Wachovia Customer Sues Wells Fargo Over FundSource Losses

Rule 12206 of the Code provides that no claim is eligible for submission to arbitration if six years have elapsed from the occurrence or event giving rise to the claim.

The undisputed facts establish that the Statement of Claim in this case was filed in December 2016. The last solicited investment transaction in Claimant's account occurred on September 9, 2009. In February 2010, Claimant instructed his advisor to liquidate his entire portfolio and transfer the proceeds to another financial institution. The final amount was transferred from the account with Respondent on March 2, 2010. Therefore, unless Claimant's late filing is excused or ignored, his claim was not eligible for submission when filed with FINRA Office of Dispute Resolution.  

Claimant presents what are essentially two arguments against dismissal. First, he contends that FINRA arbitrators have the discretion to refuse to apply Rule 12206. To the extent the Arbitrator might have such discretion, he chooses not to exercise it. The initial part of the second argument is that the eligibility rule is akin to a statute of limitation and is subject to equitable tolling. The Arbitrator agrees that the eligibility period may be extended if an injured party is not aware of both the fact and cause of injury, but only if the lack of awareness is because of wrongful concealment of necessary facts by the alleged wrongdoer or if the injured party could not have reasonably discovered the necessary facts through an investigation after receiving enough information to cause a reasonable person to conduct an inquiry.  

Regarding concealment, Claimant alleges that he raised concerns with his advisor in 2007 and 2008 when the investments in his account lost approximately 40% of their value and indicated his desire to liquidate his portfolio at that time. Instead of telling Claimant that the reason for the decline in value was the unsuitable nature of the investments, the advisor counseled against liquidation and attributed the losses to the market decline suffered during the Great Recession. Assuming for the sake of argument that such advice was unwise, it was not the type of concealment that would toll a limitation period. What would have been necessary to prove concealment would be something like withholding monthly reports and access to on-line account information while lying to Claimant about the value of his portfolio. In addition, because many financial advisors were counselling clients to try to ride out the recession, advice to liquidate might have been an indication of an attempt to conceal bad or unsuitable investments by having the losses appear to be caused by the recession. By advising Claimant to hold, rather than sell, his advisor was, in reality, demonstrating his confidence in the portfolio.

Claimant contends that he had no reason to believe that he had any actionable claim against Respondent until he learned how Wells Fargo Bank had engaged in the fraudulent opening of accounts. But even his counsel had to admit that what Wells Fargo Bank had done bore no relationship to the investment account with Respondent. That is especially true considering that when the investments at issue were made, Claimant's account was with Wachovia Securities, which was later acquired by Respondent. Claimant's bigger problem is that he admittedly knew, no later than March 2, 2010, that he had lost a large portion of his portfolio's value and had to go back to work as a result. He made the decision to liquidate his investments before leaving Respondent, so he must have believed that those investments were not what he wanted or thought he should have, whether that was because of what kind they were or simply because they had lost value. A reasonable person in Claimant's position should have brought the matter up with his new financial advisor in 2010 and asked why he had lost so much money. Either in conjunction with such an inquiry, because of it, or independently, a reasonable person would also have examined the investments on his own, or if not competent to do so, sought help from a knowledgeable person, to determine if they were appropriate. Since the investments were, according to the Statement of Claim, all in mutual funds, such an investigation would not have been very difficult. Neither the Statement of Claim nor the response to the motion to dismiss allege any facts to show that Claimant acted diligently to investigate.

For the foregoing reasons, the Statement of Claim is not eligible for submission to arbitration. However, Claimant should be given the opportunity to allege sufficient facts to show that, notwithstanding that he actually did conduct a reasonable and timely inquiry regarding the reason for his investment losses, he still had a valid reason for not filing with FINRA until the end of 2016. Therefore, Claimant has through August 4, 2017, to submit a proposed Amended Statement of Claim. Should he not do so, this case will be dismissed as ineligible. If such a proposed pleading is proffered, Respondent may submit an opposition by August 18, 2017. Unless the Arbitrator determines that a reply to the opposition or an oral argument would be helpful, the Arbitrator will rule based on written submissions whether the proposed Amended Statement of Claim may be filed and the case will proceed or whether it is insufficient to overcome Rule 12206.

Why accountability matters

I doubt I need to persuade the readers of the BrokeAndBroker Blog that accountability matters. But let me put a finer point on it for emphasis. Accountability for protecting the nation's safety, health, and financial security matters because without it we suffer preventable injuries, deaths, and loss. It also matters because when there is no accountability, there will be those who seize on it to gain an unfair advantage making a mockery of the idea of rewarding good management. Most importantly, where accountability fails it undermines the rule of law, and if it fails repeatedly and for too long, it undermines the legal system and calls into question democracy itself.

In the case of Wells, the failure of accountability is breathtaking. Internally, Wells allegedly created a system where employees could report issues of fraud in management. Ms. Guitron, and at least 600 other Wells employees, reported fraud to this internal system, believing it would stop the fraud. But instead of stopping the fraud, it became a vehicle for identifying and attacking these employees.

Sarbanes-Oxley was adopted for the purpose of enabling federal regulators to hold companies like Wells to account when they engaged in fraud. It's good law, but it's being managed by bad government. OSHA, through its Whistleblower Protection Program, is tasked to act as a gate-keeper, screening employee reports of wrongdoing, and when they appear to have merit reporting them to Agencies authorized as regulators. But OSHA finds merit in less than 2% of its cases, meaning the canary is dead before they take it to the coal mine. Worse, by failing to investigate these cases, OSHA sends a clear message to scofflaw companies that they don't need to fear accountability, and to employees that they report wrongdoing at their own risk. All this drives down the notion of public responsibility, producing a wide-spread culture of corruption in government and in the business community it serves.

Even when fraud appears like a tidal wave, as it has with Wells, the DoJ and Congress act as if they never heard of it before, and approach it with fear and trepidation like an alien force. Crime is crime, whether it's committed on the street or in the corporate boardroom, and in a society devoted to equal justice under law we should expect criminal behavior will be aggressively pursued wherever it appears. The DoL's quiet abandonment of its investigation of the Wells-OSHA connection, argues DoL's leadership endorses the culture of corruption in OSHA that contributed to the fraud. The DoJ's stealth approach to its Wells investigation, argues that either the DoJ lacks the will and integrity to pursue the law, or that it wants to hide its lack of competency from the public.

• FINRA
• Wells Fargo
• Wachovia
• FundSource
• Rule 12206
• Statute of Liimitation
• Eligibility Rule
• Darrell Whitman
• OSHA
• BrokeAndBroker
• Bill Singer