The Customer Settles And The Stockbroker Wins An Expungement

July 13, 2017

The Blog is no fan of mandatory Wall Street arbitration, as has long been documented on our pages. Regardless of whether it is a public customer or associated person, our publisher Bill Singer, Esq. has argued against forcing litigants to forfeit their right to pursue their grievances before a court and channeling them into a pipeline that feeds business to a handful of so-called alternative dispute resolution forums, most notably that of the Financial Industry Regulatory Authority. As a former arbitration Chair, arbitration panelist, and lawyer representing the industry and public customers, Bill knows that most arbitrations are conducted in a fair manner with dedicated arbitrators -- and that such proceedings are often quicker and cheaper than their courtroom alternatives. The fact that mandatory arbitration may be quicker and cheaper, however, doesn't always mean that slower and more expensive may not yield far fairer results. Ultimately, Bill concedes that the concerns about arbitration may largely be one of perception rather than reality; however, if arbitration is such a reasonable and fair alternative to the court system, then that fact, and that alone, should prompt litigants to voluntarily pursue arbitration.  

Consider a recent FINRA public customer arbitration in which the public customer settled his claims and a registered representative won a recommendation for the expungement of the customer's complaint from her industry record. 

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2016, public customer Moses, who appeared pro se, asserted breach of fiduciary duty; fraud; misrepresentations/non-disclosures; and omission of facts in connection with what the FINRA Arbitration Decision asserts was "the sale of blue chip stocks from Claimant's account the related capital gain taxes incurred." Claimant sought $90,287.24 in compensation plus punitive damages. In the Matter of the FINRA Arbitration Between Randall H. Moses, Claimant, vs. Pruco Securities, LLC, Jay Elliott Skolnick, and Dawn Elizabeth Winship, Respondents (FINRA Arbitration 16-02408, July 7, 2017).

Respondents Pruco, Skolnick, and Winship generally denied the allegations and asserted various affirmative defenses. Winship requested the expungement of the arbitration from her Central Registration Depository records ("CRD").


On May 2, 2017, Claimant submitted a notice of settlement with a stipulated dismissal with prejudice with Respondents Pruco and Skolnick.

On May 17, 2017, Claimant submitted "an email dismissing Winship from this case and stating the case is now closed."

Expungement Hearing

Notwithstanding Claimant's email assertion that the case was closed, Respondent Winship proceeded with her expungement request.  At an expungement hearing on May 18, 2017, Claimant did not participate and did not contest the request. The FINRA Arbitration Decision asserts that the sole FINRA Arbitrator received an:

unsolicited 20-page letter submitted ex parte by Claimant on June 14, 2017 opposing Winship's request for an expungement. The Arbitrator noted that Claimant submitted his objections long after he had the opportunity to do so or to appear at the expungement hearing held on May 19, 2017. The Panel determined that Claimant's letter of opposition contained nothing but groundless, irrelevant, inaccurate, or prejudicial allegations.

After reviewing the settlement documents among Claimant, Pruco, and Skolnick, the sole FINRA Arbitrator noted that there were no such agreements between Claimant and Winship and that no payments had been made by Winship to Claimant.

In recommending the expungement of the arbitration from Winship's CRD, the Arbitrator provided the following rationale:

1. Claimant did not pay extra taxes overall due to the decision to sell his securities in 2012. He would have paid more taxes if he had sold the securities partially in 2012 and partially in 2013.
2. Winship did not offer tax advice nor is she liable for providing tax advice. Winship referred Claimant to Claimant's CPA
3. The fees charged for the 418-page financial plan were completely reasonable.
4. There was no misrepresentation about any securities.
5. Winship earned no commissions for trading securities. Claimant's account was charged a flat rate. There was no excessive trading.
6. Claimant cancelled his purchase of the variable annuity and received his Investment back, with gains. Winship earned no fee on Claimant's variable annuity purchase.
7. Claimant's claims are frivolous, and without any factual basis whatsoever. Claimant was in reality simply annoyed that he had to file an amended 2012 tax return, for which Pruco had offered to pay the fees (because they sent Claimant 1099 forms after Claimant had filed his 2012 tax return).

Bill Singer's Comment

Compliments to this FINRA Arbitrator for providing a rationale that gives us some sense of the underlying issues troubling Winship.

One important takeaway for registered representatives is to ensure that you do NOT provide tax advice as part of your brokerage services. Yes, there are those among you who are CPAs and even a smattering of tax lawyers; notwithstanding, such specialized counseling should be provided through your professional firms and not through your broker-dealer. Also, make sure that your brokerage firm has authorized you to provide such outside services to your clients.

An important takeaway for public customers is to be aware that the default policy in the securities industry is to NOT provide tax counseling as part of the standard package of services. That should alert you to two situations. One, you may be relying upon "amateur hour" counsel from your stockbroker when it comes to his or her opinion about the tax consequences of a contemplated action. Two, if you are given tax advice by your stockbroker and it blows up in your face, the brokerage firm (likely the deeper pocket) may well assert that its written disclosures specifically admonish customers that the firm and its employees/agents do not provide tax advice and no such advice should be relied upon.

The sole FINRA Arbitrator has a penchant for candor and plain-speaking, which should be applauded. It's hard to imagine a more straightforward determination than that a Claimant's "claims are frivolous and without any factual basis whatsoever.'  On the other hand, frivolous or not, factual or not, two respondents opted to enter into a settlement of the customer's claims. It may well be that said settlement was for nuisance value or could have yielded a satisfactory sum to Claimant -- we are not informed of the financial amounts, if any, involved.

As to the underlying issue of a late Form 1099, I too have experienced this issue whereby a brokerage firm sent me a Form 1099, I sent that document to my CPA, we prepared a timely tax return, and after the work was completed, the brokerage firm sent me an "Amended" Form 1099. At times, the need to amend may well be the fault of some negligence by the broker-dealer; however, more often than not, the amendment is prompted by external factors such as revisions or restatements pertaining to previously booked transactions. Years ago, when I had to send to my CPA a multiple-page Form 1099 by overnight courier, such amended documents were a major annoyance and often came with an increased charge from my accountant. With the advent of PDF and digitized documents, it's not such a big deal to send the Amended Form 1099 to my CPA. Consequently, now I tend to wait a few weeks before finalizing this portion of my tax returns in order to allow for the creation of an Amended Form 1099.

  • FINRA Rule 2080: Obtaining Customer Dispute Expungement
  • FINRA Rule 2081: Prohibited Conditions Relating to Expungement of Customer Dispute
  • FINRA Rules 12805 and 13805: Expunging Customer-Dispute Information Under Rule 2080