Wells Fargo Banker and Broker Loses Humpty Dumpty FINRA Arbitration

June 24, 2019

In FINRA arbitration practice, you got a rule laying out the minimal content to be disclosed in an intra-industry or a public customer FINRA Arbitration Decision. Then you got a rule that provides for an optional "rationale." Thereafter, FINRA's Arbitration Code has a rule about a so-called Explained Decision. If all parties ask for an Explained Decision, then the Chair is supposed to write one (and there's even an extra $400 honorarium tossed in for the effort). So, how the hell do we get a FINRA Explained Decision when no party asked for one? Simple. You listen to Humpty Dumpty. 

Case In Point

In a FINRA Arbitration Statement of Claim filed in April 2018, associated person Claimant Shamima Aktar, asserted the following claims as characterized in the FINRA Arbitration Decision:

1) defamation (employment - libel or slander based on Claimant's Form U5 at item 7F(1) and the corresponding Termination DRP); 2) alleged false statements relating to accessing a customer's account on the Forms U4 and U5; and 3) unpaid wages, including commission-based wages earned and wrongfully withheld and wages lost because of alleged improper termination. The claims relate to the termination of Claimant's employment by Wells Fargo Bank, NA for allegedly accessing the bank account of a customer with whom she was acquainted ("Mr. A") without said customer's permission.

Claimant Aktar sought $275,000 in lost wages; $9,000 in unlawfully withheld wages; $250 "for loss of career;" $250,000 in punitive damages; costs, attorneys' fee; and the expungement of alleged defamatory remarks from her Forms U4 and U5. At the close of the hearing, Claimant sought $1 million in damages and fees. In the Matter of the Arbitration Between Shamima Aktar, Claimant, v. Wells Fargo Clearing Services, LLC, Respondent (FINRA Arbitration Decision 18-01436)

Respondent Wells Fargo generally denied the allegations and asserted various defenses. 

The FINRA Arbitration Decision asserts that on February 15, 2019, Claimant Aktar's counsel filed a notice of withdrawal, and, thereafter, she proceeded pro se. 

The FINRA Panel of Arbitrators denied Claimant Aktar's claims and her request for expungement. The Decision was rendered subject to the explanation that although the non-public arbitrator and the two public arbitrators (one of whom was the Chairperson) all concurred in the Award, the non-Chair-public-arbitrator did "not join in the Panel majority's explanation for its decision. . ." That being said, all three arbitrators agreed that "Claimant's evidence does not prove her claims of defamation and for unpaid wages when we consider the full record." The Majority's rationale is a comprehensive and thoughtful explanation; and, accordingly, I reprint it below:

This arbitration is between Claimant, a former banker and employee of nonparty Wells Fargo Bank, NA ("Wells Fargo Bank"), and Respondent, the Wells Fargo affiliate that held her securities licenses while she worked at the bank. Claimant was terminated for accessing the account of a customer for a non-business reason, and with the termination Respondent could no longer hold her license. Her accessing the customer's account was listed as the "investment related" reason for her termination on the Forms U4 and U5. Claimant has sued on two counts of defamation and for unpaid commissions. 

The parties did not ask for an explained award. Indeed, after Claimant's counsel withdrew, there appears to have been no communication between the parties, at least no productive communication. There certainly was no request for an explained or reasoned award at any time. The Panel nonetheless remains free under FINRA rules to provide the "rationale underlying the award." Given the nature of the claims here, the majority of the Panel chose to provide the core rationale for this Award. 

At the outset, the majority of the Panel mentions the burden of proof. All common law litigation occurs under a burden of proof. The burden houses a social policy of making a person who brings a claim against another present a certain amount of proof indicating that the charge is more likely than not true (the preponderance standard). Here, as Claimant, Claimant bears the burden of proof in proving that her two defamation claims and her claim for a commission are more likely than not true. Neither side having urged any other burden, we apply the preponderance burden. We note that even if Respondent had the burden of disproving Claimant's claims, which it does not, on this record Respondent still would prevail. There simply is not enough credible evidence in the record for the Panel to find that Respondent defamed Claimant or improperly denied her commission payments under its compensation plan or owes her other lost wages or damages. 

FINRA arbitrators are not required to follow state or federal rules of evidence. This does not alter the applicability of California's civil burden of proof. It is entirely appropriate in an arbitration in which Claimant's terms of commission are defined by contract and by an employment handbook, limits she does not dispute, and on defamation claims that allegedly arose from conduct in California, that the Panel apply California's burdens of proof as well as its substantive law. The Panel does apply these standards. 

