May 14, 2018
It seems that each week there are increasing numbers of arbitrations filed with FINRA seeking expungement of various matters from a registered rep's industry record. Must be bringing in a nice chunk of change to the self-regulatory-organization via filing fees, membership fees, hearing fees, and the like. Of course, given the explosion of such cases, we should also be asking if these matters truly belong before an arbitration panel and not within the regulatory framework. Why is it that so many disclosures are being deemed non-disclosable? Why are so many allegations being questioned and rejected? Should there be more scrutiny of customer allegations and employer claims before they are carved into a industry employee's record? Should we be concerned that too much is being removed from the public record? Is anyone asking either of those questions?
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2017, Claimant Michael Fasciglione sought the expungement of three separate customer occurrences (identified as #1433384; #1242299; and #1380363) from his Central Registration Depository record ("CRD") and $1 in compensatory damages. In the Matter of the FINRA Arbitration Between Michael Fasciglione, Claimant, vs. First Montauk Securities Corp., Josephthal & Co., Inc., and National Securities Corporation, Respondents (FINRA Arbitration 17-02925, May 10 201).
Variations on A Theme
Respondent First Montauk Securities did not file a properly executed Submission Agreement or Answer, and did not appear or testify at the evidentiary hearing.
Respondent Josephthal & Co., Inc. did not file a properly executed Submission Agreement but submitted an Answer. but did not appear or testify at the evidentiary hearing.
Respondent National Securities Corporation did not file a properly executed Submission Agreement or Answer but appeared and testified at the evidentiary hearing, and did not oppose the requested expungement.
The sole FINRA Arbitrator conducted a recorded telephonic expungement hearing during which Claimant Fasciglione withdrew his request for compensatory damages. The customers involved in occurrences #1242299; and #1380363 did not participate in the expungement hearing. The customers involved in occurrence #1433384 participated in the expungement hearing. contested the request for expungement, and confirmed that Fasciglione did not contribute to the settlement agreement.
The sole FINRA Arbitrator recommended the expungement of the three customer occurrences from Claimant Fasciglione's CRD.
In recommending the expungement of occurrence #1433384, the Arbitrator found pursuant to Rule 2080 that the claim, allegation, or information is false. The Arbitrator offered, in part, this rationale:
While Claimant was employed by First Montauk Securities Corp. he was contacted by a sophisticated investor client seeking a Sec. 1031 exchange. First Montauk Securities Corp. had a list of pre-approved Sec. 1031 exchange companies. Claimant selected one from that list and sent the company contact information to the client. Since Claimant was not registered in Florida he recommended that the client connect another First Montauk Securities Corp. broker who was registered there. Outside of any involvement, recommendation or solicitation from Claimant, the Sec. 1031 company provided the client with multiple properties from which to select for the exchange. The client selected three such properties and proceeded to visit them and to evaluate their respective financial conditions. The client selected one such property, which was in Texas, and performed due diligence including visiting the property and evaluating its financial merits. The Claimant was neither involved in the selection of which properties to propose nor in the decision of which property to purchase. Claimant did not receive a commission or a referral fee for introducing the client to the Sec. 1031 company or to the Florida-licensed broker of record.
Thereafter the client filed a claim against everyone directly or indirectly involved, including Claimant, alleging "fraud, deceit, breach of fiduciary duty, breach of contract and negligence." While some or all of these claims may indeed have merit against the owners of the Texas property and possibly even against the Sec. 1031 exchange company, none have merit against Claimant. Claimant had no knowledge, participation in or influence on the properties selected by the Sec. 1031 exchange company or the selection of the Texas property by the client, nor was he even the broker of record on the transaction.
The client's complaint eventually went to mediation in which, while Claimant was represented by counsel, neither he nor his counsel was actively involved therein and the Claimant was not required to participate in any settlement.
