If your brokerage firm decides that a customer "communication" was a complaint, the drafting of a regulatory disclosure often involves a lot of interpretation, inferences, assumptions, and filling-in-the-blanks. At times, what gets reported isn't a fair or accurate reflection of what the customer said. Which means that an expungement may not involve removing what a customer said but what a brokerage firm thought was said or, worse, what was meant. A recent case illustrates the worst aspects of this process.
Case In Point
In a FINRA Arbitration Statement of Claim filed in June 2020, associated person Claimant Bobolia sought the expungement of his Central Registration Depository records ("CRD"). In the Matter of the Arbitration Between Peter Gregg Bobolia, Claimant, v. J.P. Morgan Securities, LLC, Respondent (FINRA Arbitration Award 20-01951)
As set forth in the FINRA Award:
[C]laimant requested expungement of the Occurrence Number 2050845 amendments on his CRD Form U5, and those relevant portions of the Form U4, from his CRD record on the basis that the statement is defamatory in nature, misleading, inaccurate, and/or erroneous, to include: amendment of the Reason for Termination entry in Section 3 of Claimant's CRD Form U5 to read "Voluntary;" expungement of the Reason for Termination explanation on Claimant's CRD; amendment of the answer to question 7F(1) Claimant's CRD Form U5, from a "Yes" response to "No;" and deletion of any of the accompanying Termination Disclosure Reporting Pages in their entirety. Claimant also requested an award of damages in the amount of $1.00 from Respondent.
Respondent J.P. Morgan generally denied the allegations and asserted affirmative defenses. Note that the FINRA Award discloses that:
This case was administered under the Special Proceeding option for simplified cases.
The evidentiary hearing was conducted by videoconference.
In denying the requested expungement, the sole FINRA Arbitrator offered this rationale:
Bill Singer's Comment
The Arbitrator is not concluding that expungement is not warranted. There appears to have been little to no motivation for Claimant to have altered the document after signature and he was clear and consistent that he did not do so. There was nothing about his testimony on this point that was not credible, either on direct examination or on examination by the Arbitrator. Respondent appeared to oppose expungement. However, the witness Respondent called had no personal knowledge of the truth or falsity of the allegations against Claimant and had no role in Respondent's investigation. The witness' role was to determine the exact language to be used in reporting the termination. What calls into question being able to recommend expungement is that Claimant did not call the customer who signed the form, who would presumably have knowledge of the critical fact: were the handwritten changes on the change of address form made before or after the customer signed them
Claimant had communicated with the customer in the past by email and phone and offered no reason he would not be able to contact the customer. The Arbitrator offered Claimant the opportunity to call this witness even after Claimant and Respondent had rested. While the Arbitrator is far from convinced that Claimant engaged in the conduct alleged, the failure to call this key witness, without an explanation that makes sense, makes it impossible to recommend expungement. To reiterate, this conclusion is not based on a finding that Claimant engaged in the conduct alleged.
According to online FINRA BrokerCheck records as of April 5, 2021, J.P. Morgan "discharged" Bobolia on October 15, 2019, based upon allegations that:
In reading through the FINRA Arbitration Award, I kept stumbling over this statement by the sole FINRA arbitrator: "The Arbitrator is not concluding that expungement is not warranted. . . ." [Ed: underlining in the original]
REGISTERED REP WAS TERMINATED FOR ADDING CUSTOMER INFORMATION TO A NEW ACCOUNT FORM THAT HAD ALLEGEDLY BEEN PREVIOUSLY SIGNED BY THE CUSTOMER. REGISTERED REP DENIES THE ALLEGATION.
Oh my. The much maligned double-negative!
The sole FINRA Arbitrator could have concluded that expungement was warranted. He could have concluded that expungement was not warranted. Those would have been fairly straightforward declarations. But, no, this is not about being straightforward -- if you read the statement, and re-read -- and parse through it, you realize that the sole FINRA Arbitrator is not concluding something. Pointedly, the Arbitrator says that his non-conclusion pertains to a finding that "expungement is not warranted."
The Arbitrator did NOT conclude that expungement was warranted. Nor did he conclude that expungement was NOT warranted. In his own words, the Arbitrator did NOT conclude that expungement was NOT warranted.
Umm, what, again???
Although the Arbitrator declined to pull the trigger on the concluding thing, he did concede that there was "no motivation" for Claimant Bobolia to have altered the document as alleged. Further, the Arbitrator seems to have favorably considered Claimant Bobolia's demeanor and testimony as offering "nothing . . . that was not credible." Again with the double negative (nothing and not). Just considering that the expungement hearing was predicated upon a preponderance of the evidence standard, it seems like Bobolia really moved the needle in his favor.
What did Respondent J.P. Morgan do to nudge that evidentiary needled back towards the middle or to Bobolia's detriment? You should note that J.P. Morgan apparently did not take a passive role in the expungement proceeding; and, as the sole FINRA Arbitrator noted, the former employer "appeared to oppose expungement." As part of its opposition, J.P. Morgan generally denied the allegations and asserted affirmative defenses. How robust, how persuasive was the Respondent firm's opposition? The Arbitrator didn't seem impressed. For example, the FINRA Arbitration Award states that the only witness called by J.P. Morgan "had not personal knowledge of the truth or falsity of the allegations . . ." and exacerbating matters, despite having no personal knowledge of the substantive facts, the "witness' role was to determine the exact language to be used in reporting the termination." Talk about hearsay based on hearsay! Doesn't exactly seem that J.P. Morgan refuted Bobolia's assertions or made much of a favorable impression on the Arbitrator. How then did Bobolia not obtain a recommendation of expungement?
Apparently, the Arbitrator was troubled by Claimant Bobolia's failure to "call the customer who signed the form . . ." Try as I might, I don't see a similar complaint in the FINRA Arbitration Award about J.P. Morgan's failure to call that same witness. Further, I don't see any effort by the Arbitrator to attempt to call the customer sua sponte. Generally, a complaining customer is notified of the pendency of an expungement hearing and given an opportunity to oppose and/or attend; see, for example, FINRA "Notice to Arbitrators and Parties on Expanded Expungement Guidance," (FINRA Dispute Resolution Services) https://www.finra.org/arbitration-mediation/notice-arbitrators-and-parties-expanded-expungement-guidance
Importance of Allowing Customers and their Counsel to Participate in the Expungement Hearing
It is important to allow customers and their counsel to participate in the expungement hearing in settled cases if they wish to. Specifically, arbitrators should:
- Allow the customer and their counsel to appear at the expungement hearing;
- Allow the customer to testify (telephonically, in person, or other method) at the expungement hearing;
- Allow counsel for the customer or a pro se customer to introduce documents and evidence at the expungement hearing;
- Allow counsel for the customer or a pro se customer to cross-examine the broker and other witnesses called by the party seeking expungement; and
- Allow counsel for the customer or a pro se customer to present opening and closing arguments if the panel allows any party to present such arguments.
Although the FINRA Arbitration Award asserts that the "Arbitrator offered Claimant the opportunity to call this witness even after Claimant and Respondent had rested." An "opportunity" for the customer to testify does not inform us whether FINRA, the Claimant, and/or the Respondent had notified the customer at issue of the requested expungement and/or the scheduled hearing date -- according to the FINRA Guidance above, the customer would have been permitted to testify, to introduce documents/evidence, to cross examine, and to present opening/closing argument if desired. Given the importance of the missing-customer-witness, the Award oddly fails to indicate whether the sole FINRA Arbitrator informed Bobolia that in the absence of the customer's testimony that there would be an inadequate foundation upon which to recommend expungement.
Unfortunately for Claimant Bobolia and other similarly situated registered persons, FINRA created an absurd expungement process, which is almost solely dependent upon an idiotic form of legal fiction whereby an associated person must sue a former employer in order to obtain a recommendation of expungement from an arbitration panel. Making matters worse, a customer's alleged complaint may not actually be a complaint or, if so, may not have been intended to be lodged against the associated person at issue, or, if that was the intent, the customer's allegations may have been fostered by a misunderstanding or in furtherance of seeking to bolster a claim for restitution. I concede that the overwhelming majority of customer complaints are bona fide and should not be expunged, so, please, don't set me up as your convenient strawman.
In courts and hearing rooms all over our country, cases are decided on the facts. And triers of facts must decide based upon the facts presented to them -- not the ones that they wished they had. If the sole FINRA Arbitrator found that Bobolia had not proven his case by a preponderance of the facts, so be it. On the other hand, because of FINRA's idiotic expungement protocol, Bobolia is forced to sue his former employer in order to expunge language that the J.P. Morgan wrote -- the customer did not draft the language that besmirches Bobolia's CRD or BrokerCheck record. It is the employer-member-firm's understanding and draftsmanship that is at issue. If J.P. Morgan had proof to buttress the integrity of what it produced as the narrative of the customer's communications to the firm, then that should have been produced and carried the day -- which, may well have been the case but for the fact that the Arbitrator sort of leaves us hanging on that point. Clearly, the Arbitrator wasn't overwhelmed by the witness called by Respondent J.P. Morgan.
All of which brings me to the conclusion that this Arbitrator may not have fully understood the evidentiary standard upon which his Award should have rested, or, in the alternative, if he did so understand, then I don't think the language of the Award clearly presents that understanding and how it was applied to the case at hand.
If the FINRA Arbitrator found that it was only 51% likely that Claimant Bobolia had NOT engaged in the conduct alleged by J.P. Morgan on his industry record, then the preponderance of evidence standard should have prompted a recommendation of expungement. This is not a criminal proceeding whereby the finding must be based on the standard of "beyond a reasonable doubt." And even going by the more stringent criminal standard, the Arbitrator concedes that the denial of expungement is "not based on a finding that Claimant engaged in the conduct alleged." To better appreciate my concern, consider that this is what the Arbitrator wrote in part:
[W]hile the Arbitrator is far from convinced that Claimant engaged in the conduct alleged, the failure to call this key witness, without an explanation that makes sense, makes it impossible to recommend expungement. To reiterate, this conclusion is not based on a finding that Claimant engaged in the conduct alleged.
Far from convinced? Convinced? As in beyond a reasonable doubt?
Going solely by the words of the Award (which is all we got), the Arbitrator apparently believed that the misconduct alleged likely did not occur; however, the Arbitrator imposed an idiosyncratic requirement that Claimant and only Claimant produce the alleged complaining-customer-witness as a way to "convince" the trier of fact. In the absence of the testimony of the customer, the Arbitrator resorted to some evidentiary standard that he may understand, but for the life of me, I don't. That standard may be correct but simply not well defined. That standard may be wrong. Regardless, there's so much about this case that doesn't sit right with me that I hope Claimant Bobolia files an appeal.