Claimant presented her case pro se. As the arbitration was underway, but before the merits hearing, her counsel withdrew. Claimant had to present her position within FINRA's hearing procedures and legal concepts in which she is not trained, unlike, of course, Respondent's counsel. The Panel made every effort to make sure that she was not hampered by the rules and got to present her evidence, even using some liberality to admit evidence beyond what might appear strictly relevant to the claims actually pled. At the same time, the Panel could not, and did not, give any weight either way to the fact that she was representing herself. We are confident that the record reflects the positions and evidence at the heart of her claim. 

Claimant has accomplished the difficult task for a non-lawyer of presenting a legal case clearly, but we find that the evidence she has presented does not satisfy the burden of proof that she bore. We cannot of course recite all of the testimony. Moreover, the parties did not hire a court reporter, so we cannot cite a hearing transcript. Instead, we rely upon our notes and recollection of the hearing, with this description based on the Chairperson's contemporaneous notes taken during the hearing. 

On the facts, the material record shows that Claimant improperly accessed Mr. A's account for a nonbusiness purpose, the basis for termination displayed in the Forms U4 and U5 allegedly occurring on April 14, 2017. Claimant previously had met Mr. A on a matrimonial website. He had a background similar in many ways to her own, but she had become alarmed about some aspects of their conversations. Under her religious upbringing, she did not want to meet him in person unless she was sure that there was a basis for a relationship, so their entire contact before April 14, 2017 had been by telephone. On that day, Mr. A, concerned that someone - he thought it might be Claimant - accessed his account at Wells Fargo Bank, called Wells Fargo Bank's ethics hotline and raised that concern. 

Respondent investigated internally. Its investigation included interviewing Claimant, reviewing emails with her, conducting an electronic analysis of Mr. A's account that showed someone with Claimant's identifying numbers did access his account on that day, and review of a video of the branch office where Claimant worked on April 14, 2017, with Claimant plainly visible on at least one of the multiple videos taken from cameras at different locations within the office. Respondent's evidence stressed the portion of the video when Mr. A's account was accessed. 

Claimant did not deny that she might have accessed Mr. A's account. She testified that she cannot be sure that she did not. She did recall receiving a call from someone who called himself Mr. A, but whose voice sounded to her different from Mr. A's; that she did not remember accessing the account but that, if she did, it would have been to carry out instructions from the caller. She also speculated on circumstances that might explain the apparent accessing of Mr. A's account using her password: that her employee password for accessing accounts could have been stolen, that she might have accidentally typed the account information because she was on the phone with someone purporting to be Mr. A, that Mr. A might have been trying to entrap her as a way to get back at her for terminating their relationship, and, finally, that there might have been a different Mr. A who called her (but this would not explain the accessing of the right Mr. A's account through Claimant's employee number). 

Unexpectedly, the record shows serious defects in parts of Respondent's investigatory record. Respondent recorded the cause for Claimant's termination as unauthorized access of a customer account for nonbusiness reasons. Respondent's witnesses testified to their belief that Respondent could have discharged Claimant for not being honest in the investigation. Had Respondent listed dishonesty as a reason for termination, we would have to consider in detail the impact of a number of these mistakes in the investigation record. The most egregious example is that Respondent's internal written analysis of the sequence of events on the video of the branch office where Claimant worked at the time Mr. A's account was accessed confused Claimant with the branch manager. In essence, that part of its record told a very incriminating story but one about the wrong person because it confused Claimant and her manager. Its incriminating description therefore is almost entirely wrong. In another example, we heard testimony from Respondent's witnesses that Mr. A said in his complaint that Claimant was looking at his accounts but Mr. A's testimony and the initial complaint was that a team member "possibly" was doing so.

Respondent's investigation records also document as fact that Claimant "released account information from other customers" to Mr. A, based upon Mr. A's statements, a very serious charge, but Mr. A denied that he ever made this accusation. Respondent's documents also indicate that Mr. A said he received emails from Claimant (presumably emails containing account or other customer information) but he flatly denied this when he testified by telephone. The record was not clear whether Respondent ever followed through on these emails by directly asking Mr. A that he produce any such emails. 

Respondent's investigation portrayed Claimant as dishonestly denying that she had a call with Mr. A because Claimant offered inconsistent reasons why she might have had a call. If one reads Claimant's voluntary statements, one can understand why her explanations could seem inconsistent, but they could be read instead as filled with alternative hypotheses that are hard to separate at times from things she was describing as actual fact. Yet Claimant's testimony in the hearing was clear that she did not recall what happened on April 14, 2017 and could not deny that she might have talked to Mr. A on that day; and that she also offered her thinking on what might have occurred. These positions are not necessarily inconsistent. 

Respondent terminated Claimant for the fact of accessing Mr. A's account without a business purpose, not for alleged dishonesty in the investigation process. Respondent's employee relations investigator, Mr. S-A, testified to internal information that indicated Mr. A's account had been accessed by someone using Claimant's employee identifiers at 12:46 PT on April 14, 2017, a time when Claimant was using her computer on the video and was not on the phone. Nothing in the record shows a business reason for access to the account. Respondent can identify when an account is accessed and which employee information is used to do so and determined that Claimant's identification had been used to access Mr. A's account at this time. 

It always is theoretically possible that someone stole Claimant's identity numbers or that some of the other possibilities Claimant suggests as possibilities could have happened, but those possibilities are speculative; there is no evidence that one of these things did happen. Ms. F, the branch manager whom Claimant suggested could have improperly accessed the account, denied that she did so or that she reset Claimant's identification number when she testified by telephone during the hearing. Ms. F was not on Respondent's witness list, but we allowed it to call her as a rebuttal witness given the stress Claimant placed on the possibility that Ms. F might have accessed Mr. A's account improperly using Claimant's identifying information. In the face of Ms. F's denial, there is no countering evidence that she did so. 

We find the testimony of Mr. JS, Respondent's employee relations team leader who reviewed the investigatory process and explained what Respondent did to protect the internal investigation from distortions, and of Ms. S-A, credible and truthful. 

It is one sign of Ms. S-A's credibility that she had to explain a major mistake in her report on the video - the confusion of Claimant with her branch manager - and did not shirk from that task. She explained professionally that she realized as soon as she met Claimant at the hearing that she had made a mistake, but that the video evidence was not a necessary or sufficient basis for her determinations, that it did show that Claimant was not on the phone at the time the account was accessed but was on the computer, and why she, Ms. S-A, saw no reason to doubt the account access information. 

The bottom line is that the weight of credible evidence shows that Claimant did access Mr. A's account at the stated time on April 14, 2017, and there is no evidence of a business reason for her doing so before us. Furthermore, had Claimant doubted that Mr. A was who he said he was because his voice did not sound correct, she should not have accessed the account. Claimant was entitled to access his account if there was an authorized business reason to do so, for instance if his name had been on a "lead list" supplied by Respondent, but no such reason is suggested in this record. 

The allegedly defamatory statement that Claimant violated "investment-related statutes, regulations, rules or industry standards of conduct" that is the anchor for Claimant's defamation claim on Claimant's Form U5 at item 7F(1) and the corresponding Termination DRP that she improperly accessed a customer account, are substantially true. We need not reach whether Respondent's preparation of the forms is absolutely privileged to find that Respondent did not defame Claimant in the Forms U4 and U5. 

Claimant did argue at the hearing, as the Statement of Claim appears to do, that Respondent did not have to file a Form U4 or U5 listing violations of "investment-related" laws and rules because a violation of regulations and rules at Wells Fargo Bank concerning bank "‘account information'" is not "investment-related." Yet FINRA defines "investment related" to include banking and Respondent's treatment was compelled by the regulatory structure in which it worked. Mr. L, a senior counsel in the regulatory area for Respondent, explained how the regulations worked in testimony by telephone and his testimony tracked the language in these forms. Claimant questioned the logic of the way "investment-related" works, but did not give us a reason to think that the senior counsel was wrong. The fact that a violation of banking policy led to a securities consequence is a result of FINRA's regulatory structure, not an independent decision by Respondent, much less an erroneous decision by it. 

Finally, we find the evidence does not support Claimant's claim for added commission payments based upon the portion of the California Wage Payment Law § 204.1 cited in the Statement of Claim. The Wells Fargo 2017 Regional Banking Incentive Compensation Plan provided termination payment provisions. An Incentive Compensation operations manager who testified by telephone explained how these provisions worked, and her testimony tracked the written Plan. We are satisfied by the testimony and plan documents that Wells Fargo Bank was within its rights to not pay any incentive compensation to Claimant when she was terminated within, but before the end of, a Performance Payment period (a quarterly period) under the Plan. 

Accordingly, we find that Claimant has not proven her liability case and do not award damages to her. Further, given our holding, there is no basis for expungement. 

Claimant has also objected to Respondent's filing the actual video after the hearing closed. The Panel admitted the video during the hearing and was shown portions of the video as part of both parties' presentations. The Panel now overrules Claimant's objection and deems the video as part of the record as Exhibit 33. . . . 

