August 5, 2021
FINRA's expungement process seems more toll-booth than a fair alternative to the courtroom from the perspective of many industry claimants. In contrast, consumer advocates and industry regulators often complain that FINRA's expungement process is a dangerous laundromat. Sometimes you just can't please anyone. A recent FINRA expungement offers an example of how things work best from an associated person's perspective.
Case In Point
In a FINRA Arbitration Statement of Claim filed in January 2021, associated person Claimant Gary Jon Rosen sought the expungement of an unsettled customer dispute from his Central Registration Depository records ("CRD"). Respondent Morgan Stanley did not oppose the requested relief. In the Matter of the Arbitration Between Gary Jon Rosen, Claimant, v. Morgan Stanley, Respondent (FINRA Arbitration Award 21-00057)
The American Express Card
Although notified of the expungement arbitration, the customer did not participate at the hearing. In recommending expungement, the sole FINRA Arbitrator made a FINRA Rule 2080 finding that the customer's claim, allegation, or information is factually impossible or clearly erroneous, and false. The Arbitrator offered this rationale for granting expungement:
The Arbitrator finds that Claimant's recommendation to the Customer to invest in the
Alliance Bernstein MBF was appropriate and consistent with the Customer's investment
objectives and risk tolerance. At all times, Claimant acted appropriately and in line with
the Customer's stated goals of income and liquidity.
Apparently, the sole reason the Customer transferred funds to Respondent was to obtain
a free, fee-waived American Express Platinum card offered by the firm. It was not the
Alliance Bernstein MBF investment which upset the Customer, but the fact that he did not
immediately receive the American Express card. In fact, he stated in the email dated
October 25, 2019 to Claimant: "The reason I invested my money with you guys and not a
different bank was to get the platinum card . . .".
Claimant never represented to the Customer that he could not lose money in the Alliance
Bernstein MBF. Absent the free credit card, which he failed to apply for as required, the
Customer withdrew his money from Respondent and liquidated his position after only five
(5) weeks, resulting in a $10,000 loss. Had he waited only one year, his investment would
have seen a profit of approximately $37,000. A subsequent claim for the loss was made
to Respondent, which was denied, as was a small claims court action, which was also
rejected. . . .
Bill Singer's Comment
In Rosen, we are presented with a classic case in which an associated person's industry record has been besmirched by disclosures that do not seem justified or warranted. As sole FINRA Arbitrator Barbara M. Zak found in support of her expungement recommendation:
- The disputed investment was "appropriate and consistent";
- Rosen acted "appropriately";
- The underlying dispute was actually predicated upon a credit-card-offering;
- The $10,000 investment loss was prompted by a somewhat premature liquidation at the customer's sole discretion (which could have been avoided and would have prompted a $37,000 profit at the end of a year);
- Morgan Stanley denied the customer's claim for the $10,000 loss; and
- A small claims court dismissed the customer's claim for the $10,000 loss.
I'm often asked about FINRA's expungement process. I'm not a fan. I don't think that expungements belong in FINRA's arbitration pipeline. I view them as regulatory matters, which should be adjudicated by a regulator and not an arbitrator. Moreover, I don't believe that those seeking expungements should be saddled with the exorbitant fees, costs, and expenses that are attached to filing a so-called alternative dispute resolution claim before an arbitration forum. In the event that a given expungement requests is denied by a regulator, I take no issue with reasonable fees, costs, and expenses being assessed against the losing party as is often the case in civil court.
Rosen's attorney, Robert L. Gonser, Esq. of Gonser Law PC https://www.gonserlawpc.com/attorney-profile/ did a superb job clearing his client's record. Also, compliments to Morgan Stanley for not opposing Rosen's requested expungement. Finally, compliments to FINRA for taking only eight months during the Covid pandemic to process Rosen's expungement, and a special nod to Arbitrator Barbara M. Zak for a short, concise, and persuasive rationale.