Open Letter to FINRA CEO Robert Cook, Chair Bill Heyman, and Board of Governors

August 15, 2018

Open Letter
the Financial Industry Regulatory Authority's
President and Chief Executive Officer Robert Cook, 
Chairman of the Board Bill Heyman, and 
 Board of Governors

On August 14, 2018, the Blog published "Breathtaking Dissent In Industry Arbitration Asks Court To Sanction FINRA"  ( Blog), which analyzed the intra-industry FINRA arbitration of In the Matter of the FINRA Arbitration Between Ardian Hasko, Claimant, vs. Morgan Stanley Smith Barney LLC, John Joseph Biondo, Jr., and William Michael Peragine, III, Respondents (FINRA Arbitration 15-03434, August 10, 2018) In response to numerous messages from industry participants ranging from registered representatives to compliance staff to attorneys, I have published this open letter to prompt appropriate action by the Financial Industry Regulatory Authority ("FINRA"). 

The Hasko Expungement Arbitration

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2015, associated person Claimant Hasko representing himself pro se asserted defamation, breach of contract, quantum meruit and/or unjust enrichment, wrongful termination, violation of the New York Labor Law, retaliation and failure to pay severance. As set forth in the FINRA Arbitration Decision, Claimant Hasko sought monetary damages, fees, costs, interest, and, most pertinent for the purposes of this letter, the "expungement of Morgan Stanley's defamatory statements from FINRA's databases and reformation of Hasko's Form U5 to reflect that his employment was terminated without cause." Respondents Morgan Stanley Smith Barney, Biondo, and Peragine generally denied the allegations and asserted various affirmative defenses. At the evidentiary hearing, the parties agreed to dismiss Respondents Biondo and Peragine with prejudice and their costs, if any, would be absorbed by Respondent Morgan Stanley. 

Recommended Expungement

Although the FINRA Arbitration Panel unanimously denied Claimant Hasko's claims, the arbitrators recommended expungement of aspects of his industry record. In pertinent part, the Panel recommended that Claimant Hasko's Central Registration Depository record ("CRD") be revised to state, in part, that the appropriate explanation for his termination by Respondent Morgan Stanley was:


$24,900 in Charges/Fees

In adjudicating this dispute, the FINRA Arbitration Panel confirmed and/or assessed $24,900 in charges and fees as follows:

Respondent Morgan Stanley Smith Barney LLC is assessed $14,012.50 as follows:
  • $1,700.00 Member Surcharge;
  • $3,250.00 Member Process Fee;
  • $1,125 Postponement Fee;
  • $400.00 Discovery-related motion fees; and
  • $7,537.50 of the hearing session fees
Claimant Adrian Hasko is assessed $10,887.50 as follows:
  • $1,425 Filing Fee;
  • $1,125 Postponement Fee;
  • $800.00 of the discovery-related motion fees; and
  • $7,537.50 of the hearing session fees
Presiding Arbitration Chairperson Brooks White Dissents

As noted in the August 14, 2018, Blog article, an unsettling yet compelling Dissent was filed by arbitrator Brooks White, who was the Public Arbitrator and Presiding Chairperson of the arbitration panel. Rather than reprint Chair White's full Dissent, I will refer you to its full-text presentation in my blog and also in the published FINRA Arbitration Decision. That being said, I will quote several excerpts from White's Dissent below:

TO THE COURT: FINRA and the current majority of the panel, are offering a Hobson's
Choice to a pro se claimant. He was unable to hire counsel to represent him in a long
evidentiary hearing following withdrawal, without explanation by the law firm that
represented him 3 weeks prior to the hearing, to try to retain counsel, and then to incur additional time and expense, merely to rubber stamp the entire panels' unanimous decision based on the record and pleadings before it. Besides a waste of the court's time, this process is not required as a matter of law in a FINRA Industry Dispute arbitration. The facts of this case also don't warrant court confirmation. The parties, and the panel after hearing, agree that there was no customer information at issue. The U5 drafted by Respondent Morgan Stanley so states. The panel unanimously found for the Respondent on all counts, except expungement, and did not award damages. It was not a case that involved wrongful termination practices, or that entailed discrimination or other violations of civil rights. The panels' unanimous expungement decision, reflected in paragraph 3.c. of what is termed the "Provisional Award" section of the award, was minimalist. It modified a well-crafted U5 statement by Respondent Morgan Stanley,designed to avoid a defamatory in nature claim, that was true at the time, but misrepresents the facts after the panel's decision. The Panel wanted it clearly stated in the Claimant's U5 that his was an at-will discharge under New York law, and not one "for cause", as alleged, in part, by the Respondent Morgan Stanley. This relief was consistent with that pled by the Claimant, as noted in paragraph (j) of the Relief Requested section of this award. It is ironic, that FINRA's Office of Dispute Resolution, whose purpose is to present a forum to encourage dispute resolutions, offered no compromises to its position, and never responded to the numerous compromises offered by the Chairperson. It did so despite FINRA's lack of legal authority to compel court confirmation of an arbitral award or to require a claimant to have his CRD records (including the U5 and U4) changed pursuant to an arbitral award without court confirmation. FINRA has stonewalled on compromise and on providing a duly promulgated Rule upon which its authority to compel court confirmation must be based in Industry Dispute arbitrations. Courts have likely assumed FINRA was not acting ultra vires in mandating such confirmations. This court need not do so.

