Not His Trade. Not His Fault. But Stockbroker Still Forced Into FINRA Expungement Arbitration

May 28, 2019

There is nothing more frustrating than being wrongly named in something but the bureaucracy doesn't care. Rules is rules and procedures is procedures. Ya gotta fill out the Form 1243-C52A/BII.A(iv) and come downtown to file an appeal. You wait on the line at the green light for an hour, but just as you get to the window, the clerk closes it for lunch. You wait on the line at the yellow light (which is blown out) and you tell your tale of mistaken identity to a listener who is rolling his eyes and not particularly interested. That elicits a "buddy, either pay the $100 fine or go over to the line at the red light and tell the supervisor." After waiting on a third line for another hour, the supervisor agrees with you, doesn't know why the clerk at the green light didn't resolve the error, not sure why you were on the yellow-light-line and tells you that the problem is fixed. Two weeks later you get a notice that you failed to appear as required and the $100 fine is now $1,000. In a recent FINRA expungement case, we don't have the same set of facts but we sure as hell have what looks like a case of mistaken identity and the old bureaucratic runaround from FINRA.

Case In Point

In a Financial Industry Regulatory Authority Arbitration Statement of Claim filed in April 2018, associated person Claimant Mark Allen Moore sought the expungement of a customer complaint from his Central Registration Depository record ("CRD"). Respondent UBS Financial Services Inc. consented to the requested relief and did not participate in the expungement hearing. One of the customers involved with the underlying complaint participated in the hearing and contested the requested relief. In the Matter of the Arbitration Between Mark Allen Moore, Claimant, v. UBS Financial Services Inc., Respondent (FINRA Arbitration Decision 18-01433).

Unforeseen Market Conditions

The sole FINRA Arbitrator noted that the participating customer (referred to in the FINRA Arbitration Decision as "S.M." purportedly "understood that the securities at issue were from Lehmann [sic] Brothers, which ceased to do business during the relevant time period . . ." In recommending expungement, the Arbitrator made a Rule 2080 finding that the claim, allegation, or information is factually impossible or clearly erroneous, and false; and that Claimant Moore  was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds." In explaining his recommended expungement, the Arbitrator offers this rationale:

The great preponderance of the evidence presented shows that S.M. provided no evidence besides his oral testimony that the events alleged in the claim were the fault of Claimant and not the fault of S.M. or market forces or informed decisions. The Arbitrator finds S.M.'s version of the events not credible because S.M.'s allegations and version of events was not supported by the evidence and is, therefore, factually impossible. For these reasons, expungement of Claimant's record is appropriate. The testimony from Claimant was more credible on these issues. He testified that S.M. was knowledgeable and understood the risks involved in the security, as well as that it could not have been predicted that the security would fail because of market conditions. 

Furthermore, evidence from Claimant was presented at the expungement hearing that led the Arbitrator to believe that Claimant was not involved in the alleged sales practice violation that was the subject of the filing of the complaint by S.M. The credible evidence showed that the transaction was done by S.M. and another Associated Person. Claimant was not involved with the transaction. 

The two issues raised by S.M. concerned the security at issue. First, the credible evidence showed that the security in question was suitable for S.M.'s portfolio. None of the testimony from S.M. refuted this position. S.M. was involved in the transaction and made the decision to purchase the security. While S.M. might have been unhappy, there was no wrongdoing on the part Claimant. S.M. agrees that he read and signed the documents related to the transaction. Further, the credible evidence from Claimant was that the security was suitable for S.M. and that the change in value was completely due to unforeseen market conditions from the 2008 market crash. . . .

Bill Singer's Comment

Online FINRA BrokerCheck records as of May 28, 2019, disclose that Moore was first registered in 1988, and since 1989, he was registered with UBS and its predecessors-in-interest. BrokerCheck shows that in 2017, UBS had settled a $350,000 customer complaint involving customers of Moore for $50,000, to which Moore did not contribute and his "Broker Statement" denies the allegations.  The only other matter on Moore's BrokerCheck record is a 2008 customer complaint seeking in excess of $5,000 in damages for "2008 Lehman Brothers S&P 500 Securities" that UBS denied in 2009, and this denied complaint appears to involve the matter underlying Moore's expungement arbitration.

Compliments to the sole FINRA Arbitrator for presenting us with a thoughtful rationale for recommending the expungement of S.M.'s complaint against Claimant Moore. Among the most important findings by the Arbitrator and one that I want to highlight and underscore is that:

The credible evidence showed that the transaction was done by S.M. and another Associated Person. Claimant was not involved with the transaction. 

An independent FINRA arbitrator found that Claimant Moore was "not involved" with the transaction that served as the basis for public customer S.M.'s complaint. Moreover, that same arbitrator found that the transaction at issue was handled by "another Associated Person." As such, Claimant Moore's record was besmirched by a complaint involving a transaction handled by another individual and with which he had no involvement! Delving further, we learn that S.M.'s losses were not the result of an unsuitable recommendation (by Claimant or anyone else) but were the unfortunate result of "unforeseen market conditions from the 2008 market crash." Given such circumstances, why should Moore have had to incur the expense of engaging in what comes off as a legal sham of suing his employer UBS in order to get the erroneous complaint removed from his record? 

In truth, Claimant Moore's fact pattern is rare -- more often we have a situation in which a public customer presents legitimate grievances and an extended expungement protocol replete with hearings is appropriate. In cases where an associated persons can establish as a predicate matter that:
  1. they were not the servicing rep; and
  2. losses were the byproduct of market conditions rather than impropriety, 
it would seem that a preliminary determination should short-circuit FINRA's cumbersome expungement process and afford a fast-track resolution on a more affordable and expeditious basis. 

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