and attorneys' fees to any party that opposed the motion.
(10) The panel also may issue other sanctions under Rule 12212 if it determines that a party filed a motion under this rule in bad faith.

(c) Effect of Rule on Time Limits for Filing Claim in Court. The rule does not extend applicable statutes of limitations; nor shall the six-year time limit on the submission of claims apply to any claim that is directed to arbitration by a court of competent jurisdiction upon request of a member or associated person. However, when a claimant files a statement of claim in arbitration, any time limits for the filing of the claim in court will be tolled while FINRA retains jurisdiction of the claim.

d) Effect of Filing a Claim in Court on Time Limits for Filing in Arbitration. If a party submits a claim to a court of competent jurisdiction, the six-year time limitation will not run while the court retains jurisdiction of the claim matter

The 2016 Radio Ad

In granting the dismissal, the FINRA Arbitrator determined that Claimant had a Prudential Securities brokerage account from at least by January 1991 and was still active in 1999. That Prudential account was, in part, invested in municipal bond funds. The Arbitrator further found that in late 2000, Ms. Seneca (characterized as an "unsophisticated investor") provided a Power of Attorney to her son Joseph, who had never had a brokerage account, had never made investments, and was also deemed an unsophisticated investor. The FINRA Arbitrator explains, in pertinent part, that:

During October, 2008, nearly all the funds in the account (at the time, the account balance was approximately $135,000.00) were withdrawn leaving a balance of $1.10. The account remained open with this balance until September, 2009 when Wachovia Securities ("Wachovia" -- which acquired Prudential in 2009) credited this balance against administrative costs associated with the account and then closed the account. When the account was closed, the relationship between the Claimant and Wachovia terminated.

While Joseph Seneca had power of attorney over the account, he met with his broker at Prudential, either once or twice a year, who allegedly told him that his mother was invested in municipal bonds rather than municipal bond funds -- contrary to the investments actually in the account. At all times while Joseph Seneca held a power of attorney, Prudential and then Wachovia provided him with statements for the account on a monthly basis. As a result of the market downturn during 2007-2008, the account declined in value by approximately $20,000.00.

As a result of apparently listening to a radio advertisement in early 2016, Joseph Seneca engaged a third party professional to review the account statements and, through that review, was informed that the account contained municipal bond funds rather than, as he had been led to believe by his prior broker, individual municipal bonds. Consequently, Joseph Seneca filed the present claim with FINRA on October 13, 2016 seeking, among other aspects, compensation for the $20,000.00 market loss.
The Respondent, Wells Fargo Advisors, LLC acquired Wachovia in 2010 -- after the account was closed and the brokerage relationship with the Claimant had ceased.

It is uncontested that until Joseph Seneca had the account reviewed in 2016, he did not exercise any supervision over the account, specifically, he neither reviewed any of the statements nor did he enlist anyone else to do so on his behalf and advise him accordingly. Joseph Seneca does not contend that he was under any legal incapacity which would have prevented him from doing so earlier. The Claimant apparently relied on the prior broker's representations as to the nature of the investments in the account and thus either had no reason to doubt those representations and thus review the statements and/or possibly had no time to do so.

There is no evidence here, and Joseph Seneca expressly acknowledges as much, that at any time, while he had control over the account, either Prudential or later Wachovia concealed any account information from him.

Even If . . .

Notwithstanding his finding that Claimant's claim predated October 13, 2010, and was outside Rule 12206's six-year eligibility, the FINRA Arbitrator offered his thoughts on some of the substantive aspects of the claims:

Even if the facts of record are viewed in a light most favorable to the Claimant, the Claimant was under a duty to exercise appropriate due diligence over the account, whether by reviewing it by himself from the statements he received from Prudential and then Wachovia or through enlisting the assistance of another, in order to determine if the account was in error and, if so, to institute appropriate remedial action. Obviously, what constitutes sufficient due diligence in any given situation is highly factually dependent and may well vary considerably on a case by case basis. Here, the Claimant, after a long period of inactivity towards the account -- effectively ignoring it throughout, finally acted in early 2016 and, as a result of that, gained professional advice which ultimately led to filing the present claim with FINRA on October 13, 2016. However, at that point in time, his action was simply too late. The Claimant proffered no legal basis which would sufficiently excuse his prolonged inaction. Under the present facts of record, he needed to do more here than simply let time pass.

Each time the Claimant received a monthly statement prior to October, 2008 -- when the investments in the account were liquidated, he was on at least constructive notice of an error in the account, specifically that the actual investments in the account, i.e. municipal bond funds, did not match prior representations made by to him by his broker at Prudential, i.e. that the account was invested in municipal bonds not municipal bond funds. Therefore, even if the Respondent had waited until sometime in October, 2008 to discover the error, he would have been ineligible to arbitrate his claim after October 2014 -- some two years prior to the filing of the present claim.

Alternatively and consistent with viewing the present facts in a light most favorable to the Claimant -- meaning here specifically pushing as far as possible out in time the date when an alleged misrepresentation might have occurred, assume arguendo that the Claimant had a colorable claim for misrepresentation against Wachovia which commenced during September, 2009 -- the month when the account was closed. As the brokerage relationship ceased during that month, any misrepresentation underlying the present claim could simply not have occurred any later. Under Rule 12206, the Claimant's eligibility to file this claim then ceased no later than September, 2015 -- approximately a year before the present claim was actually filed with FINRA . . .

Bill Singer's Comment

Compliments to this FINRA arbitrator for drafting a comprehensive Decision replete with adequate content and context. An important takeaway from this case is that public customers should not view their brokerage firm or stockbroker as a life insurance policy that pays off in the event your account blows up and dies. There is inherent risk in the stock market which is often made worse by incompetence and fraud by the industry.

If you as a customer perceive that you are being victimized by misconduct, you should not sit idly by and hope that you can trade out of your losses. As noted by the arbitrator in today's featured case, you are "under a duty to exercise appropriate due diligence over the account." Yes, under some circumstances you may have been unfairly prevented from learning about fraud and, as such, courts and arbitrators may toll the clock and avoid deeming you as ineligible to file an otherwise belated claim. Regardless, there is a stopwatch that gets started when fraud begins and you should be mindful of that ticking . . . and also remember that at some point, time runs out, the alarm sounds, and that's it. Finito. Game, Set, and Match.

Be careful not to confuse FINRA's "Eligibility Rule" with "statutes of limitation." They are not the same. Although FINRA may entertain the filing of a claim within its six-year window, state and federal laws frequently impose shorter deadlines on the filing of specific causes of actions such as defamation, fraud, negligence, etc. For some claims, you may have only one year or shorter. The best advice for those who feel victimized by improper Wall Street conduct is to contact a lawyer and find out how much time you may have to pursue your claim. In such circumstances, "the sooner, the better" seems apt counsel.

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