The Arbitrator reviewed the BrokerCheck Report for Claimant and noted that there was no written settlement agreement, although the occurrence was listed as "settled." Based on Claimant's testimony, the representations of Claimant's counsel, and Claimant's letter dated November 16, 2018, the Arbitrator found that the customer's account was restored at no cost to the customer within 24 hours after he made the complaint and that "settled" in this instance meant "case closed."
The customer has two accounts with Respondent, one managed account ("Managed Account") and one brokerage account ("Brokerage Account"). The customer called Claimant to buy two stocks that he specifically wanted. Claimant completed this transaction, purchasing the stocks, but inadvertently placed them in the customer's Managed Account, rather than his Brokerage Account.The Managed Account is automatically rebalanced on a regular basis. When the account was rebalanced, the two stocks were automatically sold. The customer caught this and called Claimant to tell him about it. Within 24 hours, the two stocks were repurchased and placed in the customer's Brokerage Account, all at no cost to the customer. The customer was satisfied with the correction and quick turnaround.With an abundance of caution, Respondent reported this incident as a customer complaint for the record, even though it was a call from a customer to his broker and rectified in 24 hours. The customer was properly notified of today's hearing, but did not join in on the telephonic hearing. Respondent's Statement of Answer to the claim, said: ". . . Respondent does not oppose the request for relief made by Petitioner (Donald Ray Jackson). The request should be granted . . ." This was an honest error and was quickly fixed by Claimant and Respondent, as soon as it was discovered.The event happened in 2005. When asked why Claimant waited so long to ask for expungement, Claimant stated that he did not realize he could have it expunged, until his boss recently told him he could.The complaint on Claimant's record serves no public purpose or useful benefit to customers and is misleading of the facts. Thus, it should be expunged from Claimant's CRD record
Bill Singer's Comment
Online FINRA BrokerCheck records as of January 29, 2019, disclose that Jackson was first registered in 1994 with UBS. The one and only disclosure on Jackson's BrokerCheck record under the heading "Customer Dispute - Settled" reflects a 2005 customer complaint seeking $27,594.08 in damages arising from an alleged sale of 1000 XEC and 600 ARLP on April 15, 2005. The complaint was reported "settled" on August 10, 2005, for $27,594.08, and UBS reported that Jackson contributed the entire sum. This appears to be the underlying matter that the FINRA Arbitrator recommended be expunged. As presently reflected on BrokerCheck, Jackson had consistently offered this "Broker Statement" by way of explanation:
POSITIONS WERE POSTED IN THE WRONG ACCOUNT, WHICH WAS A FEE BASED MODEL PORTFOLIO ACCOUNT. WHEN THE ERROR WAS DETECTED THE FA BROUGHT IT TO THE ATTENTION OF MANAGEMENT. POSITIONS WERE SOLD IN ERROR WHEN THAT ACCOUNT WAS REBALANCED TO THE MODEL. THE CLIENT WAS CHARGED NO COMMISSIONS ON THE TRADES AND THE POSITIONS WERE REINSTATED.
The key issue in this expungement case involves distinguishing between a non-disclosable customer communication and a disclosable customer complaint. All of which presents some interesting issues for in-house compliance staff. Does it -- or should it -- matter how a customer wants to characterize a given communication? By way of illustration, just because I call a banana an orange doesn't make it so -- and you're sure as hell not going to get orange juice out of a banana. As such, let's take a look at some pertinent FINRA rules addressing the nature of customer complaints:
FINRA Rule 4513: Records of Written Customer Complaints
(a) Each member shall keep and preserve in each office of supervisory jurisdiction either a separate file of all written customer complaints that relate to that office (including complaints that relate to activities supervised from that office) and action taken by the member, if any, or a separate record of such complaints and a clear reference to the files in that office containing the correspondence connected with such complaints. Rather than keep and preserve the customer complaint records required under this Rule at the office of supervisory jurisdiction, the member may choose to make them promptly available at that office, upon request of FINRA. Customer complaint records shall be preserved for a period of at least four years.
(b) For purposes of this Rule, "customer complaint" means any grievance by a customer or any person authorized to act on behalf of the customer involving the activities of the member or a person associated with the member in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer.
FINRA Rule 4530: Reporting Requirements
(a) Each member shall promptly report to FINRA, but in any event not later than 30 calendar days, after the member knows or should have known of the existence of any of the following:
(1) the member or an associated person of the member:
. . .(B) is the subject of any written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery;. . .(G) is a defendant or respondent in any securities- or commodities-related civil litigation or arbitration, is a defendant or respondent in any financial-related insurance civil litigation or arbitration, or is the subject of any claim for damages by a customer, broker or dealer that relates to the provision of financial services or relates to a financial transaction, and such civil litigation, arbitration or claim for damages has been disposed of by judgment, award or settlement for an amount exceeding $15,000. However, when the member is the defendant or respondent or is the subject of any claim for damages by a customer, broker or dealer, then the reporting to FINRA shall be required only when such judgment, award or settlement is for an amount exceeding $25,000; or . . .. . .(d) Each member shall report to FINRA statistical and summary information regarding written customer complaints in such detail as FINRA shall specify by the 15th day of the month following the calendar quarter in which customer complaints are received by the member.(e) Nothing contained in this Rule shall eliminate, reduce or otherwise abrogate the responsibilities of a member or person associated with a member to promptly disclose required information on the Forms BD, U4 or U5, as applicable, to make any other required filings or to respond to FINRA with respect to any customer complaint, examination or inquiry.In addition, members are required to comply with the reporting obligations under paragraphs (a), (b) and (d) of this Rule, regardless of whether the information is reported or disclosed pursuant to any other rule or requirement, including the requirements of the Form BD. However, a member need not report: (1) an event otherwise required to be reported under paragraph (a)(1) of this Rule if the member discloses the event on the Form U4, consistent with the requirements of that form, and indicates, in such manner and format that FINRA may require, that such disclosure satisfies the requirements of paragraph (a)(1) of this Rule, as applicable; or (2) an event otherwise required to be reported under paragraphs (a) or (b) of this Rule if the member discloses the event on the Form U5, consistent with the requirements of that form
FINRA member firm compliance departments uniformly characterize far too many "communications" from customers as involving a "complaint," when, in fact, the communication is merely an inquiry or comment. Further, not every customer complaint necessarily rises to the level of an event requiring disclosure; for example, a complaint that a stockbroker was rude on the telephone or that the firm's online platform is not user-friendly would not (absent more) require a regulatory disclosure.
(2) Have you ever been the subject of an investment-related, consumer-initiated (written or oral) complaint, which alleged that you were involved in one or more sales practice violations, and which:(a) was settled, prior to 05/18/2009, for an amount of $10,000 or more, or;(b) was settled, on or after 05/18/2009, for an amount of $15,000 or more?(3) Within the past twenty four (24) months, have you been the subject of an investment-related, consumer-initiated, written complaint, not otherwise reported under question 14I(2) above, which:(a) alleged that you were involved in one or more sales practice violations and contained a claim for compensatory damages of $5,000 or more (if no damage amount is alleged, the complaint must be reported unless the firm has made a good faith determination that the damages from the alleged conduct would be less than $5,000), or;(b) alleged that you were involved in forgery, theft, misappropriation or conversion of funds or securities?
- 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 BrokeAndBroker.com Blog "Expungement" Archive
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