. . .

A Panel cannot create legal authority FINRA does not have. It is not a matter of the Panel imposing its will on FINRA or conditioning an award. FINRA since 1999 could have created such authority by promulgating a Rule applicable to Industry Disputes as it did for Customer Disputes under Rule 2080. It has not, and the court should hold that the panel's award was self-executing and required no court confirmation of the award or to change the Claimant's CRD records even without any finding that the U5 was defamatory in nature.

. . .

At one point the then current majority thought we had FINRA's agreement to serve the
Award with paragraph 5 and Mr. Brill's dissent, only with court confirmation as the
party(ies) agreed and without FINRA requiring or independently exercising a court
confirmation right. The case administrator so stated in writing. As Chairperson in
accordance with the draft award presented I was to sign on behalf of all the Panel
members, with Mr. Brill dissenting in part. I had the case administrator confirm to me in writing that Ms. Rutty agreed to sign the award as presented to me with paragraph 5 and Mr. Brill's dissent, and he did so in writing. I suggested to the case administrator
that Mr. Brill's dissent might be moot given FINRA's decision and asked him to inquire if
Mr. Brill would drop his dissent. He did so. Mr. Brill then learned from the case
administrator that FINRA was going to require court confirmation that contradicted the
award that I was to sign on behalf of the Panel. He subsequently confirmed to me in
writing that FINRA, in his opinion, had no intention of following the terms of the
executed award and would require court confirmation contrary to it. He had advised the case administrator he would not sign on this basis, and subsequently advised me in
writing that he thought what FINRA was trying to do, through the case administrator,
was an "abomination". Subsequently the case administrator sent an email to the Panel
with the same award, but with the email now highlighting that FINRA would be requiring court confirmation. This put the Panel back to square one. I worked with this case administrator before, and never had such a problem. I know he has asked FINRA
"management" before acting on other matters in connection with this matter, but he has not revealed if anyone, but he orchestrated this ethically corrupt attempt to have me sign based on false pretense.

Request of the Court

I request that the court dismiss as a matter of law FINRA's requirement for court
confirmation of arbitral decisions and awards in Industry Dispute Arbitrations which are
not subject to Rule 13805 or Rule 13904 (b), and to do so specifically in this case, as a
matter of fact and law. In so doing, the court should require FINRA, including FINRA
RAD, to immediately comply with the terms of paragraphs 1-4 of the presently termed
"Provisional Award" and to have that term revised to be Award in the final award. Even if the court confirms the Panel's unanimous ruling or makes other findings, it is my
request the FINRA be charged as set forth in the next paragraph.

In recognition of the Claimant's pro se status, it is my additional request that FINRA be
charged with all attorneys' fees and expenses, court costs and other related expenses
for both parties, or either party, as the case may be, and of those of any other persons, if any, compelled by the court to appear or give testimony, for FINRA's actions in connection with this dispute as set forth above. As the court deems appropriate it should also charge FINRA with a penalty for any action it deems ethically improper or
otherwise egregious in conduct.

The quotes above are not from Claimant Hasko or any other party to the intra-industry arbitration. The quotes are not from an Industry Arbitrator. The quotes are from the Presiding Chairperson of the FINRA Arbitration Panel, and he is also a Public Arbitrator. All of which heightens my concern when I read his remarks that [Ed: emphasis added]:

FINRA has stonewalled on compromise and on providing a duly promulgated Rule upon which its authority to compel court confirmation must be based in Industry Dispute arbitrations. 

