Arbitration Mistake Becomes a FINRA Moneymaker

May 22, 2018

Imagine that you logged on to the wrong website and were charged $12,000 for that oops. Imagine that Amazon was charged $12,000 every time it sent a package to the wrong address. Imagine that you got socked with a $12,000 fee for each time you butt dialed someone. If life teaches us anything, it's that we often pay for our mistakes. On the other hand, when folks goof, it shouldn't be an opportunity to a fee and a surcharge and a penalty fee and a service fee. An oops is still an oops -- except when you need two forms of photo ID and a credit card to make amends. Consider the cost of a public customer's screw-up in a recent FINRA arbitration. It's gotta be FINRA's favorite mistake and quite the money maker!

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2017, Claimant Benel Inc asserted that in connection with what the FINRA Arbitration Decision characterizes as "unspecified commodities futures," Respondent TD Ameritrade had failed to
  • monitor and notify Claimant of Commodity Futures Trading Commission ("CFTC") restrictions, regulations and acts;
  • notify Claimant of CFTC large trader rules and regulations and of the suitability of a large commodity trader; and
  • qualify Claimant and/or restrict and stop trading on the account once Claimant reached large trader status.
Additionally, Claimant alleged violations of the Commodity Exchange Act and regulations thereunder. Claimant sought $800,000.00 in damages plus unspecified punitive damages. In the Matter of the FINRA Arbitration Between Benel Inc., Claimant, vs. TD Ameritrade, Inc.,Respondent (FINRA Arbitration 17-02047, May 16, 2018)
Respondent TD Ameritrade filed a Motion to Dismiss, which was opposed by Claimant. The FINRA Arbitration Panel granted the motion. The Panel found that Respondent TD Ameritrade:

was not associated with the account, securities, or conducted alleged by Claimant. The claim was filed against the wrong party. Respondent is a separate corporation from TD Ameritrade Futures Forex, LLC. Claimant knew of this through, among other things, his signature on account documents with the latter firm. 

The FINRA Arbitration Panel dismissed Claimant's claims without prejudice and noted that he may "promptly refile his claims in a forum appropriate for deciding National Futures Association and/or CFTC rules."

Bill Singer's Comment

As I'm reading through the FINRA arbitration decision and I come across the allegations about CFTC, CEA, and commodities futures, I'm asking myself (yeah, I often have these brilliant conversations with myself until I open my mouth and then it all goes downhill) what the hell does this have to do with anything involving activity that a FINRA arbitration panel would have jurisdiction over? Then I come to the end of the decision where the Panel says that the claims were filed against the wrong party because the activity occured at TD Ameritrade Futures Forex, LLC and not TD Ameritrade, Inc. And then I smile because, well, you know, apparently I'm a pretty smart guy.

One aspect of this case that I find somewhat hysterical is that the Panel assessed a $1,725 filing fee; and $2,475 member surcharge; a $5,075 member processing fee; and $2,600 in hearing session fees. That's $11,875 to tell folks that they're knocking on the wrong door and should go across the street to where the party is actually being held. Sure, I agree -- Claimant screwed up and filed the wrong claims before the wrong forum. On the other hand, did it really require nearly $12,000 in charges before FINRA the forum or FINRA's arbitrators were on notice that there were jurisdictional issues? For example, when the case was first filed, did any Arbitration Staff note that the pleading alleged futures transactions? Is there any protocol in place at FINRA to fast-track such a glaring issue to a preliminary review that would have raised the jurisdictional issue sometime before $12,000 in charges ticked off?  None of which explains why Claimant filed at FINRA or why Claimant didn't spot the jurisdictional issues -- so, no, I'm not giving Claimant or its counsel a free ride. That being said: $12,000? I mean, really? $12,000 for doing little more than granting a motion to dismiss? Wow, that's one hell of a money maker!

For some two decades I have called upon NASD and its successor FINRA to establish an Anti-Fraud Fund whereby all defrauded public customers would obtain restitution in the event that member firms or associated persons fail to timely honor any awards for compensatory damages, costs, and fees. Seems to me that in a case such as Benel, Inc. v. TD Ameritrade, Inc. that a chunk of that nearly $12,000 in assessments should be earmarked for just such a fund. Sadly, just as the FINRA arbitrators told the Benel Inc. that it was knocking on the wrong door, I'm sure that FINRA will continue to tell me to take the same hike as I persist in banging on its door about creating an anti-fraud fund