Memory Sinks Customer In CD and CMO FINRA Arbitration

August 1, 2018

Memories. They are the stuff of popular songs. They are the bases for many lawsuits. Good, decent folks have a tendency to misremember stuff -- and some will swear to their dying day, even in the face of proof to the contrary, that their memory of events is accurate. In some cases, you put a document in front of a witness or you show them a video and, Eureka!, it jogs their memory and an epiphany comes upon them. They unmisremember and reremember and truth triumphs. On the other hand, how often has Nietzsche's observation been proven correct? "Memory says, 'I did that.' Pride replies, 'I could not have done that.' Eventually, memory yields."

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2018, public customer Schlesinger representing himself pro se asserted breach of fiduciary duty; misrepresentation/non-disclosures; omission of facts; failure to supervise; and negligence in connection with his alleged purchase of a JP Morgan Chase variable rate certificate of deposit ("CD") and a Bank of America collateralized mortgage obligation ("CMO"). Claimant sought compensatory damages of $22,280.00 for alleged CD losses, $27,718.28 for alleged CMO losses, plus interest. In the Matter of the FINRA Arbitration Between Alan Schlesinger SEP, Claimant, vs. R. Seelaus & Co., Inc., Respondent (FINRA Arbitration 18-00212, July 27, 2018).

Respondent R. Seelaus & Co., Inc. generally denied the allegations ,asserted various affirmative defenses, and sought the expungement of the matter from the Central Registration Depository records ("CRD") of non-party Mary Parker.  


The sole FINRA Arbitrator dismissed Claimant Schlesinger's claims but found Respondent R. Seelaus liable to and ordered it to reimburse Claimant $75 for one-half of the non-refundable portion of the FINRA claim-filing fee.


The FINRA Arbitrator recommended the expungment of non-party Parker's CRD based upon a FINRA Rule 2080 finding that the claim, allegation, or information is false.  The Arbitrator offered in part the following rationale:

With respect to the CMO, non-party Parker advised Claimant of all information relevant to the investment at the time of purchase. Claimant acknowledged during the hearing that he was wrong when he asserted in the Statement of Claim that he was unaware at the time of purchase of the small number of mortgages in the traunch. This was evidenced by an email produced at the hearing that was provided to Claimant at the time of the purchase, which specifically set forth the number of mortgages in the traunch. 

With respect to the variable CD, non-party Parker told Claimant at the time of purchase that interest was based on the CMS rate. There was no misrepresentation by non-party Parker, but rather a misunderstanding by Claimant as to what the CMS rate meant. 

Bill Singer's Comment

Online FINRA BrokerCheck files as of August 1, 2018, disclose the following "Broker Statement" pertaining to Claimant Schlesinger's arbitration:

Customer is a sophisticated investor/attorney and was correctly informed of the risks associated with both securities through a thorough email with what if scenarios, prospectus/disclosure statements, confirmation disclosure and a live conversation with the analyst/trader. The compliant is without merit, and the firm intends to fight it vigorously.

If, in fact, the "Broker Statement" assertion that Schlesinger is an attorney is accurate, the FINRA Arbitration Decision should have included that status given Claimant's characterization as proceeding "pro se," which engenders some sympathy for a party not represented by a lawyer. Further, since a critical issue in the arbitration was Schlesinger's purported misunderstanding of the terms of his CD and CMO investments, his status as a lawyer presents a different perspective than if he were a layperson -- notwithstanding, the mere fact that a lawyer is a public customer does not mean that said party is schooled in the intricacies of the securities industry or immune to fraud.

After Claimant Schlesinger filed his arbitration Statement of Claim, he realized that he was "wrong" in his assertion that he was "unaware at the time of purchase of the small number of mortgages in the traunch." Further, the FINRA Arbitrator found that there had been "no misrepresentation by non-party Parker, but rather a misunderstanding by Claimant as to what the CMS rate meant." Okay, sure, folks misremember all the time. And, sure, folks also misunderstand. It happens. Memory can be a quirky thing for laypersons and lawyers alike. 

In the end, I am puzzled as to why the Arbitrator made Respondent pay to Claimant $75 of the non-reimbursable filing fee. On top of that, the FINRA Arbitrator assessed against Respondent both a $740 Member Surcharge and $675 (of $1,350) in hearing session fees. I appreciate that the Arbitrator also assessed $675 in hearing session fees against Claimant Schlesinger but given all of the public customer's belated admissions and the Arbitrator's findings, I would have expected the Arbitrator to order the customer to pay the entire $1,350 in hearing session fees and make him eat the $75. Frankly, the awards/assessments come off as a dubious consolation prize.