April 27, 2018
No one has ever called BrokeAndBroker.com Blog's publisher Bill Singer a snarky bastard when it comes to his shots against the Financial Industry Regulatory Authority. On second thought, to be fair, a lot of folks call Bill a snarky bastard when it comes to his shots against FINRA. You ask Bill, he's just doing his job as a gadfly trying to protect the investing public and the industry. You ask FINRA, they probably won't comment but behind closed doors they continue to throw darts at a board with Bill's handsome visage peering back at them. For those of you undecided about Bill's snarkiness, consider today's article about Wells Fargo, a disgruntled customer of that firm, and FINRA's seemingly hands-off approach to regulating the market in a fair and balanced fashion.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2016, Claimant Coronado asserted breach of fiduciary duty, and aiding and abetting. The causes of action relate to the alleged unauthorized use and withdrawal of funds in Claimant's checking, savings, and IRA accounts. Claimant Coronado sought $186,040.53 in damages plus interest, attorneys' fees, and costs. In Claimant's hearing brief, he revised his damages demand to $263,006.37. In the Matter of the FINRA Arbitration Between Jacob Coronado, Claimant, vs. Michael J. Muller, Mark Bradley Nance, Wells Fargo Advisors, LLC, Wells Fargo Bank National Association, and Wells Fargo Investments, LLC, Respondents (FINRA Arbitration 16-02246, April 24, 2018).
Respondents advised FINRA that Wells Fargo Investments, LLC was a prior derivation of Wells Fargo Advisors, LLC and the former no longer exists. Accordingly, the FINRA Arbitration Panel declined to make any determination as to Respondent Wells Fargo Investments, LLC.
Respondents generally denied the allegations and asserted various affirmative defenses.
Claimant Coronado dismissed Respondents Muller and Nance during the hearing and requested a reasoned award from the Panel, which Respondents did not oppose and, as such, the Panel granted.
The FINRA Arbitration Panel found Respondent Wells Fargo Bank National Association liable to and ordered it to pay to Claimant Coronado $181,930.91 in compensatory damages plus interest.
The Panel denied all claims against Wells Fargo Associates.
In reaching its decision, the arbitrators offered this rationale:
Bill Singer's Comment
Claimant met his burden of proof by a preponderance of the evidence regarding his claim that WFB owed him a heightened duty of care arising from the nature and variety of services it performed on his behalf and from his financial vulnerability due to his inexperience with financial matters. WFB first opened a checking and a savings account for Claimant when he received access to inherited IRA funds in July 2011. WFB also opened a checking and savings account in Claimant's name in October 2011 and then two more checking accounts and two additional savings accounts in December 2011. WFB claimed that the accounts opened in October 2011 and in December 2011 were requested by Claimant and that he authorized the activities that occurred in those accounts. Claimant denied authorizing or opening these accounts and denied requesting and approving movement of his funds among and ultimately out of the accounts WFB opened for him. Claimant testified that he did not authorize WFB to withdraw $822.00; $89,000.00; and $92,108.91 from his accounts. Claimant's expert, Mr. Tarver, testified that more likely than not the signatures associated with the withdrawals of these three amounts were not made by Claimant. WFB breached its duty of care to insure that protections were in place and implemented and even after Claimant notified WFB and WFA that funds were missing, WFB did not conduct a contemporaneous investigation into Claimant's claims.
Claimant failed to meet his burden of proof with respect to WFA.
I have long tried to persuade FINRA that the above "reasoned award" rationale should be the default nature of all FINRA Arbitration Decisions. That would eliminate a lot of what I write about, so, on second thought, maybe FINRA should continue to play hide-and-seek with its various decisions.
What may get lost in the arbitrators' excellent wording of their rationale is a very profound and disturbing conclusion; namely, that Wells Fargo Bank:
This panel of arbitrators found that Wells Fargo Bank had failed to insure that it had implemented a compliance protocol in response to express notice from a public customer that his funds were missing. Worse, the bank didn't investigate those claims on a prompt basis. Keep in mind that FINRA the regulator doesn't actually have jurisdiction over Wells Fargo Bank but only directly regulates its broker-dealer affiliate Wells Fargo Advisors.
breached its duty of care to insure that protections were in place and implemented and even after Claimant notified WFB and WFA that funds were missing, WFB did not conduct a contemporaneous investigation into Claimant's claims.
Maybe it's time for FINRA the self-regulatory-organization to re-examine the outside business activities ("OBA") of its member firm Wells Fargo Advisors and see if, among other activities, its banking affiliate poses a danger to the broker-dealer's clients. I mean, you know, FINRA gets in such a lather when the associated persons of its member-firms engage in OBA. Perhaps FINRA needs to show some even-handed enforcement here and follow up on the very disturbing conclusions published in this FINRA Arbitration Decision? For starters, FINRA might want to read: "Historic Federal Reserve Restrictions On Wells Fargo" (BrokeAndBroker.com Blog, February 5, 2018).