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FINRA Arbitrators Angered By Raymond James Tactics
September 25, 2019
A former Raymond James employee alleged, in part, that she had been wrongfully terminated and defamed. A FINRA Arbitration Panel awarded her six-figures in cumulative damages, costs, fees, and sanctions. As to the sanctions, the arbitrators considered slamming Raymond James with a $500,000 sanction for Discovery abuse. See how it all finally played out.
Case In Point
https://www.finra.org/sites/default/files/aao_documents/17-02974.pdf As characterized in the FINRA Arbitration Decision, Claimant Petersen alleged that Respondent Raymond James Financial had:
wrongfully terminated Claimant and defamed her by knowingly making false statements in the Form U5 filed by Respondent as part of her registration records maintained by the Central Registration Depository ("CRD").
At the close of the FINRA Arbitration hearing, Claimant sought $3,437,387 in compensatory damages, interest, $2,500,000 in punitive damages, attorneys' fees, and costs. Additionally, Claimant sought the expungement of the allegedly defamatory comments from her industry record.
Respondent Raymond James generally denied the allegations and asserted various affirmative defenses.
Motion for Sanctions
On July 1, 2019, Claimant Petersen filed a Motion for Sanctions, which the Panel heard oral argument on but deferred until the evidentiary hearing. Around July 28, 2019, Claimant filed a Request to Renew the Motion for Sanctions, which the Panel granted at the evidentiary hearing. At the hearing, the Claimant moved to dismiss her aiding and abetting claim, which the Panel granted without opposition from Respondent.
SIDE BAR: FINRA Code of Arbitration Procedure for Customer Disputes:FINRA Rule 12212: Sanctions(a) The panel may sanction a party for failure to comply with any provision in the Code, or any order of the panel or single arbitrator authorized to act on behalf of the panel.Unless prohibited by applicable law, sanctions may include, but are not limited to:
- Assessing monetary penalties payable to one or more parties;
- Precluding a party from presenting evidence;
- Making an adverse inference against a party;
- Assessing postponement and/or forum fees; and
- Assessing attorneys' fees, costs and expenses.
(b) The panel may initiate a disciplinary referral at the conclusion of an arbitration.(c) The panel may dismiss a claim, defense or arbitration with prejudice as a sanction for material and intentional failure to comply with an order of the panel if prior warnings or sanctions have proven ineffective.
Award
The FINRA Arbitration Panel found Respondent Raymond James Financial liable and ordered it to pay to Claimant:
Allegations" on Claimant's Form U5, the Panel proposed the following revision:
The FINRA Arbitration Panel found Respondent Raymond James Financial liable and ordered it to pay to Claimant:
- $360,000 in compensatory damages with interest;
- $500 in costs;
- $100,000 in sanctions for failure to comply with the Panel's Orders pursuant to FINRA Rule 12212(a); and
- $600 in reimbursed filing fees.
Allegations" on Claimant's Form U5, the Panel proposed the following revision:
Diana Marie Petersen was given a five day notice of termination of the Financial Advisor contract with her supervisor and Raymond James Financial Services, Inc. on October 27, 2015, effective November 1, 2015. No reason for termination was provided at that time and the termination was not for cause. Diana Marie Petersen had engaged in a number of minor violations of Raymond James Financial Services, Inc. policy and was in conflict with her supervisor. None of this behavior was determined by Raymond James Financial Services, Inc. to justify termination for cause. After serving the notice of termination, not for cause, it was discovered that Diana Marie Petersen had signed her husband's name out of convenience to a letter the husband had authorized in connection with the husband's duties as a Trustee. The letter did not involve an investment, but because the trust was a client of Raymond James Financial Services, Inc., signing her husband's name was an additional violation of Respondent policies. Subsequently, Raymond James Financial Services, Inc. terminated Diana Marie Petersen's registration with Raymond James Financial Services, Inc. under the for cause clause on November 10, 2015.The Reason for Termination shall remain the same.The Panel recommends the expungement based on the defamatory nature of the information. The language in Claimant's Form U5 filed suggests conduct that portrays Claimant in an extremely negative light making it quite difficult if not impossible for her to obtain new employment in the financial services industry. These words were chosen by Respondent's law department to protect the supervisor and Respondent and do not accurately reflect the reasons why Claimant was terminated. The Panel is not making a finding that all the elements of common law defamation have been established, but the words are generally defamatory, damaging to Claimant's reputation, and could mislead the public. The incidents do not involve customer dispute information.
Bill Singer's Comment
Ummm . . . like why the hell did the Panel award $300,000 in compensatory damages to Petersen? On the one hand, the arbitrators seem to concede that Petersen engaged in some misconduct, minor as it may be, and that Raymond James was within its rights to discharge her. On the other hand, the Panel's Award seems to rest on the premise that although Raymond James had the right to discharge Petersen, it also had a regulatory obligation to provide an honest narrative -- which the arbitrators did not find to be the case. Not that Raymond James necessarily defamed Petersen via its disclosures about her discharge; however, Raymond James didn't necessarily pen a disclosure that was meticulous in stating the facts and presenting them in a truthful context. Or so it seems to be where the Panel was going. I know where we arrived. I'm just not sure I understand how we got here.
By way of background, online FINRA BrokerCheck records as of September 25, 2019, disclose that Petersen was first registered in 1993, and was with Raymond James from November 2013 to December 2015.
Not For Cause
Notwithstanding that the FINRA Arbitration Panel found that "the termination was not for cause," the arbitrators still found that Claimant Petersen "had engaged in a number of minor violation of Raymond James Financial Services, Inc. policy and was in conflict with her supervisor." Against that background of a fairly petty amalgamation of policy infractions and inter-personal conflict, Raymond James discharged Claimant. Period. End of discussion. That's why Petersen was fired. Pointedly, it was only after she was discharged on October 27th but effective November 1, that the firm retroactively terminated her registration on November 10, 2015, and cited the "for cause" issue of Petersen having "signed her husband's name out of convenience to a letter the husband had authorized . . ."
