Stockbroker An Unintended Bystander Victim In Drive-By Customer Complaint

September 10, 2018

On Wall Street, not every angry communication from every unhappy customer is supposed to be viewed as a formal Complaint against a stockbroker. Sometimes customers are upset about with the policies of their brokerage firm. The customers don't like the commission schedule or the amount of a margin charge or the 20 minute wait on the customer service line or the frequent outages on the trading platform. It's not always a sales practice issue involving misconduct by a stockbroker. Unfortunately, the way things get handled at Wall Street's compliance departments is to take the path of least resistance and deem any expression of dissatisfaction from any customer as a reportable Complaint, which gets disclosed on the record of any stockbroker who may have had any contact with the sender. In a recent FINRA expungement arbitration, we witness how an assembly line approach to regulation and compliance imposes an unfair burden on a stockbroker who was merely following her firm's orders. It all takes on the appearance of a drive-by shooting with the stockbroker an unintended  bystander victim.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2018, associated person Claimant Squier sought the expungement of a customer claim (Occurrence 1253771) from her Central Registration Depository record ("CRD") and $1 in compensatory damages, which was subsequently waived during an expungement hearing. In the Matter of the FINRA Arbitration Between Cheryl Ann Squier, Claimant, vs. Edward Jones, Respondent (FINRA Arbitration 18-00187, September 4, 2018).

Respondent Edward Jones generally deneid the allegation, asserted various affirmative defense, but took no position on the requested expungment. 

Affidavit of Service

Because the underlying customer complaint had been filed by a now-deceased individual, the sole FINRA Arbitrator ordered Claimant to provide an affidavit of service (or of attempts to serve) upon a representative of the deceased customer:
  • a copy of the Statement of Claim, 
  • Claimant Squier's CRD or Form U4, and 
  • a current copy of her BrokerCheck Report.  
Supervisor's Statement

The Arbitrator also ordered Respondent Edward Jones to make all reasonable efforts to obtain a verified statement from Claimant Squier's supervisor addressing the Statement of Claim, including the changes in Respondent's policies which allegedly gave rise to the customer's complaint. 

Service Fault

The sole FINRA Arbitrator conducted a telephonic expungement hearing during which Respondent Edward Jones participated but did not take a position. Although Claimant Squier had previously filed proof of service of her Statement of Claim and the Arbitrator's Order setting form the time and date of the hearing, no one appeared at the expungement hearing on behalf of the customer. An interesting development during the hearing is described in the FINRA Arbitration Decision:

[D]uring the expungement hearing, the Arbitrator questioned Claimant's counsel on the adequacy of service on the Customer, or his estate. Following his questioning, the Arbitrator was not satisfied with the efforts of Claimant's counsel and left the record open for further efforts by Claimant's counsel to serve the Customer or his estate.

Thereafter, Claimant filed proof of service that apparently satisfied the FINRA Arbitrator. The FINRA Arbitration Decision asserts that:

[C]laimant's counsel ultimately located a representative of Wells Fargo's trust offices who represents the Customer's estate and relayed that it has no interest in these proceedings. Thus, the Arbitrator found that the Customer, through the representative of the Customer's estate, had all possible appropriate notice of the request for expungement and the expungement hearing.

The Underlying Claim

In reviewing the underlying customer claim (Occurrence 1253771), the Arbitrator noted that the matter had not been settled and the precipitating claim had been investigated by Respondent Edward Jones within one month of its receipt. Respondent found the claim to have had no merit, and that determination was conveyed to the customer. 


The FINRA Arbitrator recommended the expungement of all references to Occurrence 1253771 from Claimant Squier's CRD pursuant to a FINRA Rule 2080 finding that Claimant was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; and the claim, allegation, or information is false. The Arbitrator offered the following rationale:

In about 2004, the Customer opened a non-discretionary account with Respondent. Claimant, then associated with Respondent, served as the Customer's broker. The Customer, then in his 80s, was an experienced investor. Because his account was non-discretionary, the Customer's portfolio was made up of stocks which had been selected by the Customer. In addition, though Claimant was consulted by the Customer about investments and trades, the Customer made all final investment and trade decisions on his own. Over time, the Customer's account with Respondent grew to a substantial amount. 

At about that time (about 2004), Claimant was informed by a supervisor that the Customer's account had been "flagged" because of the Customer's age and aggressive investment and trade decisions. Claimant was also informed by this supervisor that, because of concern about a recent arbitration award involving similar circumstances, Claimant would be required to request that the Customer either agree to invest and trade more conservatively, or move his account to another broker-dealer. 

Initially the Customer agreed to keep his account with Respondent as his brokerdealer, to have Claimant as his registered representative and to invest and trade more conservatively. However, in doing so, the Customer was obliged to divest of certain higher risk stocks. Claimant recommended certain trades to the Customer which would not have resulted in any financial loss to the Customer. The Customer rejected Claimant's advice and selected the stocks he wished to sell. The sales of the stocks selected by the Customer resulted in portfolio losses to the Customer. 

