FINRA Arbitration Costs National Securities In Promissory Note Case

February 27, 2019

Wall Street is legendary for sending messages. You try to bury your competition. You try to crush the other side of the deal. And when it comes to employment relations on the Street, it's more of that dog-eat-dog world. No holds barred. Two walk in but one walks out. Cut their heads off and hang 'em on a pole. The thing is, however, it only takes one sucker punch to make you look silly. If yer gonna send a message, ya better make sure it don't get returned to sender!

Case In Point

In a FINRA Arbitration Statement of Claim filed in November 2017, FINRA member firm Claimant National Securities Corporation asserted breach of promissory notes arising from Respondent Bell's alleged failure to repay a December 14, 2015, note and Respondent Leon's alleged failure to repay November 9, 2015, and a February 17, 2017, notes. In addition to interest, costs, disbursements, expenses, and fees, Claimant National Securities sought the following damages:
  • Respondent Bell: $7,500.00; 
  • Respondent Leon: $27,222.22
In the Matter of the Arbitration Between National Securities Corporation, Claimant, v. Steven R. Bell and Howard Leon, Respondents (FINRA Arbitration Decision  17-02960, February 26, 2019) 

Respondent Bell generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting fraud in the inducement; fraud and misrepresentation; breach of the standards of commercial honor and equitable principles of trade; breach of contract; and slander and defamation. At the close of the hearing, Respondent Bell sought $100,000 in compensatory damages. 

Respondent Leon did not file an Answer or make an appearance.

Lost in Time

The FINRA Arbitration Decision erroneously asserts that Respondent Bell filed a Motion to Sever the Statement of Claim "on or about November 22, 2019." Respondent Bell argued that Claimant National Securities' claims against him and Respondent Leon presented separate and distinct matters devoid of any joint responsibility. Although Claimant opposed the severance, the Panel granted the motion and removed Respondent Leon from the instant matter. 

SIDE BAR: The Decision asserts that the Panel granted the Motion in April 2018, which means that the motion was likely filed in November "2017" and not the  "2019" set forth in the Decision. Maybe someone at FINRA can issue a revised Decision with the corrected dates?


The FINRA Panel of Arbitrators found Respondent Bell liable to Claimant National Securities and ordered him to pay the firm $7,500 plus $1,530 interest, and $21,000 in attorney's fees. Separately, the Panel found Claimant National Securities liable to Bell and ordered the firm to pay him $21,000.  Accordingly, the Panel provided for an off-set, net award in Claimant's favor of $9,030.

FINRA and/or the Panel assessed the following fees:

National Securities: $1,450 Initial Claim Filing Fee; $750 Member Surcharge; $5,075 Member Process Fee; $650 Adjournment Fees ; and $5,200 Hearing Session Fees

Bell: $1,725 Counterclaim Filing Fee; $650 Adjournment Fees; $3,250 Hearing Session Fees

Bell and Leon: (joint-and-several): $650 Hearing Session Fees


Based upon a finding of defamation, the  Panel recommended the expungement of the "Reason for Termination" on Bell's Form U5 and Central Registration Depository record ("CRD"), and that the disclosure be revised to "Voluntary" and the "Termination Comment" left blank. The Panel also recommended revised "NO" answers for Questions 7(B) and (F)(1) with the deletion of an attendant Disclosure Reporting Pages.

SIDE BAR: The applicable questions on the Uniform Termination Notice for Securities Industry Registration ("Form U5"):

Note: A "Yes" response will terminate ALL registrations with all SROs and all jurisdictions.

Reason For Termination:
[]Discharged []Other []Permitted to Resign []Deceased []Voluntary

Termination Explanation:
If the Reason for Termination entered above is Permitted to Resign, Discharged or Other, provide an explanation below:

If amending the Reason for Termination and/or termination explanation, provide an explanation below:

. . .

Internal Review Disclosure
7B. Currently is, or at termination was, the individual under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct?

. . .

Termination Disclosure
7F. Did the individual voluntarily resign from your firm, or was the individual discharged or permitted to resign from your firm, after allegations were made that accused the individual of:
1. violating investment-related statutes, regulations, rules or industry standards of conduct?
2. fraud or the wrongful taking of property?
3. failure to supervise in connection with investment-related statutes, regulations, rules or industry standards of conduct?

Bill Singer's Comment

Gee . . . how convenient . . . the Panel found that Claimant National Securities was entitled to $21,000 in attorneys' fees and, amazin', the Panel also found that Respondent Bell was entitled to $21,000 in damages against Claimant. I wonder why the arbitrators came up with that $21,000 offset in favor of Bell? Sort of seems like the arbitrators just opted to wipe out any award of attorneys' fees to National. If you would like to play along on the home version of FINRA Intra-Industry Arbitration, pick among the following causes of action raised by Bell and see which of the five (or combinations thereof) earned him a $21,000 award:
  1. fraud in the inducement; 
  2. fraud and misrepresentation; 
  3. breach of the standards of commercial honor and equitable principles of trade;
  4. breach of contract; and 
  5. slander and defamation.
So . . . let's see how this all worked out. Claimant National Securities alleged a balance due on Bell's promissory note of $7,500.00 and, of course, the former employer tacked on a host of alleged interest, costs, disbursements, expenses; and fees. When the dust settled, Claimant won a net award of $9,030. Except, not so fast, FINRA charged National Securities a $1,450 Initial Claim Filing Fee; $750 Member Surcharge; $5,075 Member Process Fee; $650 Adjournment Fees; and $5,200 Hearing Session Fees -- which yielded net fees payable by National of $13,125. If you deduct those net fees from the net off-set Award, you wind up with $9,030 minus $13,125 for a net debit of ($4,095). 

Ain't Wall Street grand? We got a FINRA member firm that actually thought it made sense to pursue some 15 months of litigation over a $7,500 promissory-note debt -- and, in the end, the firm pays $4,095 for its waste of time. Too bad the parties couldn't have found their way to a settlement. Worse, you can only imagine how many former employees of National Securities will be emboldened by this FINRA Arbitration Decision and will dig in their heels when it comes to forking over similar debit balances on their notes.  If you're going to send a message, you sure as hell better make sure that it doesn't get returned to sender.