Old CUSIP. New CUSIP. And a Customer Sues TD Ameritrade

September 11, 2019

Messy fact patterns tend to make for headaches in FINRA arbitrations. In today's featured case, we clearly have a mess! We got shares in a TD Ameritrade account with old CUSIP numbers. We got shares trading in the market with new CUSIP numbers. We got an online customer trying to sell his old shares but mistakenly buying new ones without selling the old ones. The customer winds up with a modest loss, which mushrooms into a larger one. The customer sues TD Ameritrade. The customer represents himself. Take two aspirin and call me tomorrow.

Case In Point

In a FINRA Arbitration Statement of Claim filed in April 2019, pro se public customer Claimant Durning asserted breaches of promise, of contract, of fiduciary duty, and of good faith; misrepresentation; coercion; and failure to mitigate his losses. Claimant Durning sought $4,547.32 in losses, $175 filing fee, and $90.34 interest. Claimant's losses were purportedly caused by his attempted sale of his position in Banco Santander SA preferred stock and the subsequent purchase of newly issued Banco Santander stock following the bank's reorganization. In the Matter of the Arbitration Between Hamilton L. Durning, Claimant, v. TD Ameritrade, Inc., Respondent (FINRA Arbitration Decision 19-01004) https://www.finra.org/sites/default/files/aao_documents/19-01004.pdf

Respondent TDA generally denied the allegations and asserted various affirmative defenses. 

Deactivated Trading

Claimant Durning's tale of woe essentially starts on January 24, 2018, when he attempted to sell his Banco Santander position but couldn't. Try as he might, click as he would, Claimant was not getting anything accomplished. Let's pick up the frustration in the FINRA Arbitration Decision:

3. When Claimant attempted to sell shares of Banco Santander ("Banco") stock that were already in his accounts on TDA's website on January 24, 2018, he was unable to do so because trading in that stock had been deactivated. 

4. Instead of calling TDA, as he should have done, he continued trying to sell his Banco stock online, and as a result, he inadvertently purchased by mistake 3,000 shares of Banco's newly issued stock that Banco had issued following a recent Banco reorganization on December 27, 2017.


For whatever reason, the FINRA Arbitrator doesn't seem all that sympathetic to Claimant's plight. In a sense, the Arbitrator seems focused on the fact that the old shares had one CUSIP number and the new shares had another, new CUSIP number, and, hey, the customer should have noticed the difference. TDA had nothing to do with Banco Santander's reorg or the company's issuance of new shares with new CUSIP numbers.observes that:

[T]he difference in CUSIP numbers should have alerted him that he was dealing with two different securities. 

6. If Claimant had called TDA, instead of continuing to try to sell his existing stock online, he would have been told why he was having difficulty in selling the stock because the stock with the old CUSIP number in his accounts was not active, and therefore, he would not have ended up mistakenly buying 3,000 shares of the newly issued Banco stock with the new CUSIP number.

I suppose that's a fair analysis. Except. Except, you know, Durning is online. He's online using TDA's website. That site has purportedly "deactivated" his ability to enter SELL for the "old" Banco Santander shares. Sure -- "if" Claimant had telephoned TDA, perhaps the broker-dealer would have walked him through the solution; however, you ever try calling a so-called helpline? More to the point, just what the hell kind of code was programmed into TDA's website when it came to a customer's attempted sale of a security that had recently transitioned from an old to a new CUSIP? Was there an error message generated that directed Durning to a dedicated helpline? Was there an exception report sent to someone in Compliance or Trading, which should have prompted some affirmative reach-out to the customer?  As sympathetic as I may when it comes to Durning's likely online frustration, the Arbitrator is decidedly less moved:

[A]ccess to TDA's website was "provided Ďas is' and Ďas available,' and if Claimant had difficulty making a trade online, he had agreed that TDA would not be liable for any resulting losses and he was instructed to call TDA regarding his difficulty and to make the trade

Call #1.  Busted. Unbusted. Call #2.

As it turns out, Durning did, in fact, call TDA on January 24th. Not once. But twice. Admittedly, those calls came after Durning's online efforts had generated a new 3,000 share position of new CUSIP shares in addition to his long old CUSIP shares position:

7. Later on January 24, 2018, Claimant finally called his TDA account representative about the difficulties he had trying to sell his stock on TDA's website. In a recorded phone discussion, the TDA account representative told him that instead of selling the shares he already owned, he actually had bought 3,000 shares of the new Banco stock. Claimant asked the TDA account representative to "bust" his purchase, and she talked to TDA's trader, who at first indicated that Claimant's purchase could be cancelled, but subsequently he told her that because of the size of the trade and/or spread, it could not be cancelled. 

8. In a second recorded phone conversation later on January 24, 2018, TDA account representatives told Claimant that if he sold the newly purchased stock at that time, that would result in a loss of only some $700.00, and that TDA would give him free trades to make up for that loss. 

9. However, instead of selling the 3,000 shares of the new Banco stock immediately, during the second recorded phone discussion Claimant asked his TDA account representatives to place a good-till-cancelled limit order to sell the stock at $26.54 per share, which was several basis points higher than Claimant had bought it for a few hours earlier and higher than it was then trading.

In response to Durning's plight, on January 24th, TDA apparently first agreed to bust the new-shares purchase. Then TDA changed its mind. On that same day, TDA told Durning his proposed sale of the new shares would likely incur a $700 loss, which TDA proposed to cover with free trades. In my opinion, TDA's offer of $700 in commission rebates was a fair response to a problem largely created by its customer or, to some extent, created by Banco Santander's reorg. 

For whatever reasons he thought made sense, Durning merely put in a GTC order at a price above the prevailing market. That GTC price, if filled, would have gotten Durning out of the new shares at a profit. Of course, if the Bid didn't move to that GTC price, Durning remained at risk with a position that was already $700 under water. In terms of mitigating his damages, Durning should have sold at the Market, booked whatever loss he incurred on the errant new shares, and, if he desired, purchase new shares as part of a new, clean position. He chose not to cut his losses at $700. He placed a GTC with the hope of turning a profit on his mistake. I got no problem with the gambit. On the other hand, you gotta be a big boy and suck up any losses if you let it ride and the wager proves a bust. Which it did.

Pickin' Up the Chips and Going to Another Casino

Although a few new shares were sold at the GTC price, apparently the bulk of Durning's position remained long. The FINRA Arbitration Decision explains how things progressed at the point when Durning:

transferred the remaining shares to another brokerage firm on February 9, 2018 and the shares were ultimately redeemed on May 21, 2018 for $25.00 per share resulting in a net loss of $4,547.32 instead of the approximately $700.00 loss he would have sustained if he had sold the stock when the TDA account representatives offered him free trades to compensate him for his losses.


Not unsurprisingly, the sole FINRA Arbitrator denied Claimant's claims.


Keeping in mind that Claimant Durning represented himself pro se, we are forced to weigh his amateur-hour representation against this: 

12. Claimant alleged in his "Rebuttal document" that he is "at a distinct disadvantage with [TDA] having access to all the phone conversations, and t]hey left out some important conversations." However, under the Code of Arbitration Procedure for Customer Disputes, Claimant could have asked or compelled TDA to produce recordings or notes of those conversations but he did not, and he did not submit any recordings or notes to substantiate or support any of his claims. 

Ummmm . . . what? 

Pro se Claimant Durning alleged that TDA had wrongfully failed to produce dispositive telephone recordings? 

Did the Arbitrator suggest, urge, or recommend that Durning file a motion seeking production of the alleged recorded telephone conversations? Did the Arbitrator inquire of TDA as to the nature of its production of phone records and whether a diligent search was made to comply with any requests? Did any case manager at FINRA discuss Discovery with Durning? 

Some might argue, and I will not quibble with them, that there's only so much leniency that should be afforded to any pro se party. Some might argue that in Durning, it would have been improper for the Arbitrator to insert himself into the mechanics of Discovery by telling the Claimant what to ask for and how to ask for it. I'll leave it to my readers to reach whatever conclusion you deem correct.

Bill Singer's Comment

To the extent that my Durning commentary is viewed as critical of the sole FINRA Arbitrator, let me dispel that impression. I compliment the sole FINRA Arbitrator for penning an extensive statement of underlying facts and a thoughtful rationale. Likely, there are facts about the underlying events that were not spread out in the Decision. Similarly, we have no idea as to what exchanges did or did not take place either on or off the record. As such, the Arbitrator's rulings and conclusions may be fully supported by the record. Accordingly, let me allow him the last word:

The following "Conclusions of Law" about these claims are based on the submitted evidence described above and the "Findings of Fact" stated above: 

1. Claimant did not submit any evidence that any TDA account representative made any misrepresentations to him that proximately caused his losses. The recorded phone discussions submitted by TDA clearly show the TDA account representatives did not make any misrepresentations to him and instead fully explained to him why he had been unable to sell the Banco stock in his accounts. The documentary evidence that TDA submitted further refute Claimant's allegations of misrepresentation and put him on notice of what he should have done when he encountered difficulty using TDA's website to sell his stock online. In short, Claimant's losses were caused by his own acts and/or confusion resulting from Banco's reorganization. 

2. Claimant did not submit any evidence to corroborate his allegation that TDA made or breached any promise. As the recorded phone discussions between him and TDA clearly show, TDA's account representatives did not "promise" or agree to cancel his mistaken purchase of the Banco stock, and contrary to his allegations, TDA did not "offer" to buy back the Banco stock. Instead, TDA's account representative only told him that she would try, but she did not promise, to get his mistaken purchase canceled. Moreover, Claimant submitted no evidence to show that TDA had a contractual duty to cancel his mistaken purchase, and regardless, TDA's inability to get that purchase canceled did not proximately cause his losses-again, his losses were caused by his own acts and/or confusion resulting from Banco's reorganization. 

3. Claimant failed to submit any evidence to substantiate his allegation that TDA coerced him not to sell the Banco stock that he mistakenly bought. In fact, TDA's account representatives agreed with him about selling the stock and placed his order as he requested to sell it. Again, Claimant's losses were caused by his own acts and/or confusion resulting from Banco's reorganization. 

4. Claimant failed to plead the requisite elements of a cause of action for, and to prove, that TDA breached any fiduciary duty. Moreover, the relationship between a customer and a stock broker is not a fiduciary relationship unless the customer's account is a discretionary account-Claimant's account was a self-directed account, not a discretionary account. In any event, TDA did not breach any duties, fiduciary or otherwise, that proximately caused Claimant's losses-again, his losses were caused by his own acts and/or confusion resulting from Banco's reorganization. 

5. A claim for breach of good faith is not compensable as a separate claim but as part of a claim for breach of contract. As set forth above, Claimant has not sustained his burden of pleading and proving a cause of action for breach of contract against TDA, and, therefore, he has not proven his claim for breach of good faith against TDA. In any event, according to the evidence submitted, nothing that TDA or its account representatives constituted any breach of good faith by TDA. In fact, TDA's account representatives offer to give Claimant free trades demonstrated TDA's good faith. 

6. Although failure to mitigate damages normally is a defense to a claim for breach of contract, it is not the basis for a separate claim. Nevertheless, Claimant did not submit any evidence to show that TDA did anything that did not mitigate his losses. In fact, TDA offered to mitigate Claimant's losses by giving him free trades and he is the one who failed to mitigate his losses by not selling the Banco stock that he mistakenly bought when he could have done so with only a $700.00 loss. 

7. Therefore, because Claimant has failed to submit any, let alone sufficient, evidence to substantiate any of his claims that TDA is responsible for his losses, he is not entitled to an award of compensatory damages, interest or FINRA filing fees. 8. Claimant's analogy in his "Rebuttal document" about the transaction in question is flawed because TDA did not sell him the 3,000 shares of Banco stock that he mistakenly bought. He did that on his own and TDA did not tell him they would buy back that stock. It is unfortunate that Claimant sustained any losses. Based on the irrefutable evidence, Claimant has no one to blame but himself, or possibly Banco for the confusion from its reorganization, which TDA had nothing to do with, and if Claimant had accepted TDA's offer of free trades, he could have completely avoided any loss. . .

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