Customer Withdrawals and Vacations At Heart of Stockbroker Expungement

November 6, 2018

Today's BrokeAndBroker Blog offers a number of lessons for both customers and stockbrokers about the perils of withdrawals of cash from accounts that go above and beyond what was contemplated when an annuity was purchased. On top of that, we have an interesting thought-piece on how best to deal with a missing-in-action customer who is on vacation.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2018, Claimant Michael W. Butt sought the expungement of one customer complaint (Occurrence 1104797: "Mrs. N") and one FINRA arbitration (Occurrence 1465223: "Mr. and Mrs. A") from his Central Registration Depository records ("CRD"); and $1 in compensatory damages. In the Matter of the FINRA Arbitration Between Michael W. Butt, Claimant, vs. Citigroup Global Markets, Inc. and Piper Jaffray & Co., Respondents (FINRA Arbitration  18-00417, October 22, 2018)

In its Statement of Answer, Respondent Citigroup did not oppose Claimant Butt's request for expungement but objected to his request for monetary relief; and the firm asked that all fees associated with the matter be assessed solely against him.

In its Statement of Answer, Piper Jaffray deferred the assessment of the merits of Claimant's request for expungement to the Arbitrator and declined to further participate in the process.

Claimant Butt provided the customers with a copy of his Statement of Claim and notice of the expungement hearing. The customers did not file a reply. 

The sole FINRA Arbitrator conducted an expungement hearing at which Citigroup participated but did not contest the request for expungement; Piper Jaffray and the customers did not appear. During the expungement hearing, Claimant withdrew the request for $1 in damages.


In recommending expungement, the FINRA Arbitrator made a FINRA Rule 2080 finding of the claim, allegation, or information is factually impossible or clearly erroneous, and false. Preliminarily, the Arbitrator noted that he was unable to review settlement documents for Ms. N as they appeared to have been destroyed by FINRA member firm Piper Jaffray pursuant to its document retention policy. The Arbitrator did review the settlement documents for Mr. and Mrs. A. In both underlying complaints, the Arbitrator noted that Claimant Butt did not participate in or contribute to any settlements.

In addressing the specifics of each underlying complaint, the FINRA Arbitrator provided this rationale for recommending expungement:

Occurrence Number 1104797 (in which Ms. N is the underlying customer)

Ms. N alleged that Claimant placed her in an unsuitable annuity that lost value. The annuity in question was guaranteed to maintain its value so long as Ms. N did not withdraw funds in excess of percentage of principal guaranteed by the issuer. Against the advice of Claimant, Ms. N did withdraw funds in excess of specified percentage while the mutual funds in the annuity were decreasing in value due to market conditions. Had Ms. N not ignored repeated warnings from Claimant and had limited her withdrawals, the value of the annuity would not have decreased despite market performance of the selected mutual funds. Therefore, the allegation of unsuitability was false and, therefore, also clearly erroneous. The evidence established that the annuity recommended by Claimant was not only suitable but was probably the most suitable investment available to satisfy the sometimes conflicting goals of Ms. N. 

Occurrence Number 1465223 (in which Mr. and Mrs. A are the underlying customers)

Mr. and Mrs. A alleged that Claimant failed to transfer funds within six variable annuities owned by them in accordance with their instructions. With regard to five of those annuities, Claimant did follow the instructions and the funds were transferred. Therefore, as to those five, the claims was false. As to the sixth, the annuity company would not recognize Claimant's authority to order the transfer. Accordingly, Claimant attempted, without success, to contact Mr. and Mrs. A, who were on a month-long cruise, by telephone and email to notify them of the problem and to obtain the authorization needed to effectuate their instruction. Claimant did everything he could reasonably have been expected to do to comply with the instructions but was unsuccessful through no fault of his own. As it was impossible for Claimant to comply with the instruction to transfer, the allegation that he violated a duty owed to the customers was clearly erroneous and false.

Bill Singer's Comment

Compliments to FINRA Arbitrator Marc Kalish for a very thoughtful and compelling Decision. 

The Dreaded D's

In today's featured customer complaints, there are lessons worth noting for both public customers and registered representatives. In the case of Ms. N's annuity, it is is critical for investors to note that such an investment is frequently inappropriate if significant withdrawals are needed. Unexpected personal events such as a health crisis or a significant market downturn may force many investors to make withdrawals that were never contemplated and, frankly, not desirable. That such events arise does not automatically transform a previously suitable investment recommendation into an unsuitable one. Nonetheless, when entering into any investment that contemplates your retirement, I urge my clients to consider what I call the Dreaded D's: Death, Disability, and Divorce. For industry professionals, part of your job is to anticipate the dreaded D's and to discuss such possibilities with your customers. When engaging in such discussions about asset allocation, it is in your best interest to maintain records memorializing your warnings to customers. Similarly, if and when a customer engages in conduct in contravention of a previously discussed investment strategy, it is often advisable to memorialize a timely reminder to them that they are jeopardizing the integrity of a given recommendation by excessive withdrawals or other conduct. 

Missing In Action on Vacation

The case of Mr. and Mrs. A presents an interesting puzzle about how best to deal with clients who are missing in action. In the case of the couple, they were on a month-long cruise. Okay, sure, maybe a generation or two ago it was a big deal to get in touch with someone on vacation but in these days of smartphones, tablets, and WiFi, it's just not that difficult -- which is not to say that there aren't connectivity issues or that some travelers go off the grid. 

That being said, customers may want to notify their stockbroker before a prolonged departure and figure out how to best keep in touch: be that email, Instant Messaging, voicemail, etc. In some cases, a customer may want to grant a Power of Attorney to someone they trust for the limited purpose of approving proposed buys or sells of securities in their account. For the stockbroker, yet again, document, document, and document your unsuccessful attempts to contact an unreachable customer. Further, avoid any unauthorized trading, even if you believe that a given trade is what your customer likely would have wanted. If it's an epic emergency, go find your supervisor or a compliance office, see if your firm will agree to any emergency measures, and document that discussion -- BUT for godsakes, don't pretend that the customer gave you Time-And-Price discretion on a day when you can't prove you made a telephone call to or received one from that customer, and there are no corroborating emails or IMs. Yeah, I know, sure, of course, that never, ever crossed your mind.

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