February 2, 2019
Today's blog arises from a FINRA Arbitration Decision that tells us next to nothing about the substance of a multi-million dollar complaint filed against 10 respondents. The Decision dutifully ticks off the many causes of action but they are left suspended in mid-air without being tied to any specific facts. Moreover, we got two arbitrators ruling one way and a third arbitrator dissenting but we don't have any idea as to what the three adjudicators didn't agree about and why. As such, we don't know what prompted the litigation and there's no rationale presented for the ensuing Award. How did Winston Churchill put it? A riddle wrapped up in an enigma. Our publisher Bill Singer criticized the hide-and-seek nature of the arbitration. A reader took Bill to task. Presented for your consideration is the debate.
A distributed autonomous organization or DAO is a virtual organization governed entirely by smart contracts, which execute transactions on a blockchain according to their code, to fund projects, collect revenues, pay expenses, and distribute profits, all without centralized controls. In theory, no central authority can alter transactions recorded in a blockchain. As a result, DAO smart contracts recorded on and executed through the Ethereum blockchain should not be hackable. In theory. In May 2016, blockchain developer iSlock.it set up a DAO fancifully called "The DAO" and tested that theory with all the hubris of sailing the Titanic through an ice field. The DAO raised about $150 million selling DAO tokens in exchange for Ethereum's cryptocurrency, ether. But then The Attacker diverted a third of The DAO's ether to his own account. The DAO code was in no way compromised. The Attacker followed it to the letter. As did the Selbees, The Attacker simply found a way to profit that others had overlooked.
You need to read it a few times before the enormity of what's being alleged, what may be involved, and what would need to be proved hits you. In 2019, a FINRA Panel of Arbitrators issues a decision addressing claims filed in 2014 seeking over $2 million in damages from Morgan Stanley for, in part, financial elder abuse, that allegedly arose from trading as far back as 1993. Prime among the points in contention was whether the customers' claims were barred by a six-year eligibility rule or applicable statues of limitations. In a workmanlike and impressive manner, a FINRA Arbitration Panel tackles the thorny issues and produces an informative decision.
You know that thought-piece about whether a tree makes a sound when it falls in the woods but no hears it? For the Wall Street version of that puzzler, try this: What if a customer inquires about a goof in his account; and the brokerage firm apologizes promptly for its error and credits every penny that was inadvertently charged in the transactions at issue -- is that a settled customer complaint or simply "case closed?" Now, we have to wrestle with the nuance between a mere inquiry and a complaint. Next, we have to figure out whether a voluntary correction is a settlement. Further, we have to figure out if the benefit of hindsight allows a compliance officer to exercise common sense and amend what was reported to a regulator. No . . . I don't want to lessen any investor protections afforded by FINRA's robust expungement regime; however, fair-play for registered representatives should not be an alien concept within such a regime,
In today's featured FINRA expungement case, we are asked to consider the plight of a stockbroker, who seems a Wall Street Peter Pan seeking elusive justice in Never-Neverland. As best I understand, the Lost Boys invested in hedge funds but got wiped out during the Great Recession when it turned out that Captain Cook was a Ponzi hustler.