Because the Customer was unhappy with the request that he invest and trade more conservatively, and with the subsequent loss (which the Customer considered "unjustified" even though this "loss" resulted from sales selected by the Customer), the Customer sent Respondent a letter complaining about the request that he invest and trade more conservatively and the resulting losses. This letter was lodged as a formal complaint against Claimant in the registration records maintained by the CRD for Claimant as occurrence number 1253771. 

When the Customer realized his letter had become a "black mark" on Claimant's record, he expressed regret to Claimant and offered to testify to anyone that needed the information that his complaint letter was intended to be filed against Respondent and not against Claimant. The Customer also called a representative of Respondent to voice this concern. However, before he could provide any such testimony, the Customer passed away. Additionally, there is no evidence that the Customer pursued arbitration against either Claimant or Respondent, nor has there been any disagreement with Claimant's allegations from any representative of the Customer. 

During her nearly 25 years as a broker holding her securities license, Claimant
has not had any other complaints which have been lodged with the CRD.

In view of the foregoing, the Arbitrator finds and concludes that, as Claimant was
a "bystander" in the alleged investment-related sales practice violation, the claim,
allegation, or information comprising occurrence number 1253771 is, as to
Claimant, false.

Bill Singer's Comment

Overall, a superior FINRA Arbitration Decision that is well written and provides adequate content and context so as to render the recommended expungement intelligible. As I would prefer to end my commentary on a positive note in keeping with the sole FINRA Arbitrator's excellent draftsmanship, let me briefly note one quibble. 

In expungement hearings involving allegations by public customers, I fully respect FINRA's policy about informing those account-holders of the request to expunge their complaints from a registered representative's record. Not sure that I can state that proposition any clearer. In expungement hearings involving allegations by deceased public customers, however, the majority of FINRA Arbitration Decisions that I have read tend to require proof of death -- which I think is also a sound policy.  

Requiring proof of service upon a so-called "representative" of a deceased customer, as was required in Squier v. Edward Jones, strikes me as a dubious proposition. First, I'm not sure as to what is legally meant by a mere "representative" of a deceased, which raises a myriad of problems when a potential litigant is faced with a landscape of surviving spouses, surviving children, surviving heirs, executors, administrators, and the like. Moreover, since the deceased customer's claims/complaints are purportedly a matter of record because, otherwise, there would be no underlying matter to expunge, I'm not sure what is added by the participation of a deceased customer's representative during the ensuing expungement hearing. If a representative of a deceased participates in such a hearing, experience suggest that any testimony offered by such a party would likely be hearsay. If the deceased customer had previously given testimony as a witness at a trial, hearing, or deposition, that prior testimony may fall under an established hearsay exception. Similarly, some states retain on their books a so-called Dead Man's Statute, which prohibits or restricts the ability of an interested party to testify about communications or transactions with a deceased. Ultimately, FINRA should seek to clarify its definition of a "representative" of a deceased to the extent that a FINRA Arbitrator would be authorized under the Code of Arbitration to order a party to undertake service or provide proof of same. If the Arbitrator in Squier had limited service upon a known, legal representative of the deceased customer's estate, then that is not so stated in the Decision, and, if that were the case, I would withdraw my criticism.

Beyond the service issue noted above, the sole FINRA Arbitrator penned a wonderful Decision and provided us with a superb rationale for his Award. The Arbitrator crafted a thoughtful picture of an elderly customer who was an experienced investor. When the customer's account was flagged for a combination of factors involving his age, his aggressive trading, and his trading decisions, Claimant Squier was instructed to obtain the customer's consent to engage in  more conservative investing/trading, or, in the alternative, to inform him that he must transfer his account to another firm. Notwithstanding the customer's agreement to more conservative account profile terms, he sustained losses when re-positioning his portfolio through sales of higher-risk holdings. Whether prompted by resentment at the perception that Respondent Edward Jones was treating him like a doddering idiot or merely prompted by the rankles of being told how to manage his account, the customer sent a letter complaining NOT about Claimant Squier but about Respondent Edward Jones' ultimatum and the losses the ensuing reallocation caused. Despite the customer's apparent intent, Respondent Edward Jones recorded the letter as a "formal complaint against Claimant."  Sensing that his letter had become an unintended mark on Claimant's industry record, the customer offered to testify on behalf of Squier but died before such was effectuated. Thus the sole mark on Claimant's now 26-year industry career was carved in regulatory and compliance stone. Thankfully, the FINRA Arbitrator saw that Claimant Squier was nothing more than an unfortunate "bystander" in the matters that prompted the disclosed complaint. 

Also READ: