Stockbroker Expungement Grapples With Death and Taxes in Time of Plague

June 5, 2020

It is said that the only certainties in life are death and taxes. In today's featured FINRA expungement arbitration, we get to deal with both of life's certainties. We have a deceased customer. We have a dispute over taxes. All of which makes for less-than cheerful reading in these times of plague.

Case in Point

In a FINRA Arbitration Statement of Claim filed in October 2019, associated person Claimant Howard sought the expungement of a customer complaint from his Central Registration Depository records ("CRD"). Respondent FINRA member firm Edward Jones generally denied the allegation, asserted various affirmative defenses, participated in the expungement hearing, but did not oppose the requested relief. Andrew Lane Howard, Claimant, v. Edward Jones, Respondent (FINRA Arbitration Decision 19-03263)

In April 2020, Claimant submitted proof that the customer at issue was deceased. As set forth in the FINRA Arbitration Decision:

The Arbitrator noted that the Customer was deceased, and did not require that the Customer's estate be notified of the expungement request or hearing. Accordingly, no one for the Customer participated in the expungement.

The sole FINRA Arbitrator noted that the customer had settled her complaint with Edward Jones but that Claimant Howard was not a signatory to the settlement agreement and did not contribute to same. Further, the Arbitrator found that the settlement was for "half the claimed amount, which was less than the probable cost of litigation."

The Arbitrator made a FINRA Rule 2080 finding that the customer's claim, allegation, or information was false, and, accordingly, recommended the expungement of the complaint from Claimant's CRD. In making that recommendation, the Arbitrator offered a comprehensive and compelling rationale:

Summary of Facts 

The Customer, who had experience with stocks, bonds, mutual funds, certificates of deposit and annuities prior to becoming Claimant's client, requested that Claimant help her effectuate a change of ownership of a Hartford annuity, naming her niece as a co-owner. Claimant did not sell the annuity to the Customer and had no knowledge of it until the Customer made her request. 

Claimant, who did not hold himself out as qualified to give tax advice, asked for clarification as to whether the Customer wanted to add her niece as a beneficiary rather than as an owner. The Customer was adamant that she wanted to add the niece as an owner. 

Hartford provided the change of ownership forms, which Claimant helped the Customer to complete. The forms clearly stated that taxes would come due upon the change of ownership. The Customer received tax advice from her CPA and did not seek tax advice from Claimant. The change of ownership caused a $45,000.00 taxable event. The Customer then claimed what she really wanted was not a change in ownership but a 1035 tax-free exchange and requested reimbursement of the $45,000.00 paid in taxes. 


It is difficult to understand how the Customer could think adding her niece as an owner to the annuity could be accomplished through a 1035 tax-free exchange. An exchange is where one investment vehicle is exchanged for another. Here there was no additional investment to exchange. The annuity was the sole investment at issue; an exchange of an investment with itself is likely impossible and certainly not recognized by known practices. 

The change of ownership documents were the forms of Hartford, not Respondent, and clearly indicated that the change of ownership created a taxable event. The Customer had notice of the tax impact of the ownership change. She had the opportunity to name her niece as a beneficiary and declined to do so. The Customer had access to independent tax advice from her CPA; at no time did Claimant hold himself out as a tax advisor nor was he asked about tax impacts at any time. Ironically, taxes would come due at some point in any event, with or without the ownership change. 


It is apparent that the facts alleged in the customer dispute on Claimant's CRD records are untrue, false and clearly erroneous. Therefore, the Arbitrator recommends that the Underlying Complaint on Claimant's CRD records be expunged

Bill Singer's Comment

As much as I would like to lawyer-splain this FINRA arbitration, sole Arbitrator Daniel M. Yamshon has done a superb job and, as such, I will let his Decision speak for itself. Excellent job!

Online FINRA BrokerCheck records as of June 5 2020, disclose that Claimant Howard was first registered in 2004 with Edward Jones, where he remained until July 2017. The only blot on Howard's record is the customer complaint at issue in today's featured expungement arbitration, and that disclosure will soon be deleted should he obtain a follow-on court order. As noted on BrokerCheck, the customer had filed a complaint in April 2007 seeking $45,000 in alleged damages incurred via a purported tax liability. In July 2007, the matter was settled for $22,500 by Edward Jones without any financial contribution from Howard. An odd aspect of the BrokerCheck record is its recitation of the fact that rejected offers of settlement were made to the customer in the amounts of $5,000, $7,500, and $10,000. I'm not quite sure why anyone would disclose otherwise inadmissible settlement negotiations. Be that as it may, those disclosures will likely be expunged in due time along with the entire matter. 

Time and time again, I warn my stockbroker clients to never, ever give tax advice, and if requested to do so by a client, to ensure that there is a very clear written reply that memorializes that the stockbroker does not and is not permitted by the employer to offer tax advice and would respectful urge the client to retain an independent CPA or other tax professional for professional guidance. This case clearly underscores the wisdom of my advice. 

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