I worked with this case administrator before, and never had such a problem. I know he has asked FINRA "management" before acting on other matters in connection with this matter, but he has not revealed if anyone, but he orchestrated this ethically corrupt attempt to have me sign based on false pretense.

Bill Singer's Background

I entered the securities industry in 1982, when I was employed in the Legal Department of Smith Barney, Harris Upham & Co. Thereafter, I was a regulatory attorney with both the American Stock Exchange and the NASD (now FINRA); and as a Legal Counsel to Integrated Resources Asset Management. I was Chief Counsel to the Financial Industry Association; General Counsel to the NASD / FINRA Dissidents' Grassroots Movement; and General Counsel to the Independent Broker-Dealer Association. I have represented clients during Congressional and criminal investigations, and before the American Stock Exchange, the New York Stock Exchange, the Financial Industry Regulatory Authority (formerly the NASD), the United States Securities and Exchange Commission. In 2015, I achieved an award in excess of $1.5 million from the Securities and Exchange Commission on behalf of a whistleblower client, who was characterized as the first in-house compliance officer to be granted an award under Dodd-Frank. For a number of years, I was registered as a Series 7 and Series 63 stockbroker. At present, I am a lawyer who represents securities-industry firms, individual registered persons, Wall Street whistleblowers, and defrauded public investors. 

I offer my background for the context it provides as to my understanding of the issues raised in Hasko, and to underscore my familiarity with the various procedural and substantive issues involved. Pointedly, I am a lawyer who represents virtually all stakeholders on Wall Street. I am not a partisan advocating solely for industry or public investor interests; notwithstanding, I am an unabashed critic of mandatory arbitration for both public customers and associated persons, and of many aspects of Wall Street self-regulation. By way of disclosure, I do not now and never have represented Claimant Hasko. Finally, my long-standing views and criticisms of FINRA's expungement protocol are online and rather than reiterate my views, I direct you to:

Download a PDF copy of Bill Singer Esq.'s analysis of FINRA's Expungement Rules

  • 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 Blog "Expungement" Archive

Call to Action

In response to the articulate Dissent of Chair White, I would respectfully ask that the FINRA Board of Governors undertake the following steps:

Fees Refund/Waiver

FINRA should refund to Ardian Hasko his $1,425 Filing Fee. Further, FINRA should waive in full the  $1,125 Postponement Fee; $800.00 discovery-related motion fee; and $7,537.50 of the hearing session fees.

Independent Counsel

FINRA should immediately appoint an outside, independent counsel to investigate the allegations raised by arbitration Chair Brooks White, particularly as they pertain to possible staff misconduct and/or fraud perpetrated upon the arbitration panel. If, when, and as appropriate, FINRA should suspend or place on administrative leave any staff whose conduct presents the reasonable appearance of malfeasance, nonfeasance, or other misconduct. If the Board determines that, in fact, misconduct occurred, a recommendation of suspension and/or termination of employment should be forthcoming. The Board should unequivocally confirm that no retaliatory action of any nature should be taken against Ardian Hasko or Brooks White, and, in particular, the Board should regularly review over the course of at least the next three years, FINRA's list of arbitrators and the appointments of same to ensure that its dictates are being followed with respect to the further service of arbitrator White. Finally, the independent counsel should be tasked with preparing a report to be provided to the Board but also publicly published on FINRA's website. 

Notice to Members

FINRA should review the issues raised in Hasko and promptly revise its Code of Arbitration Procedure and the various training and educational materials utilized by FINRA Dispute Resolution in order to ensure that arbitrators are fully informed of their prerogatives and staff reminded of the limits of their appropriate influence. Further, as noted in Hasko, there is a lack of clarity as to the issues attendant to the self-executing nature of a FINRA arbitration panel's recommended expungement of certain intra-industry matters not found to involve customer complaints or violations of industry rules/regulations. Although there is merit in requiring court confirmation of many proposed expungements, Hasko raised doubt as to the appropriateness of requiring such courthouse intervention when a termination is merely based upon an "at-will" discharge absent the existence of a bona fide customer complaint or reasonable likelihood of a violation of an industry rule or regulation. To the extent that the current FINRA rulebook does not directly address that expungement pathway, it is clearly time to amend the rules or provide an unequivocal interpretation.


Bill Singer