Legend-ary FINRA Public Customer Arbitration

November 14, 2018

Okay, sure, I'll admit it: I look at the cover and judge the book. Hey, at least I'm being honest here. It's pretty much the same with a lot of FINRA Arbitration cases. I take a gander at the caption and if I know some of the parties, I pretty much know whether they're going to win or lose. Nah . . . it ain't always accurate but more so than you might think. In a recent public customer arbitration against four industry respondents, I immediately honed in on one: Legend Securities, Inc. Frankly, I didn't think that there was much point in reading the FINRA Arbitration Decision. No way that any public customer was going to lose almost any reasonable case involving Legend. Maybe I should have read the decision rather than merely judged the outcome by the caption?

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2017, public customer Claimant Franzen asserted excessive commissions and fees; failure to use reasonable diligence; unsuitability; negligence; breaches of contract and fiduciary duty; and omission of facts.. Ultimately, Claimant Franzen sought $49,743 plus attorneys' fees in the amount of $8,100.00 as a result of his alleged damages from transactions, in part, in Under Armour stock, and as a result of a margin call against his account. In the Matter of the FINRA Arbitration Between Adam Franzen, Claimant, vs. Frank Philip Fusco, Daniel M. King, Michael Salvatore Stanton, and Legend Securities, Inc., Respondents (FINRA Arbitration  117-00826, November 8, 2018).

The FINRA Arbitration Decision provides the following roster of representation:

For Claimant Adam Franzen: Rosemary Cooney, Esq., Probate, Guardianship and Trust, P.A., West Palm Beach, Florida. For Respondent Daniel M. King ("King"): Ross J. Kartez, Esq., Ruskin Moscou Faltischek P.C., Uniondale, New York. 

For Respondent Frank Philip Fusco ("Fusco"): Lawrence R. Gelber, Esq., Lawrence R. Gelber, Attorney at Law, Brooklyn, New York until January 26, 2018. Thereafter, Respondent Fusco appeared pro se. 

Respondent Michael Salvatore Stanton ("Stanton") appeared pro se. 

Respondent Legend Securities, Inc. did not appear. 

Respondents King, Fusco and Stanton denied the allegations made in the Statement of Claim and asserted various affirmative defenses. Additionally, Respondents King, Fusco, and Stanton sought an expungement of Claimant's allegations from their Central Registration Depository records ("CRDs") and an award of reasonable attorneys' fees and other fees and costs

Motion to Dismiss

Respondent King filed a Motion to Dismiss and was, thereafter, joined in that motion by Respondents Fusco and Stanton, in which they argued that Claimant Franzen failed to produce documents pursuant to a previously-issued discovery Order.  Claimant opposed the motion and cross-moved to compel Respondents' discovery production.  The sole FINRA Arbitrator denied the motions. 


The sole FINRA Arbitrator denied Claimant Franzen's claims. The Arbitrator found Claimant Franzen liable and ordered him to pay to Respondents King and Fusco their attorneys' fees in an amount to be determined buy a court of competent jurisdiction. As to the issue of whether attorneys' fees should or can be awarded, the Arbitrator directed that such be raised with the court. 

FINRA and/or the Arbitrator assessed the following fees:

Claimant Franzen: $600 Initial claim Filing Fee; $400 Discovery-related Motion Fee; and $1,800 Hearing Session Fees

Respondent Legend Securities: $750 Member Surcharge; and $1,750 Member Process Fee; 

Respondent King: $450 Postponement Fees


In recommending the expungement of Claimant's arbitration from the CRDs of Respondents King, Fusco, and Stanton, the FINRA Arbitrator made a FINRA Rule 2080 finding that as to Respondents King Stanton, and Fusco the claim allegation or information is false -- and the Arbitrator made a further Rule 2080 finding solely for Respondent Fusco that the claim, allegation, or information is factually impossible or clearly erroneous. In recommending expungement, the Arbitrator offered the following rationale:

As to Respondent King:

Claimant in a nutshell stated that he did not prepare the setup documents for this account, did not read them, did not check margin on the form and was surprised to see margin activity later on. This is not credible as there was a separate form authorizing margin trading with large block letters at the top. Nor did Claimant ever specifically request no margin trading, just that he did not want to lose any more money. He also stated that Respondent King made trades without his approval and that King communicated only by text, not by telephone. This is also not credible because the texts indicate that there were prior discussions, as Claimant never questioned why he had a stock, just why it was down. He never stated in writing that he had not authorized a trade, and testified that he did not know he could. His claim for excess commissions is refuted by account statements showing that Respondent King waived most commissions. The account records show an actual gain in the account. It appears that Claimant believed that margin calls were losses. Arbitrator finds Claimant's allegation and version of events with regard to Respondent King not supported by the evidence and therefore false. For these reasons, expungement of Respondent King's record is appropriate. 