In recommending the expungement of occurrence #1242299, the Arbitrator found pursuant to Rule 2080 that the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. The Arbitrator offered, in part, this rationale:
Before Claimant's employment with Josephthal, one of its advisors, who Claimant eventually came to supervise, gained a certain husband and wife as clients. Prior to the clients' complaint of "churning" and "taking excessive risk" in their account, they became clients of the Claimant. Significantly, however, all of the events complained about occurred before Claimant became supervisor of the broker of record and well before he gained this couple as clients. Josephthal evaluated the claims and found no wrongdoing on the part of the broker of record or the Claimant and quickly and summarily denied the claims.
Inasmuch as Claimant was neither the broker of record, nor that broker's supervisor at that time, nor did he make the actual transactions in the account, pursuant to FINRA Rule 2080(b)(1)(B) the Claimant was not involved in the investment-related sales practice violations, if there were any, and the claim as reported on Claimant's Snapshot Report and BrokerCheck Report is subject to expungement.
In recommending the expungement of occurrence #1380363, the Arbitrator found pursuant to Rule 2080 that the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. The Arbitrator offered, in part, this rationale:
Similar in certain respects to occurrence #1242299, the Claimant here was not the broker of record (‘the broker"). Indeed, he was not even the broker's supervisor.
Claimant was a long-time friend of the broker. During the course of a 30-year relationship with a certain client, the broker became sick and eventually asked the Claimant for help in managing the account. Although the account was a nondiscretionary account, the client's claims were for churning and unsuitability and these claims were denied by the firm and closed with no further action necessary.
Claimant was not involved in the investment-related alleged sales practice violations. He did not make any of the trades nor was he involved in any of the other transactions complained of. He was neither the broker of record nor the broker's supervisor and for these reasons the claim as reported on Claimant's Snapshot Report and BrokerCheck Report is subject to expungement pursuant to FINRA Rule 2080(b)(1)(B).
Bill Singer's Comment
Compliments to the sole FINRA Arbitrator for tackling so many issues in a thorough manner and for providing the investing public and the industry with a comprehensive rationale for each expungement recommendation. Online FINRA BrokerCheck records as of May 14, 2018, disclose that Fasciglione was registered with 13 FINRA member firms during 29 years. Over the course of that career, FINRA BrokerCheck records contains several disclosures as noted below.
For the purpose of proposing a settlement of rule violations alleged by FINRA, without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Fasciglione submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Michael Fasciglione,, Respondent (AWC 2012034246201, December 30, 2014). The AWC that Fasciglione failed to timely amend his Form U4 to reflect an IRS tax lien. In accordance with the terms of the AWC, FINRA imposed upon Fasciglione a $5,000 fine and a one-month suspension in all capacities.
BrokerCheck also references a July 28, 2004, New York Stock Exchange Stipulated Consent to Findings ("SCF") settlement in which without admitting or denying the findings, Fasciglione consented to the imposition of a Censure, two-month bar, and an undertaking to qualify by exam before undertaking any securities supervisory position. The NYSE Stipulated Consent to Findings found that Fasciglione had failed, in part, to supervise and control an employee, caused the reimbursement of losses in two customer accounts; failed to notify his firm of a customer complaint, and
Under the BrokerCheck heading "Customer Dispute - Award/Judgment" is one disclosure referencing a 2003 NYSE Arbitration award of $300,000 on a joint and several basis with Josephthal & Co. Inc. The public customer Claimant had purportedly alleged breaches of contract and fiduciary duty, negligent misrepresentation and omissions, unauthorized trading, and unsuitability, and sought $400,000 in compensatory damages and $100,000 in punitive damages plus attorneys' fees.
Under the BrokerCheck heading "Customer Dispute - Settled" are 9 disclosures from 2017 back to 1996.
Under the BrokerCheck heading "Customer Dispute-Closed-No Action/Withdrawn/
Dismissed/Denied" are three disclosure from 2018 back to 2005. It may be that the expungements sought in today's article comprise these matters but that is merely conjecture.
Under the BrokerCheck heading "Customer Dispute-Pending" is one disclosure involving a May 2017 customer complaint alleging unsuitability, breach of fiduciary duty, negligence and seeking $432,020.69 in damages that is now pending before FINRA Arbitration.
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
READ the BrokeAndBroker.com Blog "Expungement" Archive