Tell Me Why: Unanswered Questions In FINRA Expungement

May 17, 2017

In an intriguing FINRA Arbitration Decision, the sole arbitrator hearing the case recommended the expungement of a customer complaint from a registered representative's CRD record. In an interesting twist, the customer favorably testified for the stockbroker. A more ominous twist was the finding by the arbitrator that Raymond James had "pressured" the stockbroker into settling the customer's complaint and that the firm had apparently docked the employee for the full cost of the cash payment. All of which prompts a chorus of "Tell Me Why." The response is thundering silence.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2016, former Raymond James registered representative Claimant Overton asserted that Respondent Raymond James had filed inaccurate reports about a customer complaint on his Central Registration Depository records ("CRD"). Claimant requested the expungement of the inaccurate disclosures and at least $1 in compensatory damages. In the Matter of the FINRA Arbitration Between Stephen Overton, Claimant, vs. Raymond James Financial Services, Inc., Respondent (FINRA Arbitration 16-03104, May 11, 2017).

Respondent Raymond James did not oppose the requested expungement. 

The Expungement Hearing

The sole FINRA Arbitrator conducted a recorded telephonic hearing on May 2, 2017, at which the customer appeared and testified. Respondent Raymond James did not participate in the expungement hearing. 

CRD: Not How Customer Sees It

The FINRA Arbitrator found the CRD customer complaint disclosure to be factually impossible or clearly erroneous, and false. Accordingly, the Arbitrator recommended the expungement of the cited customer complaint from Overton's CRD. In reaching that decision, the Arbitrator offered, in part, the following rationale:

The Claimant broker as well as the customer in the underlying Complaint both testified that the customer was fully aware of all transaction fees. The customer did not agree with the way the Complaint was reported by Respondent on Claimant's CRD records and did not otherwise take a position on the request for expungement. 

Bill Singer's Comment

As I have noted in the past, there may be reasons that a given arbitrator opts not to detail events and allegations that are deemed erroneous or defamatory -- after all, that's adding insult to injury and rubbing salt into a wound at the same time if the outcome of the case is to recommend expungement of those very statements. 

Dunnos and One Know

Whatever the explanation, about all that I can harvest from the Decision is that Overton's customer complained about something to do with transaction fees, which both Overton and the customer testified were explained to the customer in a manner that made him "fully aware" of those fees. 
  • What was said in the customer's Complaint as filed on CRD by Raymond James that troubled Overton? Dunno. 
  • What about the "way" the Complaint was "reported" prompted the customer to disagree with Raymond James' CRD disclosure? Dunno
  • Why did the customer testify at Overton's expungement hearing, provide corroborating testimony, but also declined to affirmatively support the requested expungement? Dunno.

One thing that we do know is that:

The Arbitrator noted that Claimant was pressured by Respondent to settle the customer Complaint and did contribute to the settlement amount as the amount was deducted from his commissions.

Pressured to Settle

Pressured to settle? What exactly did Raymond James do in an effort to pressure Overton into settling the customer's Complaint? Maybe a member firm's pressuring a registered rep into settling a customer complaint is something that FINRA, a self-regulatory organization, should investigate? After all, there are hundreds of thousands of registered reps who have no vote on any aspect of FINRA's rules and who are obligated to arbitrate before FINRA. Might be a nice show of fair-play for FINRA to investigate allegations of a member firm's pressuring its employees into settlements involving cash payments. Keep in mind that following his firm's pressure, the settlement amount paid to the complaining customer was deducted from Overton's commissions. 

What's that over-used FINRA Rule that the regulatory hauls out for almost everything a registered rep does wrong?  Oh yeah, I remember: 

FINRA Rule 2010. Standards of Commercial Honor and Principles of Trade 

A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.

Is it consistent with high standards of commercial honor and just and equitable principles of trade for a FINRA member firm to pressure an employee in settling a customer complaint, particularly when the employee is forced to pay the entire monetary settlement?