As to Respondent Stanton:

Claimant stated that when he first telephoned Respondent Stanton to complain about Respondent King, Respondent Stanton did not return his calls. This was contradicted by Respondent Stanton who states that he never received a telephone message. In any case, the following business day when Claimant reached out to Respondent Stanton by email, Respondent Stanton responded very promptly and indicated that he took Claimant very seriously. Claimant also testified that Respondent Stanton told him that he should close his account. Respondent Stanton denied this, and it would have been inconsistent with written statements from Respondents Stanton showing concern. The Arbitrator finds Claimant's allegation and version of events with regard to Respondent Stanton not supported by the evidence and therefore false. For these reasons, expungement of Respondent Stanton's record is appropriate. 

. . .

As to Respondent Fusco: 

Claimant provided no evidence beside his oral testimony, contradicted by Respondent Fusco, that he had any contact with Respondent Fusco at any time during the relevant timeframe. 

Because Claimant's pleadings did not reference any such contact with Fusco, and because such contact was alleged only at the hearing, the Arbitrator finds Claimant's version of events with regard to Respondent Fusco not supported by the evidence and therefore factually impossible and false. For these reasons, expungement of Respondent Fusco's record is appropriate. 

Bill Singer's Comment

Compliments to the FINRA Arbitrator for a thorough job!

Apparently, the Arbitrator simply did not believe public customer Franzen's allegations. In Respondent King's case, the Arbitrator pointedly characterized Franzen's claims that he didn't prepare or read the key new account documents as "not credible" -- and the Arbitrator found the customer's version of events as "not supported by the evidence and therefore false." That's as blunt a rejection of claims as you could imagine, and the same dismissive conclusion was rendered in favor of Respondents Stanton and Fusco. All of which may explain why the Arbitrator hit Franzen with attorneys' fees, which is rarely done in FINRA public customer arbitrations. Adding insult to injury, the Arbitrator imposed all hearing sessions fees and motion fees on Claimant Franzen.

Among the more jaw-dropping aspects of this case is that it involved Legend Securities, Inc., albeit a no-show in this arbitration. Suffice it to say that in April 2017, Legend Securities, Inc. was expelled by FINRA for failure to pay fines and costs. See, for exampleFINRA Department of Enforcement, Complainant, v. Legend Securities, Inc. Respondent (Default Decision, Office of Hearing Officers, Disc. Proc. No. 2012030422902 / May 25, 2017) 
the syllabus states that:

Respondent (1) failed to report customer complaints to FINRA, (2) failed to amend or timely amend registered representatives' Forms U4, (3) failed to establish and maintain a supervisory system and failed to establish, maintain, and enforce written supervisory procedures reasonably designed to ensure that it reported customer complaints, timely amended its registered representatives' Forms U4 and Forms U5, reviewed email correspondence, and considered plans of heightened supervision for certain registered representatives, and (4) improperly charged hundreds of customers "handling fees." The Firm is fined $475,000 and ordered to pay restitution to the customers it charged a "handling fee." 

SEC Settles Insider Trading Claims Against Former Chairman and CEO of Advanced Medical Optics (SEC Release)

Legend-ary FINRA Public Customer Arbitration (BrokeAndBroker.com Blog)

Double Jeopardy Clause After Kokesh in SEC Civil Disgorgement: USA, Plaintiff/Appellee, v. Douglas A. Dyer and James H. Brennan III, Defendants/Appellants (Opinion, United States Court of Appeals for the Sixth Circuit, 17-6174 and 17-6177  / November 13, 2018)

Oisin's Bits: LPL hacked through Capital Forensics' breach, leaks personal info, account numbers (RIABiz.com)

Trader Sentenced to 15 Months in Federal Prison for Misappropriating $1.1 Million in Cryptocurrencies (DOJ Release)

FINRA Settles Business Expense Case
In the Matter of John J. Baldeck, Respondent  (AWC 2016050321501, November 12, 2018).

Nigerian National Indicted for Internet Fraud Scheme (DOJ Release)