Not An Accurate Reflection
From a strictly legal interpretation, Petersen's signing of her husband's signature likely does not rise to a forgery given the spouse's awareness and authorization of the signing. Regardless of the legal niceties, apparently Raymond James' compliance policies were violated when Petersen signed her husband's name in connection with his duty as a Trustee because said Trust was a client of Raymond James. But all that husband-signature-trustee-trust stuff was purportedly discover by Raymond James after it had terminated Petersen. The FINRA Panel of Arbitrators characterized Raymond James' regulatory disclosures as designed to "protect the supervisor and Respondent and do not accurately reflect the reasons why Claimant was terminated." In plainer terms, the firm pursued a classic course of CYA.
Even Raymond James was justified in terminating Petersen for whatever she had done by October 27th, that did not give the firm license to inaccurately depict the reasons for its termination. Pointedly, the firm should not say that it had fired an employee "for cause" if no such predicate existed. I appreciate that Raymond James may argue that Petersen's infraction and conflicts with her supervisors presented themselves as "for cause." Fine -- reasonable (and unreasonable) folks can agree or disagree over the same underlying facts. The same underlying facts, however, should be presented in the proper context. When all is said and done, I cite the FINRA Arbitration Decision finding that Raymond James' disclosures "do not accurately reflect the reasons why Claimant was terminated."
Litany of Excuses
Beyond the Panel's apparent distaste for Raymond James' disclosures relating to Petersen's termination, the Panel was displeased with the member firm's conduct during Discovery. Pointedly, the Panel granted Claimant's Motion for Sanctions, awarded $100,000 in sanctions, and provided this barbed rationale:
Prior to the hearing and renewed at the hearing, Claimant moved for sanctions against Respondent for violating multiple Panel Orders to produce documents. The Panel decided to award monetary sanctions to Claimant in the amount of $100,000.00.
According to the FINRA Office of Dispute Resolution Arbitrator's Guide, "Failure to comply with the discovery rules hinders the efficient and cost-effective resolution of disputes and undermines the integrity and fairness of FINRA's forum." The litany of excuses that Respondent did not know that Claimant was requesting, and the Panel was repeatedly ordering, production of all documents responsive to the discovery requests, that Respondent disagreed with the Panel's multiple orders to produce, that Respondent spent a lot of money in the discovery process, or that Claimant was also guilty of discovery abuse does not come close to justifying Respondent's repeated refusal to comply with the rules in the Code of Arbitration Procedure (the "Code") and the Panel's orders. Respondent did finally produce numerous additional documents a few days before the final hearing. However, these documents should have been produced months prior to the final hearing to allow Claimant an opportunity to plan and present its case and to allow this Panel to hear the case in an orderly manner.The Panel's Order dated May 22, 2019 (drafted by the previous Chairperson, on behalf of the unanimous Panel), reaffirmed previous orders and required production of the relevant discovery documents by June 15, 2019 at 5:00 P.M. The Order provided that "failure, for any reason, to comply with the deadline of June 15, 2019 may result in the panel's negative or adverse inference(s) and will trigger sanctions in the amount of ten thousand dollar [sic] ($10,000) per day". Respondent, again, chose not to comply. See the Panel's Order of July 21, 2019 (drafted by the current Chairperson, on behalf of the unanimous Panel). The Panel is tempted to impose the nearly half-million dollar sanction Respondent has earned because of its deliberate disregard of Panel Orders. In light of the scope of this case, however, we believe some mitigation of that sanction is appropriate and will still serve the purpose of upholding the integrity of the FINRA arbitration process and send the appropriate message to Respondent.
Bill Singer's Comment
Mandatory FINRA intra-industry arbitration is typically an asymmetrical battle pitting an all-power member firm against a former employee, who frequently arrives at the arbitration bloodied and battered by the former employer's Form U5 comments and attendant BrokerCheck disclosures. In many cases, the negative comments are deserved and reasonable. In many cases, the negative comments are part of a calculated approach to bang-up the departed employee and deplete her financial resources by drying up her income and damaging her reputation. Given the historic and ongoing imbalance inherent in the employer/employee relationship, it bothers me that this FINRA Arbitration Panel found comfort in this compromise:
[T]he Panel is tempted to impose the nearly half-million dollar sanction Respondent has earned because of its deliberate disregard of Panel Orders. In light of the scope of this case, however, we believe some mitigation of that sanction is appropriate and will still serve the purpose of upholding the integrity of the FINRA arbitration process and send the appropriate message to Respondent.
I do not believe that the Panel's "mitigation" of the contemplated $500,000 sanction was appropriate. Such misguided mercy will not "send the appropriate message to Respondent." If anything, the appropriate message would have been better sent and received if it came with a $500,000 price-tag. Given the success and prominence that Raymond James has achieved, the firm should not be excused when it engages in a "deliberate disregard" of a FINRA Arbitration Panel's repeated Discovery orders. With all due respect to the arbitrators on this case, you have not upheld the integrity of the FINRA arbitration process and you have not sent the appropriate message. Finally, if the Panel truly wanted to uphold the integrity of mandatory intra-industry arbitration, and truly wanted to send a meaningful message to the firm, I would suggest that the arbitrators should have availed themselves of the remedy prescribed in FINRA Rule 12212(b):
FINRA Rule 12212: Sanctions. . .(b) The panel may initiate a disciplinary referral at the conclusion of an arbitration.