Bill Singer's Comment

A fascinating aspect of the above "rationale" is that it looks more like a FINRA "Explained Decision," but for the fact that the parties never requested same.  If it walks like a duck and quacks like a duck, hey, let's call it a goose. That sort of raises an interesting issue. FINRA Rule 13904 states in part that:
. . .
(e) The award shall contain the following:
(1) The names of the parties;
(2) The name of the parties' representatives, if any;
(3) An acknowledgement by the arbitrators that they have each read the pleadings and other materials filed by the parties;
(4) A summary of the issues, including the type(s) of any security or product, in controversy;
(5) The damages and other relief requested;
(6) The damages and other relief awarded;
(7) A statement of any other issues resolved;
(8) The allocation of forum fees and any other fees allocable by the panel;
(9) The names of the arbitrators;
(10) The dates the claim was filed and the award rendered;
(11) The number and dates of hearing sessions;
(12) The location of the hearings; and
(13) The signatures of the arbitrators.
(f) The award may contain a rationale underlying the award.
(g) Explained Decisions
(1) This paragraph (g) applies only when all parties jointly request an explained decision.
(2) An explained decision is a fact-based award stating the general reason(s) for the arbitrators' decision. Inclusion of legal authorities and damage calculations is not required.
(3) Parties must make any request for an explained decision no later than the time for the prehearing exchange of documents and witness lists under Rule 13514(d).
(4) The chairperson of the panel will be responsible for writing the explained decision.
(5) The chairperson will receive an additional honorarium of $400 for writing the explained decision, as required by this paragraph (g).
(6) This paragraph (g) will not apply to simplified cases decided without a hearing under Rule 13800 or to default cases conducted under Rule 13801. . . .

By way of recap, Rule 13904(e) sets forth the minimal disclosures that must be made in any FINRA Arbitration Award. Beyond the prescribed "who, what, when, and where" of Rule 13904(e), we are further informed under (f) that a rationale "may" be included in an Award. Now, mind you, I've always found it a bit absurd that FINRA Arbitration Decisions are not required to include a "rationale," but, you know, I'm an odd guy and I tend to be a stickler for explanations as to why a Court or Panel did (or didn't) render a ruling or reach a holding or make a finding. 

As set forth in Rule 13904(g)(1), an "Explained Decision" comes into play "only when all parties jointly request" one -- which did not happen in Aktar v. Wells Fargo. Frankly, that seems fairly straightforward but for the fact that in Aktar v. Wells Fargo, the FINRA Arbitration Decision unequivocally states in pertinent part that: 

The parties did not ask for an explained award. Indeed, after Claimant's counsel withdrew, there appears to have been no communication between the parties, at least no productive communication. There certainly was no request for an explained or reasoned award at any time. The Panel nonetheless remains free under FINRA rules to provide the "rationale underlying the award." Given the nature of the claims here, the majority of the Panel chose to provide the core rationale for this Award.

Rule 13904(g) plainly states that an Explained Decision only comes into being upon the joint request of all parties; however, notwithstanding that condition precedent, the Majority waves a magic wand and, presto, what sure as hell looks like an "explained award" is magically transformed into something called the "core rationale" of the Award. Keep in mind that the parties didn't ask for an explained award. Never. Ever! 

As readers of the BrokerAndBroker.com Blog know, I believe that FINRA has Rule 13904 bassackwards. I believe that Rule 13904(g) should state that absent the joint request of all parties to not provide an "explained decision," that such should be the default in intra-industry disputes and also under the corollary public customer Rule 12904. 

I find myself in the ridiculous position of criticizing an intelligently drafted and compelling FINRA Arbitration Decision, which provides us with a superb rationale. Why am I lost in Alice in Wonderland? It's because the Majority published an Explained Decision although FINRA Rule 13904 doesn't grant that discretion to the arbitrators but clearly requires the predicate act of a  joint request from all parties. Absent such a request from all parties, the Aktar Majority pretends that an Explained Decision is a run-of-the-mill "rationale." Consequently, the Majority got it wrong for all the right reasons, and the Dissent makes a valid point about FINRA's nonsensical rule.

I don't know what you mean by "glory", Alice said.

Humpty Dumpty smiled contemptuously. Of course you don't - till I tell you. I meant "there's a nice knock-down argument for you!"

But "glory" doesn't mean "a nice knock-down argument", Alice objected.

When I use a word, Humpty Dumpty said, in rather a scornful tone, it means just what I choose it to mean - neither more nor less.

The question is, said Alice, whether you can make words mean so many different things.

The question is, said Humpty Dumpty, which is to be master - that's all.

"Through the Looking Glass" Chapter 6: Humpty Dumpty by Lewis Carroll

Wells Fargo Banker and Broker Loses Humpty Dumpty FINRA Arbitration (BrokeAndBroker.com Blog)

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